BMW AG Annual Report 2019

Plain-text annual report

A N N U A L R E P O R T 2 0 1 9 Power of Choice CONTENTS 1 TO OUR SHAREHOLDERS Page 4 BMW Group in Figures Page 8 Report of the Supervisory Board Page 18 Statement of the Chairman of the Board of Management Page 22 BMW AG Stock and Capital Markets in 2019 Page 24 Financial Calendar Page 24 Contacts 2 COMBINED MANAGEMENT REPORT Page 26 General Information and Group Profile Page 26 Organisation and Business Model Page 44 Management System Page 48 Report on Economic Position Page 48 General and Sector-specific Environment Page 52 Overall Assessment by Management Comparison of Forecasts for 2019 with Actual Results in 2019 Page 53 Page 64 Review of Operations Page 76 Comments on Financial Statements of BMW AG Page 82 Report on Outlook, Risks and Opportunities Page 82 Outlook Page 88 Risks and Opportunities Page 101 Internal Control System Relevant for Accounting and Financial Reporting Processes Page 102 Disclosures Relevant for Takeovers and Explanatory Comments 3 GROUP FINANCIAL STATEMENTS Page 108 Income Statement Page 108 Statement of Comprehensive Income Page 110 Balance Sheet Page 112 Cash Flow Statement Page 114 Statement of Changes in Equity Page 116 Notes to the Group Financial Statements Page 116 Accounting Principles and Policies Page 133 Notes to the Income Statement Page 141 Notes to the Statement of Comprehensive Income Page 142 Notes to the Balance Sheet Page 164 Other Disclosures Page 184 Segment Information Page 190 List of Investments at 31 December 2019 4 CORPORATE GOVERNANCE Page 200 Corporate Governance (Part of the Combined Management Report) Information on the Company’s Governing Constitution Page 200 Page 201 Board of Management Page 201 Supervisory Board Page 202 Shareholders and Annual General Meeting Page 202 Declaration of Compliance Page 202 Corporate Governance Statement Page 203 Members of the Board of Management Page 204 Members of the Supervisory Board Page 207 Overview of Supervisory Board committees and their composition Page 208 Compliance and Human Rights in the BMW Group Page 211 Compensation Report (Part of the Combined Management Report) Page 242 Glossary – Explanation of Key Figures Page 246 Responsibility Statement by the Company’s Legal Representatives Page 247 Independent Auditor’s Report 5 OTHER INFORMATION Page 256 BMW Group Ten-year Comparison T A D A M I S A C H I K O J A P A N Our customers across the globe have different mobility demands. Ultimately, they decide for themselves what they want and desire. That’s the Power of Choice. R O B V A N R O O N N E T H E R L A N D S F A I T H M K H O M B E S O U T H A F R I C A Discover the Power of Choice from Rob, Faith and Sachiko as well as our financial year 2019 in our digital Annual Report. annualreport.bmwgroup.com / 2019 The figures for fuel consumption, CO2 emissions and power consumption are calculated based on the measurement methods stipulated in the current version of Regulation (EU) 715 / 2007. This information is based on a vehicle with basic equipment in Germany; ranges take into account differences in wheel and tire size selected as well as optional equipment and can change based on configuration. Fuel consumption and CO2 emissions information are available on page 70. The figures have been calculated based on the new WLTP test cycle and adapted to NEDC for comparison purposes. In these vehicles, different figures than those published here may apply for the assessment of taxes and other vehicle-related duties which are (also) based on CO2 emissions. For further details of the official fuel consumption figures and official specific CO2 emissions of new cars, please refer to the “Manual on fuel consumption, CO2 emissions and power consumption of new cars”, available at www.dat.de /co2 /. TO OUR SHAREHOLDERS Page 4 BMW Group in Figures Page 8 Report of the Supervisory Board Page 18 Statement of the Chairman of the Board of Management Page 22 BMW AG Stock and Capital Markets in 2019 Page 24 Financial Calendar Page 24 Contacts 1 To Our Shareholders BMW Group in Figures Report of the Supervisory Board Statement of the Chairman of the Board of Management BMW AG Stock and Capital Markets 4 BMW Group in Figures BMW GROUP IN FIGURES Key non-financial performance indicators • 01 Group Workforce at year-end 1 Automotive seGment Deliveries 2, 3 Fleet emissions in g CO2 / km 4, 5 motorcycles seGment Deliveries 2015 2016 2017 2018 2019 Change in % 122,244 124,729 129,932 134,682 133,778 – 0.7 2,257,851 2,352,440 2,468,658 2,483,292 2,538,367 127 124 128 128 127 2.2 – 0.8 136,963 145,032 164,153 165,566 175,162 5.8 Further non-financial performance figures • 02 Automotive seGment Deliveries BMW 2, 3 MINI 3 Rolls-Royce 3 Total 2, 3 Production volume BMW 6 MINI Rolls-Royce Total 6 motorcycles seGment Production volume BMW FinAnciAl services seGment 2015 2016 2017 2018 2019 Change in % 1,913,213 1,989,817 2,093,026 2,114,963 2,185,793 340,880 3,758 358,586 4,037 372,194 3,438 364,135 4,194 347,474 5,100 2,257,851 2,352,440 2,468,658 2,483,292 2,538,367 1,933,647 2,002,997 2,123,947 2,168,496 2,205,841 342,008 3,848 352,580 4,179 378,486 3,308 368,685 4,353 352,729 5,455 2,279,503 2,359,756 2,505,741 2,541,534 2,564,025 3.3 – 4.6 21.6 2.2 1.7 – 4.3 25.3 0.9 151,004 145,555 185,682 162,687 187,116 15.0 New contracts with retail customers 1,655,961 1,811,157 1,828,604 1,908,640 2,003,782 5.0 1 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time working arrangements and low income earners. 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2015: 281,357 units, 2016: 311,473 units, 2017: 385,705 units, 2018: 455,581 units, 2019: 538,612 units). 3 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment enables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. 4 EU-28. 5 From 2018, adjusted value based on planned conversion to WLTP (Worldwide Harmonised Light Vehicles Test Procedure). 6 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2015: 287,755 units, 2016: 305,726 units, 2017: 396,749 units, 2018: 491,872 units, 2019: 536,509 units). To Our Shareholders5 Key financial performance indicators • 03 Group Profit before tax 1 in € million Automotive seGment EBIT margin in % (change in %pts) RoCE in % (change in %pts) motorcycles seGment EBIT margin in % (change in %pts) RoCE in % (change in %pts) FinAnciAl services seGment RoE in % (change in %pts) Further financial performance figures • 04 2015 2016 2017 2018 2019 Change in % 9,224 9,665 10,675 9,627 7,118 – 26.1 9.2 72.2 9.1 31.6 8.9 74.3 9.0 33.0 9.2 77.7 9.1 34.0 7.2 49.8 8.1 28.4 4.9 29.0 8.2 29.4 20.2 21.2 18.1 14.8 15.0 – 2.3 – 20.8 0.1 1.0 0.2 in € million 2015 2016 2017 2018 2019 Change in % Total capital expenditure 2 Depreciation and amortisation Free cash flow Automotive segment Group revenues 1 Automotive Motorcycles Financial Services 1 Other Entities Eliminations 1 Group profit before financial result (EBIT) 1 Automotive Motorcycles Financial Services 1 Other Entities Eliminations 1 Group profit before tax (EBT) 1 Automotive Motorcycles Financial Services 1 Other Entities Eliminations 1 Group income taxes 1 Profit / loss from continuing operations 1 Profit / loss from discontinued operations Group net profit 1 Earnings per share 1 in € 5,890 4,659 5,404 92,175 85,536 1,990 23,739 7 5,823 4,806 5,792 94,163 86,424 2,069 25,681 6 7,112 4,822 4,459 98,282 85,742 2,272 27,567 7 8,013 5,113 2,713 96,855 85,846 2,173 27,705 6 7,784 6,017 2,567 104,210 91,682 2,368 29,598 5 – 19,097 – 20,017 – 17,306 – 18,875 – 19,443 9,593 7,836 182 1,981 169 – 575 9,224 7,523 179 1,975 211 – 664 – 2,828 6,396 – 6,396 9,386 7,695 187 2,184 – 17 – 663 9,665 7,916 185 2,166 170 – 772 – 2,755 6,910 – 6,910 9,899 7,888 207 2,194 14 – 404 10,675 8,717 205 2,207 80 – 534 – 2,000 8,675 – 8,675 8,933 6,182 175 2,172 – 27 431 9,627 6,977 169 2,143 – 45 383 – 2,530 7,097 – 33 7,064 7,411 4,499 194 2,312 29 377 7,118 4,467 187 2,272 – 96 288 – 2,140 4,978 44 5,022 – 2.9 17.7 – 5.4 7.6 6.8 9.0 6.8 – 16.7 – 3.0 – 17.0 – 27.2 10.9 6.4 – – 12.5 – 26.1 – 36.0 10.7 6.0 – – 24.8 15.4 – 29.9 – – 28.9 9.70 / 9.72 10.45 / 10.47 13.07 / 13.09 10.60 / 10.62 7.47 / 7.49 – 29.5 / – 29.5 Pre-tax return on sales 1, 3 in % (change in %pts) 10.0 10.3 10.9 9.9 6.8 – 3.1 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 Expenditure for capitalised development costs, other intangible assets and property, plant and equipment. 3 Group profit before tax as a percentage of Group revenues. 6 BMW Group in Figures BMW Group deliveries of automobiles 1, 2 • 05 BMW Group revenues • 07 in 1,000 units in € billion 2,600 2,257.9 2,352.4 2,468.7 2,483.3 2,538.4 1,300 0 110 55 0 92.2 94.2 98.3 96.9 104.2 2015 2016 2017 2018 2019 2015 2016 2017 2018 3 2019 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2015: 281,357 units, 2016: 311,473 units, 2017: 385,705 units, 2018: 455,581 units, 2019: 538,612 units). 2 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment en- ables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. BMW Group profit before financial result (EBIT) • 06 BMW Group profit before tax • 08 in € million in € million 11,000 9,593 9,386 9,899 8,933 7,411 11,000 9,224 9,665 10,675 9,627 7,118 5,500 0 5,500 0 2015 2016 2017 2018 3 2019 2015 2016 2017 2018 2 2019 3 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. To Our Shareholders REPORT OF THE SUPERVISORY BOARD STATEMENT OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT BMW AG STOCK AND CAPITAL MARKETS IN 2019 FINANCIAL CALENDAR CONTACTS 1 To Our Shareholders BMW Group in Figures Report of the Supervisory Board Statement of the Chairman of the Board of Management BMW AG Stock and Capital Markets 8 Report of the Supervisory Board Norbert Reithofer Chairman of the Supervisory Board To Our ShareholdersDear Shareholders, 9 The BMW Group faced numerous challenges in 2019. Despite retaining its leading position in the premium segment in terms of delivery volumes, it did not generate the level of earnings we aspire to. In our capacity as Supervisory Board, we stand firmly behind the Board of Man- agement’s objective of increasing profitability again in the coming years and continuing in the long and highly successful tradition of the BMW Group despite the difficult global economic conditions. Customer focus is always our highest priority. At the same time, the BMW Group is committed to assuming a pioneering role in the field of sustainability. The importance we attach to this topic is most evident in the rapid expansion of our range of electrified vehicles driven by the BMW Group’s new model offensive this year. With its product portfolio firmly on the right track, the BMW Group is well positioned to meet the challenges posed by technological change. Focus of the Supervisory Board’s activities during the past financial year The Supervisory Board performed the duties incumbent upon it with the utmost diligence. In 2019, we made major decisions regarding the leadership of the BMW Group, with Mr Oliver Zipse designated as new Chairman of the Board of Management and two new members appointed to the Board. The Supervisory Board continuously monitored the running of the business in a thorough manner and advised the Board of Management on matters relating to the management and further development of the BMW Group. In five meetings of the full Supervisory Board (including one two-day meeting), we deliberated in detail with the Board of Management on the performance of the BMW Group. The Board of Management also kept the Supervisory Board well informed on matters of particular significance between meetings. Furthermore, the Chairman of the Supervisory Board was in frequent direct contact with the Chairman of the Board of Management, as was the Chairman of the Audit Committee with the Chief Financial Officer regarding current topics. The work of the Supervisory Board focused in particular on the strategic development of the BMW Group against the backdrop of digitalisation and electrification, including the core topic of automated driving. Key cooperations, such as the joint venture with Daimler in the field of mobility services, were subject to intensive scrutiny. The Audit Committee and the full Supervisory Board also deliberated at great length on the challenges posed by trade conflicts as well as the various Brexit scenarios. I personally held a number of individual discussions with investor representatives on Super- visory Board- related matters, especially in light of the planned changes to the German Cor- porate Governance Code. The main topics discussed were the compensation of the Board of Management, the independence of Supervisory Board members and the planned change in the compensation system for the Supervisory Board. 10 Report of the Supervisory Board In its regular reports on the BMW Group’s current situation, the Board of Management report- ed to the Supervisory Board on new models and model revisions in the Automotive and Motorcycles segments, delivery volumes (in particular of electrified models) and the competitive situation, as well as the development of new and total business volume in the Financial Services segment. Any variances from budget were also brought to the Supervisory Board’s attention. The Board of Management’s status reports also covered changes in the workforce size as well as economic developments in key markets. The Board of Management also informed us about important current topics such as the opening of the BMW plant in Mexico, the Battery Cell Competence Centre in Munich and the new #NEXTGen technology and future fair held at the BMW Welt site in Munich. The Board of Management also reported on the state of negotiations with FC Bayern and the BMW Group’s participation at the IAA in Frankfurt. Moreover, the Board of Management kept the Supervisory Board well informed on matters of product quality, the joint venture with Great Wall Motor and the cooperation with Northvolt in the field of battery cell production. The Supervisory Board also deliberated at length on important issues arising in the Board of Management’s various areas of responsibility. For instance, the Board of Management presented the core elements of the Group’s Finance function, including a description of its financing strategy. We also considered the strategy and risk profile of the Financial Services segment. In addition to strategy realignment within the sales organisation, a further topic of focus was the contribution of the Purchasing and Supplier Network to the profitability and future viability of the BMW Group. The Board of Management reported in detail on the current status of and overall strategy regarding the BMW brand. We paid particular attention to the implementation of Strategy NUMBER ONE > NEXT. The Board of Management elaborated on the current status, highlighting changes in the market environment attributable to trade conflicts, regulatory issues – especially fleet CO2 emis- sions – as well as corporate social responsibility considerations. Together with the Board of Management, we discussed in detail the decisions reached and measures taken to implement the strategy over the past 12 months. The Board of Management reported in detail on its strategies adopted for brands and design, for products as well as for customer experience and services, focusing in particular on the expansion of the Group’s electrified product portfolio and the luxury segment. The strategic fields of technology and digitalisation were also the subject of intensive debate, specifically focusing on the core topics of electric mobility and automated driving. In the third quarter, the Supervisory Board conferred extensively on the BMW Group’s fore- casts for the period from 2020 to 2025. In this context, the Board of Management outlined the currently volatile nature of external business conditions, highlighting in particular risks arising from trade policies and weaker economic forecasts for certain markets. The potential impact of a range of risk scenarios on forecasts was also discussed at length. After a thorough examination, the Supervisory Board approved the BMW Group’s long-term corporate forecast. Based on this long-term assessment, the Board of Management presented the annual budget for the financial year 2020, which the Supervisory Board likewise deliberated upon at length. The Board of Management also reported on the current status of diversity concepts for the Group. To Our Shareholders11 With regard to Board of Management compensation, the Supervisory Board spent a significant amount of time addressing issues related to the Act on the Implementation of the Second Share- holder Rights Directive (ARUG II) and the new version of the German Corporate Governance Code as well as assessing any resulting need for change at the BMW Group. We intend to revise the compensation system for the Board of Management during the financial year 2020 and will put forward the revised system for shareholder approval at the Annual General Meeting to be held in the financial year 2021. For the financial year 2019, the Supervisory Board examined the structure and level of compen- sation paid to the members of the Board of Management. In this context, we took into account trends in Group business performance, executive manager compensation and the remuneration of BMW Group employees in Germany. Based on comparative studies conducted by an external compensation consultant, we concluded that the compensation of the members of the Board of Management is commensurate. Detailed information on the compensation of the Board of Management is contained in the Compensation Report. We also addressed the compensation of the Supervisory Board, which has remained unchanged since 2013, and spoke in favour of changing to a purely fixed compensation model. A corresponding proposal will be submitted for shareholder approval at the Annual General Meeting 2020. We also deliberated intensively on corporate governance within the BMW Group and the application of the recommendations contained in the German Corporate Governance Code. In December, the Board of Management and the Supervisory Board issued their Declaration of Compliance with the German Corporate Governance Code. We intend to fully comply with all recommendations made in the Code in the version dated 7 February 2017, which was valid at the date of the Declaration. The wording of the Declaration of Compliance is available in the Statement on Corporate Governance on our website. We also reviewed current targets for the composition of the Supervisory Board and the com- petency profile set out for its members. We concluded that the composition of the Supervisory Board at 31 December 2019 was in line with the targets stipulated in the diversity concept, the competency profile and other composition targets. In view of the major strategic importance of automated driving, we have decided to expand our competency profile to include the fields of digitalisation and artificial intelligence. The composition targets for the financial year 2020 were further developed in line with the recommendations contained in the draft version of the new German Corporate Governance Code. An overview of the members of the Supervisory Board, describing their specific fields of expertise, is available in the Statement on Corporate Governance on our website. No conflicts of interest pertaining to members of the Supervisory Board arose during the year under report. Significant transactions with Supervisory Board members and other related parties as defined by IAS 24, including their close relatives and intermediary entities, were examined on a quarterly basis. We reviewed the efficiency of our work on the Supervisory Board and prepared for the related deliberations within the full Supervisory Board based on a questionnaire and detailed individual discussions between the Chairman and all members. Overall, the work of the Supervisory Board was deemed efficient and given a positive assessment. Valuable feedback and suggestions relating to the work of the Supervisory Board were welcomed and will be taken up in the new financial year. 12 Report of the Supervisory Board Description of Presiding Board and committee work The Supervisory Board has established a Presiding Board and four committees, whose work during the financial year 2019 was reported on by their respective chairpersons at the subsequent meetings of the full Supervisory Board. You can read more about the tasks, the composition and the working methods of the Presiding Board and the various committees of the Supervisory Board in the Statement on Corporate Governance on our website. The Presiding Board convened four times during the year under report. Its focus was on preparing the detailed agenda of full Supervisory Board meetings, unless a committee was responsible for doing so. Working closely with the Board of Management and senior heads of department, we made suggestions for topics to be reported on at Supervisory Board meetings. Furthermore, the Presiding Board devoted time to following the latest developments regarding corporate governance. The Audit Committee held five meetings and two telephone conference calls during the financial year 2019. The meeting held in February 2019 focused primarily on preparing for the Supervisory Board meeting at which the financial statements and on the planned change of the Group auditor were examined. The committee recommended to the full Supervisory Board that Pricewa- terhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) be elected as Company and Group auditor at the Annual General Meeting 2019. Prior to this, PwC issued a Declaration of Independence, and the planned scope of non-audit services to be provided by PwC was discussed. In connection with the audits of the financial statements for the financial year 2018, which were performed for the last time by KPMG Wirtschaftsprüfungsgesellschaft mbH, the Audit Committee considered the scope of non-audit services provided by KPMG entities to the BMW Group in 2018. There were no indications of conflicts of interest, grounds for exclusion or lack of independence on the part of the auditor. The Audit Committee discussed PwC’s fee proposal for the audits of the Company and Group Financial Statements 2019 and for the review of the Half-Year Financial Report, and deemed it appropriate. Following the approval at the Annual General Meeting held in May 2019, the Audit Committee appointed PwC for the relevant engagements and specified audit focus areas. It also approved the scope of non-audit services to be provided by PwC and subsequently received regular reports on the relevant matters. The quarterly financial reports were discussed with the Board of Management prior to their publication. Representatives of the external auditors were present when the Half-Year Financial Report was discussed at the end of July 2019. During the year under report, the Audit Committee again dealt intensively with the topic of compliance within the BMW Group. In his regular report, the Chairman of the Com- pliance Committee provided a summary of ongoing compliance-related proceedings and presented the improvements being made to the compliance system, which is now known as “Compliance 4.0”. In February 2019, the Board of Management informed the Audit Committee of the result of the proceedings conducted by the Public Prosecutor’s Office Munich regarding a faulty software update. Based on its classification as a misdemeanour, a fine of € 8.5 million was imposed, which the Company accepted. The investigations undertaken by the Public Prosecutor did not identify any evidence of test-stand-related defeat devices, fraud or any other deliberate legal violations. To Our Shareholders13 The Audit Committee continued to deal intensively with the EU Commission’s investigation into the antitrust allegations in connection with the former working groups of several German automobile manufacturers. Subsequent to receiving the EU Commission’s Statement of Objec- tions in April 2019, which resulted in the BMW Group recognising a sig nificant provision for a possible fine, the Audit Committee held a separate meeting on this topic. At that meeting, the Audit Committee was provided with detailed information concerning allegations made by the EU Commission and was fully briefed on the Company’s viewpoint, which denies the allegations and intends to contest them – with all the legal means at its disposal if necessary. The Company’s Chief Legal Counsel and a representative of the law firm engaged by the Company explained the Company’s legal position to the Committee. At the following meeting of the Supervisory Board, the Chairman of the Audit Committee reported on these matters in great detail. At the recommendation of the Audit Committee, the Supervisory Board decided to obtain a second opinion from an independent antitrust law expert in addition to the advice received from the law firm engaged by the Company. At a subsequent meeting of the Audit Committee, the expert confirmed the Company’s legal opinion and its defence strategy. The Board of Management also reported in detail to the Audit Committee on the mutually agreeable completion of proceedings initiated by the German Federal Cartel Office in 2016 regarding the purchase of long steel by the BMW Group. The proceedings were terminated in November 2019 with the imposition of a fine of € 28 million, which the Company did not contest. The Board of Management stressed that the exchange of information in question had no effect on the selling prices of BMW Group vehicles. Furthermore, the main results of the audits conducted by Group Internal Audit, along with details of further audit planning, were reported to the Audit Committee. The Audit Committee also discussed risk management and the BMW Group’s current risk profile as well as the internal control system and the report on major legal disputes. The EMIR audit report (“European Market Infrastructure Regulation”) pursuant to § 32 of the German Securities Trading Act (WpHG) was also presented to the Audit Committee by an auditor, and the effectiveness of the system in place at BMW AG to ensure compliance with regulatory requirements was confirmed. The Audit Committee concurred with the decision of the Board of Management to raise the Company’s share capital in accordance with Article 4 (5) of the Articles of Incorporation (Authorised Capital 2019) by € 740,400 and to issue a corresponding number of new non-voting bearer shares of preferred stock in conjunction with an Employee Share Programme. A key aspect of the Personnel Committee’s work during its five meetings held during 2019 involved preparing decisions in connection with the composition of the Board of Management. The Personnel Committee held discussions on Board of Management compensation, not least against the background of the implementation of ARUG II and revision of the German Corporate Governance Code. In individual cases it also granted approval for Board of Management members to assume mandates outside the Group. The Nomination Committee held one meeting during the financial year 2019, at which it addressed the subject of succession planning for shareholder representatives on the Supervisory Board going forward, taking into account the composition targets decided upon by the Supervisory Board. The Mediation Committee, which is prescribed by law, did not need to convene during the financial year 2019. 14 Report of the Supervisory Board Composition of the Board of Management The Supervisory Board made several decisions regarding the composition of the Board of Management during the 2019 financial year: The mandate of the Chairman of the Board of Management, Harald Krüger, was terminated by mutual agreement on 15 August 2019, after Mr Krüger had previously informed the Chairman of the Supervisory Board that he was not available for a further term of office. We wish to thank Mr Krüger for his outstanding work and the key momentum he provided with great enthusiasm during his long tenure at the BMW Group as Chairman and Member of the Board of Management as well as in his previous functions. The Supervisory Board appointed Oliver Zipse as Chairman of the Board of Management with effect from 16 August 2019. Mr Zipse initially became a Board of Management member with responsibility for Production in 2015 and has worked for the BMW Group since 1991. Apart from his expertise in the field of production, he has also gained a wealth of experience in various strategic management functions. On 16 August 2019, Dr Andreas Wendt was temporarily given Board responsibility for Production in addition to his role as Board member responsible for the Purchasing and Supplier Network. With effect from 1 October 2019, Dr Milan Nedeljković was appointed member of the Board of Management and assumed responsibility for Production. Dr Nedeljković joined the BMW Group in 1993 and, after serving as Managing Director of the Leipzig and Munich production plants, most recently worked as Senior Vice President for Corporate Quality. The mandate of Milagros Caiña Carreiro-Andree was terminated by mutual agreement with effect from 31 October 2019. We would like to thank Ms Caiña Carreiro-Andree for her positive contribution to the further development of human resource policies throughout the BMW Group. With effect from 1 November 2019, Ilka Horstmeier was appointed member of the Board of Management with responsibility for Human Resources and as Labour Relations Director. Ms Horstmeier has worked for the BMW Group since 1995, most recently as Managing Director of the Dingolfing plant. In 2019, we resolved to extend the mandate of one Board of Management member. Peter Schwarzenbauer left the Board of Management on 31 October 2019 after reaching the stipulated retirement age. We wish to thank him for his dedication, his excellent work and the dynamic contribution he made to the field of digitalisation in particular. As part of the realignment of Board member portfolios, Mr Pieter Nota has been given combined responsibility for all BMW Group brands as head of “Customer, Brands, Sales” and the size of the Board has been reduced overall. Composition of the Supervisory Board, the Presiding Board and the Supervisory Board’s committees Messrs Franz Haniel, Ralf Hattler and Jürgen Wechsler resigned from the Supervisory Board with effect from the end of the Annual General Meeting 2019. We would like to thank all three of them for their faithful, constructive cooperation during their respective periods of office on the Supervisory Board. Mr Haniel was a member of the Supervisory Board for a period of 15 years. To Our Shareholders15 We therefore wish to express our gratitude to him in particular for his many years of loyal service to the BMW Group. Within the framework of elections pursuant to the German Co-Determi- nation Act, the employees elected Verena zu Dohna-Jaeger and Dr Thomas Wittig as members of the Supervisory Board, the former as representative of IG Metall and the latter as executive staff representative. The remaining employee representatives were re-elected. The Annual General Meeting elected Dr Vishal Sikka, founder and CEO of Vianai Systems, Inc., as a new member of the Supervisory Board. Susanne Klatten and Stefan Quandt, both entrepreneurs, were re-elected as shareholder representatives. The composition of the Presiding Board and the committees of the Supervisory Board remained unchanged during the financial year 2019. The Supervisory Board plans to make a mutually agreed change to the position of chair of the Audit Committee directly following the 2020 Annual General Meeting. As in the past, the future chairperson also needs to meet the required criteria as an independent financial expert. The composition of the Supervisory Board and its committees is contained in the Corporate Governance Report and the Statement on Corporate Governance, which is available on our website. You can also find the curricula vitae of the Supervisory Board members on our website. Disclosure of attendance at meetings by individual members The attendance rate at the meetings of the Supervisory Board and its committees was 99.6 % overall. The following table shows attendance by individual member: Supervisory Board Member Meetings Attendance Attendance in % Dr.-Ing. Norbert Reithofer Manfred Schoch Stefan Quandt Stefan Schmid Dr. Karl-Ludwig Kley Christiane Benner Dr. Kurt Bock Verena zu Dohna-Jaeger 1 Franz Haniel 2 Ralf Hattler 2 Dr.-Ing. Heinrich Hiesinger Prof. Dr. Reinhard Hüttl Susanne Klatten Prof. Dr. Renate Köcher Horst Lischka Willibald Löw Simone Menne Dr. Dominique Mohabeer Brigitte Rödig Dr. Vishal Sikka 1 Jürgen Wechsler 2 Dr. Thomas Wittig 1 Werner Zierer 1 Supervisory Board Member since 16 May 2019 2 Supervisory Board Member until 16 May 2019 22 21 22 21 22 5 5 4 1 1 5 5 6 5 5 5 5 5 5 4 1 4 5 22 21 22 21 21 5 5 4 1 1 5 4 6 5 5 5 5 5 5 4 1 4 5 100 100 100 100 95 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 16 Report of the Supervisory Board Examination of financial statements, including the separate non-financial report and the proposal for the appropriation of profits PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (“PwC”) was appointed as auditor for the first time for the financial year 2019. PwC conducted a review of the condensed Interim Group Financial Statements and Interim Group Management Report for the six-month period ended 30 June 2019 and presented the findings of its review to the Audit Committee. No issues were identified that might indicate that the condensed Interim Group Financial Statements and Interim Group Management Report had not been prepared in accordance with the applicable provisions in all material respects. PwC audited the Company and Group Financial Statements of BMW AG for the financial year 2019 as well as the Combined Company and Group Management Report – as authorised for issue by the Board of Management on 10 March 2020 – and issued an unqualified audit opinion, signed by the auditor Petra Justenhoven as independent auditor (Wirtschaftsprüferin) and by Andreas Fell as independent auditor (Wirtschaftsprüfer) and auditor responsible for the performance of the engagement. At its meeting held on 27 February 2020, the Audit Committee initially considered in detail the preliminary version of the Company and Group Financial Statements for the finan- cial year 2019, the Combined Management Report (including the Statement of Corporate Governance), the auditor’s long-form reports and the Board of Management’s proposal for the appropriation of profits. Immediately after authorising their issue, the Board of Management submitted the Company and Group Financial Statements for the 2019 financial year, the Combined Management Report (including the Statement of Corporate Governance) and the proposal for the appropriation of profits to the Supervisory Board. The long-form audit reports of the auditor were also made available to the Supervisory Board without delay. At its meeting on 12 March 2020, the Audit Committee carefully examined and deliberated on these documents before they were considered in detail at the plenary session of the Supervisory Board. At the respective meetings, the Board of Management provided the Audit Committee and the Supervisory Board with detailed explanations of the financial reports presented. Representatives of the external auditor were also present at both meetings. They reported on the main findings of their audit, explained the key audit matters and answered additional questions put by members of the Audit Committee and the Supervisory Board. The Audit Committee and the Supervisory Board reviewed the key audit issues and the related audit procedures in great detail. The representatives of the external auditor confirmed that the risk management system estab- lished by the Board of Management is capable of identifying at an early stage any developments that might threaten the Company’s going-concern status. They confirmed that no material weaknesses in the internal control system and risk management system with regard to the financial reporting process were identified. Similarly, they did not identify in the course of their audit work any facts that were inconsistent with the contents of the Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (AktG) issued by the Board of Management and the Supervisory Board. Based on a thorough examination conducted by the Audit Committee and the full Supervisory Board, we concurred with the results of the external audit. In accordance with the conclusion reached after the examination by the Audit Committee and the Supervisory Board, no objections were raised. The Group and Company Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the financial year 2019 drawn up by the Board of Management were subsequently approved at our meeting held on 12 March 2020. To Our Shareholders17 We also examined the proposal of the Board of Management to use the unappropriated profit to pay a dividend of € 2.50 per share of common stock and € 2.52 per share of non-voting preferred stock, in each case on shares entitled to receive a dividend. We consider the proposal appropriate and have therefore given it our approval. Due to the rapidly deteriorating situation caused by the proliferation of coronavirus, the Board of Management resolved on 16 March 2020 to revise the forecast for the financial year 2020 and to draw up the Company and Group Financial Statements anew, together with the Combined Management Report. In a telephone conference of the Audit Committee held on the same day, the Board of Management reported in detail on the adjustments made. Representatives of the auditor reported on the supplementary audit performed and the findings identified and confirmed that no objections had arisen in the course of this work. After thorough examination and deliberation, the Audit Committee recommended that the Supervisory Board approve the revised versions of the Company and Group Financial Statements for the financial year 2019. After concluding its own examination, the Supervisory Board determined that it had no objections and accordingly approved the revised versions of the Company and Group Financial Statements for the financial year 2019 on 17 March 2020. The Company Financial Statements have therefore been adopted. Furthermore, in conjunction with the presentation of the Sustainable Value Report, the Audit Committee and the Supervisory Board considered the separate non-financial report of BMW AG (Company and Group) at 31 December 2019 drawn up by the Board of Management. The Board of Management provided a detailed explanation of the reports at the meetings. Repre- sentatives of the auditor presented the main findings of their audit and answered additional questions put by the members of the Supervisory Board. PwC performed a “limited assurance” review of these reports and issued an unqualified statement thereon. The Supervisory Board acknowledged and approved the separate non-financial report (Company and Group) drawn up by the Board of Management. Expression of appreciation by the Supervisory Board We wish to express our appreciation to the members of the Board of Management and the entire workforce of the BMW Group worldwide for their commitment and joint achievements in the financial year 2019. The readiness of our employees to deliver outstanding performance alongside their passion and enthusiasm for the enterprise and its products make us confident in the ability of the BMW Group to successfully shape individual mobility as a technological pioneer moving forward. Munich, 17 March 2020 On behalf of the Supervisory Board Norbert Reithofer Chairman of the Supervisory Board 18 Statement of the Chairman of the Board of Management Oliver Zipse Chairman of the Board of Management To Our ShareholdersDear Shareholders, 19 At the BMW Group, the customer always takes centre stage. That is what makes your Company strong. But we also know that success doesn’t happen by itself – and certainly not in times of technological transformation. We seek to offer our customers the best products and services so they can be mobile in a way that suits their personal needs. Together, we are leading “sheer driving pleasure” into a sustainable future – as intended by the Paris Climate Agreement. To achieve this, we are systematically directing our focus towards new technologies and connectivity. Because we want your Company to emerge as a winner of this transformation. Our customers are the key to our success. In 2019 we reached a new record level of vehicles delivered to customers for the ninth con- secutive year. Personally, and on behalf of my Board of Management team, I would like to thank our more than two-and-a-half million BMW, MINI and Rolls-Royce customers – and over 175,000 BMW Motorrad customers. I would also like to thank our high-performing retail organisation, as well as the suppliers we work with as partners. The dedication and ideas of our more than 133,000 associates worldwide drive the Company forwards. Our team is proud to work for the BMW Group. This was confirmed by our most recent employee survey – even at a time when the role of the automotive industry is the subject of intense debate. The BMW Group is considered one of the world’s most attractive employers and is the number one automobile manufacturer in various renowned rankings. Our associates value that you, our shareholders, support the Company’s long-term course. This gives us the backing and internal stability we need to continue to chart our own course and differentiate ourselves from the competition. The BMW Group strategy is dynamic. Our business environment is shaped by uncertain developments, which we need to respond to quickly and appropriately, but it is also shaped by stable trends. That is why enhancing our strategy is an ongoing task. Our corporate spirit is rooted in the values of responsibility, appreciation, transparency, trust and openness. In the Board of Management, we have geared the BMW Group’s strategy towards the relevant areas of future activity and adjusted core elements: what does the BMW Group stand for? What drives us? What are we working towards? And how can we achieve our goals? It is imperative that we focus on business, environmental and social challenges equally. Everything today is interconnected. There are no simple solutions to long-term success. People still want to be mobile. This forms the basis of our business model and our confidence. Demand for premium mobility worldwide is expected to grow until 2030. Our goal is to gain or regain market share – but not at any price. Rising sales must also generate the necessary earnings. 20 Statement of the Chairman of the Board of Management We aim to improve our profitability. The financial year 2019 was impacted by a variety of headwinds. As previously announced, our Group earnings before tax were significantly lower than the previous year. The EBIT margin in the Automotive Segment was within our adjusted target range of 4.5 to 6.5 per- cent. The Board of Management and the Supervisory Board will propose a dividend of € 2.50 per share of common stock and € 2.52 per share of preferred stock to the Annual General Meeting. We are working intensively to bring the EBIT margin in the Automotive Segment back within our target range of 8 to 10 percent. This is the standard we hold ourselves to – and what you expect as shareholders. We will realise over 12 billion euros in efficiency potential through our Performance > NEXT programme by the end of 2022 – for example, through current measures aimed at digitalising our processes. We will continue to make significant investments in our future. In 2019 alone, we invested 6.4 billion euros in research and development. The biggest model offensive in our history continues. Nearly all model series have been updated over the past two years. They will be joined this year by new models like the BMW 2 Series Gran Coupé, highly profitable BMW M models, new plug-in hybrids and electric models. Our portfolio is younger, more attractive and more technologically diverse than ever before. This allows us to meet every customer’s needs and desires – no matter where they are in the world. As a result we are challenging the competition in every segment. We offer our customers the Power of Choice. Customers choose the vehicle segment that best suits their living environment – we provide the right drivetrain to go with it. The popular BMW X3 is a good example of this. Starting this year, four different drivetrain variants will be offered: efficient diesel and petrol, plug-in hybrid and pure electric. Mobility needs will continue to vary around the world and from region to region – in some cases, significantly. Our plants have the flexibility to produce all types of drivetrains. In this way, we are able to inspire our customers and win them over to sustainable drivetrains. Our online Annual Report features customers from the Netherlands, South Africa and Japan and shows how they use different drivetrains in their everyday lives. More than one million electrified vehicles by the end of 2021. Our experience with e-mobility is delivering results. By the end of 2019, the BMW Group had more than 500,000 electrified vehicles on roads across the world. This, in itself, is already a significant contribution to climate protection. In Germany, BMW clearly leads the market for electrified vehicles, with a share of 21 percent. In 2019, the average share of battery-electric vehicles and plug-in hybrids in the European Union was three percent. The BMW Group figure was nearly double that. We will continue in this direction: the goal is for a quarter of our European new vehicle fleet to be electrified in 2021; a third in 2025 and half in 2030. The next fully-electric models are already in the starting blocks: the MINI SE and BMW iX3 this year, followed by the BMW i4 and iNEXT from 2021. We provide maximum vertical integration for e-mobility. The iX3, i4 and iNEXT use our entirely newly developed fifth-generation electric drivetrain. The electric motor is designed in such a way that no rare earths are needed. Long-term contracts will secure our supply of battery cells. To Our Shareholders21 We plan to meet the EU’s new CO2 standards. We geared up for sustainable mobility early. This year alone, we plan to lower the CO2 emissions of our European new vehicle fleet by another 20 percent. This would allow us to meet the European Union’s new CO2 targets for 2020 and 2021. To achieve this, we are forging ahead with our electric offensive and, at the same time, continuing to make our conventional engines more efficient. Too little attention is paid to these efforts and their effects – even though they have a rapid and noticeable impact. Offering effective solutions. Creating a real impact. Ensuring sustainability. That’s what we stand for. Climate protection achieves the biggest impact through implementation, not announcements. Our understanding of responsibility has always encompassed the entire value chain. Last year alone, we reduced CO2 emissions from production by 25 percent from the previous year. The “footprint” of every new plug-in hybrid is certified: from raw material procurement, through the supply chain, production and use phase, all the way to recycling. E-mobility requires cobalt and lithium. Starting this year, we will be sourcing both raw materials ourselves and making them available to our suppliers. This creates transparency. You will find more details on this in our Sustainable Value Report 2019. We will no longer be printing our Annual Report, which will now be exclusively available on our website as part of our expanded digital offering. Reliability even in difficult times. The latest developments regarding the coronavirus pose major challenges for us all – including the BMW Group. In close cooperation with our business partners, we are working on targeted measures to avoid supply bottlenecks where possible. As a Company, we have initiated measures worldwide to protect the health and safety of our employees, in consultation with our works council representatives. At the same time I have been witnessing a remarkable solidarity: employees are supporting each other. That is what sets your Company apart – taking on responsibility as a key member of society. Optimism secures success – and success secures the future. Dear Shareholders, We firmly believe that the far-reaching technological transformation will strengthen our business model. We are systematically further developing our highly complex and digitally connected vehicles in the interests of our customers and society. We have the capability, the ambition and the determination to be a pioneer in the age of new mobility – and, at the same time, to remain an attractive and safe investment for you, our shareholders. I invite you to accompany the BMW Group on our continued path towards the future. Oliver Zipse Chairman of the Board of Management 22 BMW AG Stock and Capital Markets in 2019 BMW AG STOCK AND CAPITAL MARKETS IN 2019 Top ratings unchanged Dividend payout ratio increases www.bmwgroup.com / ir Ratings remain at top level The BMW Group continues to be the best-rated auto- mobile manufacturer in Europe. Moody’s has given BMW AG a long-term rating of A1 (stable outlook) since January 2017. The short-term rating is P-1. The overall positive assessment reflects the launch of attractive products in conjunction with the current model offensive, the excellent positioning of the BMW Group with respect to the challenges faced by the automobile industry and its consistently strong operating performance and robust financial and capital structure. The rating agency Standard & Poor’s has given BMW AG a long-term rating of A+ (negative outlook) and a short-term rating of A-1. These rating assessments are underpinned by the BMW Group’s dependable financial profile and excel- lent creditworthiness. Consequently, the Company not only has good access to international capital markets, but also benefits from attractive refinancing conditions. Company rating Non-current financial liabilities Current financial liabilities Outlook Moody’s Standard & Poor’s A1 P -1 A+ A -1 stable negative To Our ShareholdersDividend and payout ratio In view of the Group’s good earnings performance, the Board of Management and the Supervisory Board will propose to the Annual General Meeting that BMW AG’s unappropriated profit of € 1,646 million (2018: € 2,303 million) be used to pay a dividend of € 2.50 per share of common stock (2018: € 3.50) and a dividend of € 2.52 for each share of preferred stock (2018: € 3.52). The payout ratio for 2019 therefore stands at 32.8 % (2018: 32.0 %). 23 BMW AG stock • 09 common stock Number of shares in 1,000 Stock exchange price in € 1 Year-end closing price High Low preFerred stock Number of shares in 1,000 Stock exchange price in € 1 Year-end closing price High Low key dAtA per shAre in € Dividend Common stock Preferred stock Earnings per share of common stock 3 Earnings per share of preferred stock 4 Free cash flow Automotive segment Equity 2019 2018 2017 2016 2015 601,995 601,995 601,995 601,995 601,995 73.14 77.75 58.70 70.70 96.26 69.86 86.83 90.83 77.71 88.75 92.25 65.10 97.63 122.60 75.68 56,867 56,127 55,605 55,114 54,809 55.05 67.85 47.54 2.50 2 2.52 2 7.47 7.49 3.90 90.92 62.10 82.50 60.70 3.50 3.52 10.60 5 10.62 5 4.12 87.87 5 74.64 78.89 67.29 4.00 4.02 13.07 13.09 6.78 82.30 72.70 74.15 56.53 3.50 3.52 10.45 10.47 8.81 72.08 77.41 92.19 58.96 3.20 3.22 9.70 9.72 8.23 65.11 1 Xetra closing prices. 2 Proposed by management. 3 Weighted average number of shares for the year. 4 Stock weighted according to dividend entitlements. 5 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 24 Financial Calendar Contacts FINANCIAL CALENDAR CONTACTS Business and Finance Press Telephone + 49 89 382-2 45 44 + 49 89 382-2 41 18 + 49 89 382-2 44 18 presse@bmwgroup.com Fax E-mail Investor Relations Telephone + 49 89 382-2 53 87 + 49 89 382-1 46 61 Fax ir@bmwgroup.com E-mail The BMW Group on the Internet Further information about the BMW Group is available online at Investor Relations information is available directly at Information about the various BMW Group brands is available at www.bmwgroup.com / ir. www.bmwgroup.com. www.bmw.com, www.rolls-roycemotorcars.com and www.mini.com, www.bmw-motorrad.com. 2020 18 March 2020 Annual Accounts Press Conference 19 March 2020 Analyst and Investor Conference 6 May 2020 Quarterly Statement to 31 March 2020 14 May 2020 Annual General Meeting 5 August 2020 Quarterly Report to 30 June 2020 4 November 2020 Quarterly Statement to 30 September 2020 2021 17 March 2021 Annual Report 2020 17 March 2021 Annual Accounts Press Conference 18 March 2021 Analyst and Investor Conference 7 May 2021 Quarterly Statement to 31 March 2021 12 May 2021 Annual General Meeting 3 August 2021 Quarterly Report to 30 June 2021 3 November 2021 Quarterly Statement to 30 September 2021 To Our Shareholders 2 Combined Management Report General Information and Group Profile Economic Position Outlook, Risks and Opportunities COMBINED MANAGEMENT REPORT Page 26 General Information and Group Profile Page 26 Organisation and Business Model Page 28 Research and Development Page 31 Production Network Page 38 Purchasing and Supplier Network Page 39 Workforce Page 41 Sustainability Page 43 Cooperation Agreements and Partnerships Page 44 Management System Page 48 Report on Economic Position Page 48 General and Sector-specific Environment Page 52 Overall Assessment by Management Page 53 Comparison of Forecasts for 2019 with Actual Results in 2019 Page 64 Review of Operations Page 64 Automotive Segment Page 71 Motorcycles Segment Page 73 Financial Services Segment Page 76 Comments on Financial Statements of BMW AG Page 82 Report on Outlook, Risks and Opportunities Page 82 Outlook Page 88 Risks and Opportunities Page 101 Internal Control System Relevant for Accounting and Financial Reporting Processes Page 102 Disclosures Relevant for Takeovers and Explanatory Comments 26 General Information and Group Profile Organisation and Business Model GENERAL INFORMATION AND GROUP PROFILE Substantial upfront expenditure for future-oriented projects Production running at full swing ORGANISATION AND BUSINESS MODEL www.bmwgroup.com / company This Combined Management Report incorporates the management reports of Bayerische Motoren Werke Aktiengesellschaft (BMW AG) and the BMW Group. On 10 March 2020, the Financial Statements of BMW AG were drawn up by the Board of Manage- ment and the Board of Management granted approval for publication of the Group Financial Statements. Based on current developments regarding the spread of the coronavirus, the Board of Management on 16 March 2020 adjusted the original outlook for the BMW Group, the assumptions regarding the devel- opment of the global economy and the economic risks and opportunities for the financial year 2020 in the Combined Management Report, as well as the statement regarding the Events after the end of the reporting period. On the same day, the Board of Management again drew up the Financial Statements of BMW AG and once again gave approval for the publication of the Group Financial Statements. General information on the BMW Group is provided below. There have been no significant changes to the Group’s structure compared to the previous year. Based in Munich, Germany, Bayerische Motoren Werke Aktiengesellschaft (BMW AG) is the parent Company of the BMW Group, which is the most successful maker of automobiles and motorcycles in the premium seg- ment worldwide. With BMW, MINI and Rolls-Royce, the BMW Group owns three of the best-known pre- mium brands in the automotive industry. In addition to a strong market position in the premium segment of the global motorcycles sector, the BMW Group is also well-positioned in the financial services business. The BMW Group comprises BMW AG itself and all subsidiaries over which BMW AG has either direct or indirect control. BMW AG is also responsible for managing the Group, which is sub- divided into the Automotive, Motorcycles and Financial Services operating segments. The Other Entities segment primarily comprises holding companies and Group financing companies. The BMW Group sets itself clear targets in terms of sus- tainable, individual mobility, resource-efficient value creation, the continued development of its workforce potential and its own social commitment. Sustain- ability is therefore an integral part of the Group’s business model and plays a vital role in ensuring its viability going forward. Combined Management Report27 Motorcycles segment The Motorcycles business is also clearly focused on the premium segment. The model range currently comprises motorcycles for the Sport, Tour, Roadster, Heritage and Adventure segments as well as scooter models for the Urban Mobility segment. BMW Motor- rad also offers a broad range of equipment options to enhance rider safety and comfort. The Motorcycles business sales network is organised similarly to that of the automobiles business. Currently, BMW motor- cycles are sold by more than 1,200 dealerships and importers in over 90 countries. Financial Services segment The BMW Group is a leading provider of financial services in the automobile sector. These services are offered in almost 60 countries worldwide via com- panies and cooperation arrangements in place with local financial service providers and importers. The segment’s main business comprises credit financ- ing and the leasing of BMW Group brand cars and motorcycles to retail customers. Customers can also choose from an attractive array of insurance and banking products. Operating under the brand name Alphabet and working together with Alphabet coop- eration partners, the BMW Group’s international multi-brand fleet business provides financing and comprehensive management services for corporate car fleets in 20 countries. The segment also supports the BMW Group’s dealership organisation by financ- ing dealership vehicle inventories. The BMW Group operates on a global scale and employed a workforce of 133,778 people worldwide at the end of the year. In 2019, the BMW Group strengthened its position as one of the world’s most attractive employers. Its leading role in terms of sustainability contributes to employee loyalty within the BMW Group and is one of the reasons for the low staff attrition rate. The BMW Group’s underlying principle in all aspects of corporate strategy is its customer-oriented approach. In its ongoing efforts to develop its products, brands and services, the BMW Group is currently focusing on new technologies such as alternative drivetrains, digitalisation, connectivity and autonomous driving. Presentation of segments In order to provide a better insight into the Group as a whole, this report also contains separate presentations of the operating segments Automotive, Motorcycles and Financial Services. Automotive segment The BMW brand caters to a wide variety of customer requirements. Its portfolio encompasses a broad range of models, starting with the premium compact class and extending – via the premium mid-class – through to the ultra-luxury class. Alongside all-electric mod- els such as the BMW i3, it also offers its customers state-of- the-art plug-in hybrids and a whole array of vehicles driven by highly efficient combustion engines. To gether with its extremely popular X-model family and high-performance BMW M range, the BMW Group meets the varying needs and wishes of its customers worldwide. The MINI brand promises outstanding driving plea sure in the premium small car segment and, apart from its highly efficient combustion-engine-driven models, also offers plug-in hybrid and all-electric drivetrains. Rolls-Royce is the ultimate marque in the ultra-luxury segment, boasting a tradition that stretches back over more than 100 years. Rolls-Royce Motor Cars spe- cialises in bespoke customer specifications and offers the very highest level of both quality and service. The global sales network of the BMW Group’s automo- bile business currently comprises around 3,500 BMW, 1,600 MINI and 150 Rolls-Royce dealerships. Within Germany, sales are conducted through branches of the BMW Group and independent authorised dealer- ships. Sales outside Germany are handled primarily by subsidiary companies and by independent import companies in some markets. 28 General Information and Group Profile Organisation and Business Model Research and Development Research and Development www.bmwgroup.com / innovation A major factor in the enduring success of the BMW Group is its consistent focus on the future. Inno- vation is an integral part of its corporate philosophy. Shaping individual mobility and finding innovative solutions today for the needs of tomorrow is a key driving force. Research and development (R&D) are therefore of major importance for the BMW Group in ensuring its long-term commercial success as a premium manufacturer. In its development of new technologies, the BMW Group focuses on the topics of emissions- reducing drivetrain systems, digitalisation and autonomous driving with the aim of creating completely new experiences and future ways of travelling. A key prerequisite for success both now and in the future is the ability to anticipate customer needs and wishes in all fields of technol- ogy and implement developments in a way that adds value for the customer. However, as a premium manu- facturer, the BMW Group is driven by the aspiration to exceed customer expectations in every respect. With this approach, the BMW Group strives to find outstanding solutions for the overall (mobility) needs of its customers. The BMW Group addresses the key trends shaping tomorrow’s individual mobility via the central topics of Design, Autonomous, Connectivity, Electrified and Services. 1. Design The BMW Group sees design as the characteristic combination of aesthetics and technology. Out- standing design involves focusing keenly on peo- ple and their needs. Ground-breaking design underlines the inimitable character of each new vehicle, thereby strengthening all of the Group’s brands. 2. Autonomous Since 2018, the BMW Group has been pooling its expertise with the aim of developing state-of- the-art driver assistance systems in its own devel- opment centre. The goal is to create an open platform for highly and fully automated driving that will serve as an industry standard going forward. Today, the latest generation of driver as- sistance systems already supports customers in a variety of driving situations. However, “safety first” always has the foremost priority in all development work performed. In July 2019, the BMW Group and Daimler AG signed an agreement on long-term strategic coop- eration in the field of automated driving. The two companies intend to jointly develop the next generation of technology for driver assistance systems and automated driving on motorways as well as automated parking features. The coope r- ation is open for further OEM and technology partners and the results of this collaboration will also be offered to other OEMs for licensing. 3. Connectivity The demands and needs of customers for mod- ern, digital mobility are the top priority for the BMW Group. One of the most important effects of digitalisation in the automotive industry is that the vehicle itself has become focal point of the digital customer experience. The BMW Group prepared itself at an early stage in this area. With BMW Connected and the growing digital offerings, the Company is prepared for the ex- pectations and wishes of its customers. In this regard, the focus is not just on the develop- ment and integration of new technologies and services for the vehicle, but on customers and their contemporary demands. Digital services, which customers are used to, should be avail- able seamlessly and without restrictions even out- side of the vehicle. The ability to use services from the BMW Group nearly everywhere at all times is the prerequi- site for a digital services offering that is solely fo- cused on the customers and their individual needs. This includes, for example, personalised and context-based information in the vehicle. For customers of the BMW Group it is very easy to keep the vehicle digitally up-to-date and to tailor the vehicle to customers’ individual wishes over the entire life cycle. With the Remote Soft- ware Update, the vehicle can always be updated with the latest software, functions are continu- ously expanded and digital services can be booked at any time. In this way, the security and quality of the vehicle is contin ually improved. BMW dri vers can therefore keep their vehicles up to date as they are accustomed to from the smartphone world. Combined Management Report 29 Due to its role as a technology carrier and its en- dur ing sales success, the BMW i3 is also being developed to the next level. Launched at the end of 2019, the MINI Cooper SE* is a further all- electric vehicle that complements the BMW Group’s range of electrified models. Over 90,000 registered prospective customers (as of 2019) reflect the avid interest of consumers in this first all-electric MINI model. Rolls-Royce Motor Cars is also work- ing hard on developing an electric vehicle. In line with the expectations of its customers, the brand will immediately focus on manufacturing all- electric models. The BMW Group’s range of models includes highly efficient combustion engines as well as state-of- the-art plug-in hybrids and all-electric drivetrains. This broad array of options enables the Group to meet the varying requirements and wishes of its customers in different regions of the world while at the same time making an effective contribution to cutting CO2 emissions. Regardless of the type of drivetrain the customer chooses, all current and future models, each with their own specific characteristics, will feature the driving pleasure typical of the brand. 5. Services The BMW Group aims to be one of the leading providers of premium mobility services going forward. In order to do so, it is essential to have a clear understanding of the needs of customers worldwide. This knowledge is the basis for offer- ing customers an attractive, comprehensive range of services in this field, too. These include easy- to-use, digitally supported mobility services that also feature bring-and-collect services or help customers find open parking spaces in urban environments. In order to reinforce this strategic field, the BMW Group founded the joint venture YOUR NOW together with Daimler AG during the period under report. Further information is pro- vided in the section Cooperation Agreements and Partnerships. With digital services such as on-street parking or digital charging services, which are available to book over the BMW ConnectedDrive Store, it has been possible since 2014 to constantly customise the vehicle toward individual preferences. The next step for more flexibility involves offering addi- tional vehicle functions after purchase, such as a high-beam assistant or driver assistant system, Active Cruise Control (ACC). The expanded, cus- tomer-oriented and digital offerings of the BMW Group make it possible to update the vehi- cle for many years with the newest functions. Therefore, customers do not need to decide about specific optional equipment at purchase, but they can regularly customise their vehicle based on individual needs. Together with automated driving, the systematic expansion of connectivity on the path towards a digital and emissions-free future is one of the cen- tral areas of action, with which the BMW Group is shaping the transformation of the mobility in- dustry in line with its corporate strategy. 4. Electrified During the 2019 reporting period, the BMW Group reached a further milestone with the delivery of its 500,000th electrified automobile. With 11 elec tri fied models in its range (as of 2019), the BMW Group is among the world’s leading providers of electric mobility. Since 2016, the Company has been the market leader for electrified vehicles in Germany and also occupies a top position not only in Europe, but worldwide. Its many years of experience have given the BMW Group a broad and sound base of knowl- edge in the field of electric mobility. On this basis, the Company develops the drivetrain tech- nology such as the motor, the power electronics and also the battery, including the battery cell it- self, guarantee ing the typical driving charac- teristics for its electrified vehicles that customers associate with the brand. In 2020, the BMW X3 will be the first BMW Group model to be available in four different drive- train versions: with an efficient diesel or petrol engine, as a plug-in hybrid, and with an all- elec tric powertrain system in the form of the BMW iX3*. The BMW iX3 is the first model to benefit from a new generation of highly efficient BMW electric drivetrains, which enables a new balance between range and battery size. * Fuel consumption and CO2 emis- sions informa- tion are available on page 70. 30 General Information and Group Profile Organisation and Business Model Research and Development Production Network Battery cell competence centre opened The BMW Group has combined its wealth of experi- ence in the field of e-mobility with its wide-ranging knowledge of battery cells to form a new competence centre in Munich. It is tasked with continuing to develop battery cell technology and master the processes required for cell production. Based on current technology, the aim is to significantly increase the energy density of battery cells and thus also the range for customers. The further development of battery cell technology is a key success factor in the BMW Group’s electric offensive strategy, enabling it to have a direct impact on both the performance and the cost of the battery. This holistic approach ensures that the BMW Group is always at the cutting edge of technology while simultaneously covering the entire value chain, including research and development, assembly and design of battery cells. Swift decision-making and comprehensive collaboration are making it possible to develop battery cells in a complete, transparent and sustainable manner. Moreover, it is crucial to take recycling into account from the very beginning. Sustainability is also a key factor for the expansion of electric mobility. For the BMW Group, responsible raw material extraction and processing starts at the very beginning of the value chain. Supply chains for the upcoming fifth generation of high-voltage electrical storage systems have also been restructured, including the plan to purchase cobalt and lithium for battery cells directly with effect from 2020. The strategy will provide complete transparency regarding the origin of these two essential raw materials for manufactur- ing batteries. Further information is available in the Sustainable Value Report at www.bmwgroup.com / svr. With the opening of the competence centre, the BMW Group is not only setting the future strategic course in technological terms, it is also securing jobs and key qualifications in the long term. BMW i Hydrogen NEXT presented The BMW Group assumes that various alternative drivetrain systems will coexist in future years, as the mobility requirements of customers worldwide cannot be met by one solution alone. Hydrogen-powered vehi- cles could become an important alternative to, as well as a supplement for, battery-electric powered vehicles. This diversity in the field of electrified drivetrain tech- nologies, which also includes plug-in hybrids alongside highly efficient combustion engines, underlines the BMW Group’s commitment to offering its customers tailor-made solutions that satisfy their own individual mobility needs. In 2019, the BMW Group presented a further milestone in this strategy at the IAA with its fuel cell-powered development vehicle BMW i Hydrogen NEXT. This innovative vehicle provides an initial preview of a small series of hydrogen fuel cell electric drivetrains based on the current BMW X5. The BMW Group has already demonstrated the practical viability of the technology. Since 2013, the BMW Group and the Toyota Motor Corporation have been collaborating on the joint development of a powertrain system based on hydrogen fuel cell tech- nology. Since summer 2015, BMW Group researchers have been testing a small fleet of BMW 5 Series GT hydrogen fuel cell prototypes with a jointly developed powertrain system. Global research and innovation network expanded At 31 December 2019, more than 15,700 people in 12 countries were working in the BMW Group’s global research and innovation network. The following tables summarise the key financial figures for research and development: BMW Group performance indicators relating to research and development expenses • 10 in € million 2019 2018 Research and development expenses Amortisation New expenditure for capitalised development costs Research and development expenditure 5,952 – 1,667 2,134 6,419 5,320 – 1,414 2,984 6,890 2019 20181 Change in %pts1 Research and development expenditure ratio 2 Capitalisation rate 3 6.2 33.2 7.1 43.3 – 0.9 – 10.1 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 Research and development expenditure as a percentage of Group revenues. 3 Capitalised development costs as a percentage of research and development expenditure. see note 8 Further information on research and development expenditure is provided in note 8 to the Group Financial Statements. Combined Management ReportProduction Network The BMW Group’s production system is characterised by its high flexibility and efficiency, enabling it to respond rapidly to changing market situations and fluc- tuating regional demand. The BMW Group’s production expertise also makes a contribution to its profitability. Its production network leverages innovative technolo- gies from the fields of digitalisation and Industry 4.0, including applications from the worlds of virtual reality, artificial intelligence and 3D printing. Standardised processes and structures ensure consistent premium quality throughout the production system. At the same time, the BMW Group offers its customers a high degree of individualisation. Sustainability in production and along the value chain has played a fundamental role for the BMW Group Vehicle production of the BMW Group by plant • 11 in units Spartanburg Dingolfing Regensburg Leipzig Oxford Munich Rosslyn Rayong Chennai Araquari Goodwood San Luis Potosí Tiexi (BBA) 2 Dadong (BBA) 2 Born (VDL Nedcar) 3 Graz (Magna Steyr) 3 Partner plants Group 31 for many years. The Company has been continually reducing the use of resources such as energy and water and produces less waste and CO2 emissions. In 2019 the production of a vehicle required on average only half the resources and CO2 as in 2006. From 2020 onwards all plants operated directly by the BMW Group globally as well as those of the joint venture BMW Brilliance Automotive in China will obtain energy exclusively from renewable sources. High capacity utilisation throughout the entire production network The Group set a new production volume record in the year under report, totalling 2,564,025 1 BMW, MINI and Rolls-Royce brand vehicles (2018: 2,541,534 1 units; + 0.9 %). The figure comprised 2,205,841 1 BMW (2018: 2,168,496 1 units; + 1.7 %), 352,729 MINI (2018: 368,685 units; – 4.3 %) and 5,455 Rolls-Royce (2018: 4,353 units; + 25.3 %) brand vehicles. 2019 2018 Change in % Proportion of production in % 411,620 284,907 255,804 230,284 222,340 221,077 69,463 23,700 8,976 8,208 5,455 25,538 250,241 286,268 174,097 52,231 33,816 356,749 328,862 319,592 244,248 234,501 157,799 50,224 15,612 10,956 7,752 4,353 308 299,939 191,888 211,660 64,431 42,660 2,564,025 2,541,534 15.4 – 13.4 – 20.0 – 5.7 – 5.2 40.1 38.3 51.8 – 18.1 5.9 25.3 – – 16.6 49.2 – 17.7 – 18.9 – 20.7 0.9 16.1 11.1 10.0 9.0 8.7 8.6 2.7 0.9 0.3 0.3 0.2 1.0 9.8 11.2 6.8 2.0 1.3 100.0 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2019: 536,509 units, 2018: 491,872 units). 2 Joint Venture BMW Brilliance Automotive Ltd., Shenyang. 3 Contract production. Expansion of the international production network In its efforts to remain successful going forward, the BMW Group continues to invest in expanding existing and establishing new production capacities, thereby increasing its manufacturing capability and enhancing the flexibility of its production network. The BMW Group endeavours to achieve an even dis- tribution of production and deliveries in the various regions of the world. In 2019, the BMW Group opened a new plant in San Luis Potosí (Mexico). The new facility, which has the capacity to manufacture up to 175,000 units per year, produces the BMW 3 Series Sedan, thus sig- nificantly boosting production flexibility within the network. The BMW 3 Series Sedan is also produced in Germany and China. The BMW Brilliance Automotive Ltd, Shenyang (BBA) joint venture in China is currently building a new facil- ity on the premises of the Tiexi plant and carrying out major extensions to its automobile plant in Dadong. 32 General Information and Group Profile Organisation and Business Model Production Network Production of electrified automobiles in the existing production system The BMW Group is integrating the production of fully and partially electrified vehicles in its existing production system, enabling it to ensure the long- term capacity utilisation of the production network, while at the same time being able to respond swiftly and flexibly to customer requirements. In 2019, the Group produced electrified models at 11 different locations worldwide. The BMW Group plants in Germany play a leading role in integrating e-mobility throughout the Group’s production network. The technologies used to produce electric powertrain components and high-voltage batteries are developed at the Group’s prototype con- struction centre in Munich. As a competence centre for electric powertrain systems, the Dingolfing site acts as lead production plant, and the e-motors for the BMW Group’s electrified vehicles are manufac- tured there. The corresponding battery modules and high-voltage batteries are produced at the Group’s three battery factories in Dingolfing ( Germany), Spartanburg (USA) and Shenyang (China). In Thailand, the BMW Group works closely with a partner that manufactures batteries for electrified vehicles pro- duced locally. Its ability to produce electric powertrain systems, batteries and prototypes for battery cells in-house gives the BMW Group a competitive edge that enables it to secure valuable knowledge of new technologies, gain important system expertise and leverage cost advantages. The BMW Group combines its wealth of experience and broad knowledge of battery cell technologies in its own new competence centre, which was opened in Munich in 2019. Combined Management ReportInternational production network The production network comprises 31 locations in 15 countries, 20 of which are BMW Group plants. Three of these locations belong to the BMW Brilliance Automotive joint venture in Shenyang, China. A further eight production sites are operated either by partners or contract manufacturers. The same standards of quality, safety and sustainability apply at all locations within the BMW Group’s production network worldwide. 33 Locations BmW Group plAnts Araquari Berlin Chennai Dingolfing Eisenach Hams Hall Landshut Leipzig Manaus Munich Oxford Rayong Regensburg Rosslyn San Luis Potosí Spartanburg Steyr Swindon Wackersdorf Country Brazil Germany India Germany Products BMW 3 Series, BMW X1, BMW X3, BMW X4, BMW X5 BMW motorcycles, Maxi-Scooters, car brake discs BMW 3 Series, BMW 5 Series, BMW 6 Series, BMW 7 Series BMW X1, BMW X3, BMW X4, BMW X5, BMW X7, MINI Countryman BMW 3 Series, BMW 4 Series, BMW 5 Series, BMW 6 Series, BMW 7 Series, BMW 8 Series, BMW M Chassis and drivetrain components Components for electric mobility Rolls-Royce bodywork, pressed parts Germany Toolmaking, outer body parts for Rolls-Royce, aluminium tanks for BMW Motorrad United Kingdom Germany Germany Brazil Germany United Kingdom Thailand Germany South Africa Mexico USA Austria United Kingdom Germany Lightweight construction components, electric drivetrain systems and special engines Petrol engines for BMW, BMW i, MINI Core engine parts BMW 1 Series, BMW 2 Series, BMW i, BMW M Motorcycles BMW 3 Series, BMW 4 Series, BMW M Petrol and diesel engines, high-performance engines for M models Core engine parts MINI, MINI Clubman BMW 3 Series, BMW 5 Series, BMW 7 Series BMW X1, BMW X3, BMW X5, BMW X6 Motorcycles BMW 1 Series, BMW 2 Series, BMW 3 Series, BMW 4 Series BMW X1, BMW X2, BMW M BMW X3 BMW 3 Series BMW X3, BMW X4, BMW X5, BMW X6, BMW X7, BMW M Petrol and diesel engines for BMW and MINI Core engine parts High-performance engines for M models Pressed parts and bodywork components Distribution centre for parts and components Cockpit assembly Processing of carbon fibre components Rolls-Royce Manufacturing Plant Goodwood United Kingdom Rolls-Royce Phantom , Ghost, Wraith, Dawn, Cullinan* * Fuel consumption and CO2 emissions information are available on page 70. 34 General Information and Group Profile Organisation and Business Model Production Network The plants in Shenyang (China) are operated by the BMW Brilliance Automotive (BBA) joint venture. The Shenyang production location comprises the Dadong and Tiexi automobile plants. Tiexi also has an engine plant with an adjacent foundry and battery factory. Locations Joint venture BmW BrilliAnce AUTOMOTIVE HOlDINGS lTD. Dadong (Shenyang) Tiexi (Shenyang) Tiexi (Shenyang) Country China China China The BMW Group’s four automobile partner plants in Jakarta (Indonesia), Cairo (Egypt), Kaliningrad (Russia) and Kulim (Malaysia) primarily serve their respective regional markets. Locations PARTNER PlANTS Jakarta Cairo Kaliningrad Kulim Country Indonesia Egypt Russia Malaysia Products BMW 5 Series BMW X3 BMW 1 Series, BMW 2 Series, BMW 3 Series BMW X1, BMW X2 Petrol engines, production of core engine parts Products BMW 3 Series, BMW 5 Series, BMW 7 Series, BMW X1, BMW X3, BMW X5 MINI Countryman BMW 5 Series, BMW 7 Series BMW X1, BMW X3, BMW X4, BMW X5, BMW X6, BMW X7 BMW 5 Series, BMW 7 Series BMW X1, BMW X3, BMW X4, BMW X5, BMW X6, BMW X7 BMW 3 Series, BMW 5 Series, BMW 6 Series, BMW 7 Series BMW X1, BMW X3, BMW X4, BMW X5 MINI Countryman Combined Management ReportThe BMW Group also awards contracts to external partners for the production of specific types of vehicle as well as motorcycles. During the period under report, Magna Steyr Fahrzeugtechnik pro- duced the BMW 5 Series Sedan and the BMW Z4 in Graz ( Austria). Moreover, various MINI models and the BMW X1 were assembled at VDL Nedcar in Born (the Netherlands). BMW motorcycles were also manufactured by the TVS Motor Company in Hosur (India) and the Loncin Motor Company in Chongqing (China). Locations Country Products 35 MINI Convertible, MINI Countryman BMW X1 Motorcycles BMW 5 Series BMW Z4 Motorcycles contrAct production Born Chongqing Graz Hosur The Netherlands China Austria India Motorcycle production up sharply In 2019, a total of 187,116 motorcycles rolled off produc- tion lines at five different locations worldwide (2018: 162,687 units; + 15.0 %). The significant increase was primarily due to the fact that the production of BMW scooters at the Chinese partner Loncin Motor Co., Ltd in Chongqing now covers the full product range. In September 2019, BMW Motorrad celebrated 50 years of motorcycle production at the Berlin plant together with over 10,000 visitors. 36 General Information and Group Profile Organisation and Business Model BMW Group locations worldwide • 12 43 Sales subsidiaries and Financial Services locations worldwide 31 Production and assembly plants 12 Countries with research and development locations Headquarters Canada usA Mexico United Arab Emirates Brazil Argentina 1 South Africa New Zealand Russia India China South Korea Japan Hong Kong Thailand Malaysia Singapore 1 Indonesia 1 Australia Production outside Europe BMW Group plant Araquari, Brazil BMW Group plant Chennai, India BMW Group plant Manaus, Brazil BMW Group plant Rayong, Thailand BMW Group plant Rosslyn, South Africa BMW Group plant San Luis Potosí, Mexico BMW Group plant Spartanburg, USA BMW Brilliance Automotive, China (joint venture – 3 plants) 1 Sales locations only. Partner plants outside Europe Partner plant, Chongqing, China Partner plant, Hosur, India Partner plant, Jakarta, Indonesia Partner plant, Cairo, Egypt Partner plant, Kulim, Malaysia Research and development network outside Europe BMW Group Designworks, Newbury Park, USA BMW Group Technology Office USA, Mountain View, USA BMW Group Engineering and Emission Test Center, Oxnard, USA BMW Group ConnectedDrive Lab China, Shanghai, China, and BMW Group Designworks Studio Shanghai, China BMW Group Technology Office, Shanghai, China BMW Group Engineering China, Beijing, China BMW Group Engineering Japan, Tokyo, Japan BMW Group Engineering USA, Woodcliff Lake, USA BMW Technology, Chicago, USA BMW Group IT Technology Office, Greenville, USA BMW Group IT DevOps Hub, Rosslyn, South Africa BMW do Brasil, Araquari, Brazil BMW Group Technology Office Tel Aviv, Tel Aviv, Israel BMW Group R&D Center Seoul, Seoul, South Korea Combined Management Report BMW Group locations in Europe • 13 37 Norway Germany The Netherlands uk Ireland Belgium France Switzerland Spain Portugal Italy Slovenia 1 Malta Sweden Finland 1 Denmark Czech Republic Poland Austria Slovakia 1 Hungary 1 Romania 1 Bulgaria 1 Greece Production in Europe BMW Group plant Berlin BMW Group plant Dingolfing BMW Group plant Eisenach BMW Group plant Landshut BMW Group plant Leipzig BMW Group plant Munich BMW Group plant Regensburg BMW Group plant Wackersdorf BMW Group plant Steyr, Austria BMW Group plant Hams Hall, UK BMW Group plant Oxford, UK BMW Group plant Swindon, UK Rolls-Royce Manufacturing Plant, Goodwood, UK Partner plants in Europe Partner plant, Born, the Netherlands Partner plant, Graz, Austria Partner plant, Kaliningrad, Russia Research and development network in Europe BMW Group Research and Innovation Centre (FIZ), Munich, Germany BMW Group Autonomous Driving Campus, Unterschleißheim, Germany BMW Group Designworks, Munich, Germany BMW Car IT, Munich, Germany BMW Group Lightweight Construction and Technology Center, Landshut, Germany BMW Group Diesel Competence Centre, Steyr, Austria BMW France, S. A. S., Montigny, France Critical TechWorks S.A., Porto, Portugal Rolls-Royce Motor Cars Ltd., Goodwood, UK Sales subsidiaries and Financial Services locations 38 General Information and Group Profile Organisation and Business Model Purchasing and Supplier Network Workforce Purchasing and Supplier Network Further information is available in the Sustainable Value Report 2019 online at www.bmwgroup.com / svr. Connecting procurement markets The BMW Group remains committed to its strategy of maintaining a regional balance with regard to sales volume, production and purchasing volumes, thereby making an important contribution to natural hedging against currency fluctuations. In particular, the proportion of purchase volumes attributable to the Americas region grew in 2019, mainly due to the sig- nificant increase in vehicle production in Spartanburg, USA, and the start-up of the vehicle plant in San Luis Potosí, Mexico. Growth in the region will continue in future with the ramping up of production in Mexico. Regional mix of BMW Group purchase volumes 2019 • 14 in %, basis: production material Asia / Australia 6.5 Rest of Western Europe 16.8 19.0 North America 2.3 Other 33.4 Germany 22.0 Eastern Europe Ensuring access to resources in a volatile environment The international orientation of the Purchasing and Supplier Network provides the BMW Group with good access to global procurement markets. It is responsible for the worldwide procurement and quality assurance of production materials, raw materials, capital goods and services as well as the manufacturing of vehicle components produced in-house. External suppliers are selected systematically on the basis of competitive- ness according to the criteria of operating excellence, quality, innovation, flexibility, cost and sustainability. Sustainability and resource efficiency along the value chain The BMW Group attaches great importance to compli- ance with environmental and social standards as well as to the efficient use of resources along the entire value chain. For these reasons, sustainability criteria based on the BMW Group Sustainability Standard are firmly embedded in its purchasing processes. These criteria also play an essential role in the selection and assess- ment of suppliers and apply across the entire supply chain. Sustainability management therefore creates greater transparency for both the BMW Group and its suppliers. The BMW Group is also involved in initiatives aimed at standardising sustainability requirements and estab- lishing verification mechanisms for supply chains in connection with critical raw materials. Example: cobalt Since cobalt is a key component for producing electrified vehicles, the BMW Group is working to achieve the greatest possible level of transparency in the supply chain. The Group is in continuous contact with battery cell manufacturers and demands disclo- sure of the origin of this critical raw material. The BMW Group has also made its information on the subject of cobalt, such as the smelters and countries of origin, publicly available and updates it regularly. The next step will be to restructure the supply chains used to acquire cobalt. From 2020 onwards, the Group plans to purchase cobalt for fifth-generation battery cells directly from mines in Morocco and Australia and make it available to its supply chain partners. The strategy increases transparency regarding the origin of the raw material. Combined Management ReportWorkforce www.bmwgroup.com / en / responsibility / employees BMW Group apprentices at 31 December • 16 39 5,000 4,700 4,613 4,750 4,964 4,801 2,500 0 2015 2016 2017 2018 2019 High level of investment in employee qualification Spending on employee training and development totalled € 370 million and therefore remained at a similar level to the previous year (2018: € 373 mil- lion; – 0.8 %). The BMW Group consistently promotes the principle of lifelong learning. The availability of innovative, requirements-based learning opportuni- ties enables employees to play an active role in shaping the future of the BMW Group. During 2019, the range of training courses on offer for key strategic areas such as electric mobility, robotics and data analytics was therefore expanded, new learning formats introduced in conjunction with the digitalisation initiative, and a greater emphasis placed on improving manager skill sets, in particular those relevant for leadership in the digital age. Workforce at previous year’s level At 31 December 2019, the BMW Group employed a workforce of 133,778 people worldwide. The number of employees was thus at a similar level to the end of the previous year (2018: 134,682 employees; – 0.7 %). During 2019, natural fluctuation was used to lever- age competencies to focus even more keenly on the major topics of the future. Specialists and IT experts were hired in future-oriented fields such as artificial intelligence and autonomous driving, electric mobility, smart production and logistics as well as data analysis, software architecture, agile software development and innovative drivetrain systems. The global production network was also further expanded. BMW Group employees • 15 Automotive Motorcycles Financial Services Other Group 31. 12. 2019 31. 12. 2018 Change in % 121,208 121,994 3,658 8,798 114 3,709 8,860 119 133,778 134,682 – 0.6 – 1.4 – 0.7 – 4.2 – 0.7 Realignment of vocational training Started in 2018, the realignment of vocational training continued to make good progress with the implemen- tation of various strategic action packages, aimed in particular at bringing about the digital transformation of vocational training based on three pillars: modern and mobile equipment, new digital collaboration and learning platforms, and a broadly based system of talent development specifically tailored to apprentices. In addition to the basic range of skills still needed, emphasis is also being placed on promoting the acqui- sition of new technical and interdisciplinary expertise across 30 vocations and 17 dual courses of study. The latter were expanded to include the bachelor-degree programmes Industry 4.0 Computer Science, Artificial Intelligence and Production and Automation. The total number of apprentices and participants in the BMW Group’s development programmes for young talent remained at a high level during the year under report at 4,801 (2018: 4,964; – 3.3 %). 40 General Information and Group Profile Organisation and Business Model Workforce Sustainability BMW Group remains a highly attractive employer Again in 2019, the BMW Group was ranked among the world’s most attractive employers. In the latest “World’s Most Attractive Employers” ranking pub- lished by the agency Universum, the BMW Group was once again named the most attractive automotive company in the world. In 2019, BMW Group China was also selected by busi- ness students participating in the locally conducted Universum student survey as the most attractive employer in the automotive industry. The renowned Zhaopin “Most Attractive Employer Award” named the BMW Group the most attractive employer overall. The BMW Group also came out on top again in Trendence’s “Young Professional Barometer Germany”. It also received the “Most Attractive Employer of the Last 20 Years” award for the most number one rank- ings over this period. Moreover, the Group matched its previous year’s performance in the Universum study “Young Professionals Germany”, finishing first, second and third in the categories Business, Engineering and IT respectively. Based on the overall results of studies across all sectors, the BMW Group continued to be one of the world’s highest-ranked companies in 2019. Employee attrition rate at BMW AG* • 17 as a percentage of workforce 7.0 3.5 0 2.70 2.64 2.78 2.08 3.39 2015 2016 2017 2018 2019 * Number of employees on unlimited employment contracts leaving the Company. Diversity as a competitive factor Diversity is a key factor in ensuring the BMW Group’s continued competitiveness. The aim is to ensure equal opportunities for all employees and at the same time utilise and promote the diversity of the Group’s workforce. In this context, emphasis is placed on the three aspects of gender, cultural background and age / experience. In 2019, the BMW Group again implemented a broad array of measures in its efforts to promote diversity. Further information on this topic is also provided in the Sustainable Value Report 2019. www.bmwgroup.com / svr The percentage of women in the BMW Group work- force as a whole was 19.8 % (BMW AG: 16.3 %), surpass- ing the internal target range of between 15 and 17 %. The number of women in management functions rose to 17.5 % across the BMW Group (BMW AG: 15.8 %). During the year under report, female representation in the BMW Group’s trainee and student development programmes stood at approximately 39 % and 28 % respectively. At the same time, the workforce is becoming increas- ingly international. Employees from over 120 countries work together successfully for BMW AG. Moreover, a balanced age structure in the workforce encourages an exchange of ideas and knowledge between gen- erations and plays a key role in reducing the loss of know-how when valuable employees retire. Proportion of female employees in manage- ment functions at BMW AG / BMW Group* • 18 BMW Group 14.3 BMW AG 12.5 15.3 13.3 16.0 14.0 17.2 15.1 17.5 15.8 in % 18 9 0 2015 2016 2017 2018 2019 *Since 2017 including maternity leave. Combined Management Report41 Sustainability www.bmwgroup.com / responsibility The BMW Group sees itself as a pioneer of sustain- ability, not only within the automotive industry, but across other sectors, too. Long-term thinking and responsible action have long been the cornerstones of the BMW Group’s distinct identity and its economic success. As early as 1973, the BMW Group was the first company in the automotive sector to appoint an environment officer. Since 2001, the BMW Group has been committed to the United Nations Environment Programme, the UN Global Compact and the Cleaner Production Declaration. Through its sustainability policy, the BMW Group is supporting the implemen- tation of the UN’s Sustainable Development Goals (SDG), which were adopted in September 2015, and is committed to complying with the Paris Climate Convention. The principles and importance of managing the business on a sustainable basis are emphasised in the BMW Group’s corporate strategy, which includes a clear commitment to preserving resources. The BMW Group remains fully committed to ecological and social sustainability along the entire value chain as well as to comprehensive product responsibility. Apart from the reduction of CO2 emissions, key components of the Group’s sustainability strategy include industrial environmental protection, circular economy, sustainability in the supply chain, employee orientation and social commitment. In order to safeguard its viability going forward, the BMW Group’s business model is rigorously based on the principle of sustainability. The Group works continually on technical innovations that contribute to solving global challenges such as climate change and urbanisation. In this endeavour, the BMW Group concentrates on three main topics: — The development of products and services for sustainable individual mobility — The efficient use of resources along the entire value chain — Responsibility towards employees and society in general Further information on sustainability within the BMW Group is provided in the Sustainable Value Report www.bmwgroup.com / svr. 2019, which is published online at The Sustainable Value Report is published together with the Annual Report and drawn up in accordance with the “Comprehensive” option of the standards of the Global Reporting Initiative (GRI). This is the highest level of transparency set out in the GRI stan- dards, in which all relevant information and indicators of the aspects identified as material are reported on. The Sustainable Value Report is drawn up subject to a limited assurance engagement in accordance with ISAE 3000 (International Standard on Assurance Engagements 3000 (Revised): “Assurance Engagements other than Audits or Reviews of Historical Financial Information”). Based on the requirements of the German CSR Direc- tive Implementation Act, since the financial year 2017 BMW AG has been required to publish a non-financial declaration at both Company and Group level. The declaration is published jointly for BMW AG and the BMW Group as a separate combined non-financial report within the Sustainable Value Report. The separate combined non-financial report is avail- able online within the Sustainable Value Report 2019 at www.bmwgroup.com / svr. CO2 fleet emissions The development of sustainable products and services is an integral part of the BMW Group’s business model. The early use of Efficient Dynamics technologies (since 2007) across the entire fleet and the electrification of vehicles, which continued to make good progress in 2019, have enabled CO2 emissions to be continuously reduced. Together, these two cornerstones are essen- tial for future compliance with statutory CO2 and fuel consumption limits going forward. * EU-28 The BMW Group has reduced the CO2 emissions of its newly sold vehicles in Europe by approximately 40 % between 1995 and 2019. In Europe*, average CO2 emis- sions were 127 g CO2 / km (2018: 128 g CO2 / km; – 0.8 %) in the year under report. Based on this figure, the BMW Group’s new vehicle fleet* in Europe in 2019 had an average fuel consumption of 5.0 litres of diesel per 100 km or 6.0 litres of petrol per 100 km. With effect from September 2018, all vehicles in the EU were required to be approved in accordance with the new WLTP testing cycle. However, the calculation of CO2 fleet emissions by the EU Commission will not be converted to WLTP until 2021. Therefore, for reporting purposes up to and including 2020, WLTP fleet emissions must be translated back to the previ- ously applicable values calculated in accordance with the outgoing New European Driving Cycle (NEDC). Due to the changed test conditions used for WLTP purposes, emission values are higher when translated back to an NEDC basis (NEDC-correlated). 42 General Information and Group Profile Organisation and Business Model Sustainability Cooperation Agreements and Partnerships Production In its efforts to reduce CO2 emissions generated by production and thus contribute to climate protection, the BMW Group uses energy-efficient equipment pow- ered by renewable energy. In 2019, 87 % (2018: 79 %) of the BMW Group’s electricity worldwide was generated from renewable sources or were compensated through appropriate certificates of origin. As from 2020, all the Group’s locations worldwide are scheduled to obtain their electricity exclusively from renewable sources. In 2019, at 2.04 MWh per vehicle* produced, the BMW Group further reduced the amount of energy consumed in the production process compared with the previous year (2018: 2.12 MWh; – 3.8 %). Through the use of measures to boost energy efficiency and the purchase and in-house generation of electricity from renewable sources at BMW Group manufactur- ing sites, production-related CO2 emissions fell by 25.0 % to 0.30 tonnes per vehicle* produced in the year under report compared with the previous year (2018: 0.40 tonnes). Social engagement Social engagement is also an integral part of the BMW Group’s corporate identity. For many years now, the BMW Group has firmly supported intercultural exchange. In partnership with the UN Alliance of Civi- lizations, the BMW Group presents the Intercultural Innovation Award for projects the Company views as exemplary in this field. Since 2011, each year it has presented the “BMW Group Award for Social Com- mitment” to employees who have made an exceptional contribution through their outstanding volunteer work. The Group addresses current social challenges, primarily in areas where its expertise enables it to make the greatest impact. The main focus here is on problem-solving approaches that are internationally applicable and have a tangible long-term impact by helping people to help themselves. With this aim in mind, the BMW Group works together with the BMW Foundation Herbert Quandt. BMW Foundation Herbert Quandt The BMW Foundation Herbert Quandt is an inde- pendent corporate foundation whose activities contribute to the BMW Group’s social responsibility and mission goals. The foundation endeavours to inspire leaders worldwide to assume and continually develop their social responsibility and political com- mitment. Leaders are also encouraged to work for a peaceful, just and sustainable future. With its Respon- sible Leadership programmes, a global network and * Efficiency indicator calculated from Scope 1 and Scope 2 CO2 emissions (market-based method in accordance with GHG Protocol Scope 2 Guidance) of vehicle production, exclud- ing motorcycles (adjusted for CHP losses), divided by the total amount of produced vehi- cles, including from the joint venture BMW Brilliance Automotive Ltd., Shenyang (China), but excluding vehicles from contract production at Magna Steyr and Nedcar. impact-oriented investments, the BMW Foundation Herbert Quandt supports the sustainability targets of www.bmw-foundation.org . the United Nations’ Agenda 2030 In 1959, Herbert Quandt secured the independence of BMW AG, thus laying the foundation for the successful development of the BMW Group. In recognition of his entrepreneurial achievements, in 1970 BMW AG estab- lished the “BMW Stiftung Herbert Quandt”, which has meanwhile been renamed the “BMW Foundation Herbert Quandt” with expanded endowment capital. Further information on the topics of sustainability and human resources within the BMW Group is avail- able in the Sustainable Value Report 2019, which is published online at www.bmwgroup.com / svr. Stakeholder dialogues and materiality analysis as basis for sustainability management The BMW Group is in continual dialogue with its numerous stakeholders, both in Germany and abroad. Stakeholder feedback provides the BMW Group with a clear picture of how current trends are changing the business environment and provides key input for the strategic decision-making process. In 2019, a total of four dialogue events (BMW Group Dialogues) on corporate responsibility and sustainability were held in Tel Aviv, San Luis Potosí, Seoul and Munich. The events addressed various topics, including product and production responsibility, responsibility for resources, and responsibility for future mobility. In the course of regular materiality analysis, social challenges are continually monitored and analysed in order to gauge their significance from the point of view of both external and internal stakeholders. Top rankings in sustainability ratings The BMW Group again achieved outstanding results in prestigious sustainability ratings in 2019, thereby confirming the Company’s view of its leading posi- tion as a sustainable enterprise. In the Dow Jones Sustainability Indices (DJSI) rating, the BMW Group is the only German automobile manufacturer to have been included once again in the two indices “Europe” and “World” and the only company in the sector to have been continuously represented since the indices were established. In the CDP rating (formerly the Carbon Disclosure Project), the Group achieved the category Leadership with a rating of A- in the year under report. Furthermore, the Group was again listed in the British FTSE4Good Index in 2019. The BMW Group is also listed in the MSCI, Sustainalytics and ISS-oekom rankings, holding a leading position in each within the industry. Combined Management Report43 Spotlight The BMW Group has signed an agreement with the Chinese manufacturer Great Wall Motor Company Limited to produce MINI electric vehicles via a 50:50 joint venture based in China. In addition to MINI elec- tric vehicles, the Spotlight Automotive Limited joint venture (Spotlight) will also produce electric vehicles for Great Wall Motor. Apart from production, the joint venture model includes the joint development of battery-electric vehicles. Spotlight was founded on 27 December 2019 following approval by the Chinese authorities. Alongside the planned increase in the stake in BBA, the BMW Group is expanding its presence in China on a significant scale, thereby underlining its com- mitment to the region. HERE Since the acquisition of the HERE mapping service by BMW AG, Daimler AG and AUDI AG in 2015, the partners have been working on high-precision digi- tal maps that can be linked to real-time vehicle data. These digital maps are key for the next generation of mobility and location-based services, including providing the basis for new assistance systems. As an independent platform, HERE has ensured at all stages that it remains accessible to other partners in the automotive sector and beyond. In December 2019, HERE announced the intention of Mitsubishi Corpo- ration (MC) and Nippon Telegraph and Telephone Corporation of Japan (NTT) to jointly acquire a 30 % ownership stake in the business. Subject to regulatory approvals, the transaction is expected to be closed during the first half of 2020. Cooperation Agreements and Partnerships In order to ensure the success of the business in the long term, the BMW Group enters into specific coop- eration agreements and partnerships with companies in the automotive industry as well as technology lead- ers in other sectors. Against a background of rapid technological change, the aim of collaborating with external partners is to combine expertise in order to bring innovations to market within the shortest time possible. BMW Brilliance Automotive The BMW Group intends to increase its stake in BMW Brilliance Automotive (BBA) from 50 to 75 %. An agreement to this effect was signed in 2018 with the BMW Group’s venture partner, Brilliance China Automotive Holdings Ltd. (CBA). The contractual term of the joint venture, which was due to expire in 2028, is to be extended up to 2040. Following approval by the Annual General Meeting of CBA on 18 January 2019, the closing of the agreement continues to be subject to regulatory approvals. YOUR NOW On 28 March 2018, the BMW Group signed an agree- ment with Daimler AG regarding the merger of certain business units that provide mobility services. Follow- ing approval by the relevant antitrust authorities, the transaction was closed on 31 January 2019. The two companies are now pressing ahead as planned to re alise their joint vision of fully electric and autono- mous on-demand mobility. The new range of mobility services will be easy to access, intuitive to use, and cater to customers’ needs. The cooperation comprises the joint ventures REACH NOW (on- demand mobility and multimodal services), CHARGE NOW (battery charg- ing), FREE NOW (ride-hailing), PARK NOW (parking) and SHARE NOW (car-sharing). The YOUR NOW companies were contributed into a holding company with effect from 31 December 2019. Based on this, the BMW Group and the Daimler Group each have an equal share in the holding company. Under the YOUR NOW umbrella, BMW and Daimler offer innovative solutions for cities and municipalities seeking to make mobility more efficient and sustain- able. Further information is provided in note 2 to the Group Financial Statements. see note 2 44 General Information and Group Profile Management System MANAGEMENT SYSTEM The business management system applied by the BMW Group follows a value-based approach that focuses on profitability, consistent growth, value enhancement for capital providers and job security. Capital is considered to be employed profitably when the amount of profit generated sustainably exceeds the cost of equity and debt capital. In this way, the desired degree of corporate autonomy is also secured in the long term. BMW Group – value drivers • 19 The BMW Group’s internal management system is based on a multilayered structure. Operating manage- ment occurs primarily at segment level. In order to manage long-term corporate performance and assess strategic issues, additional performance indicators are taken into account within the management system at Group level. In this context, the value added serves as one of several indicators for the contribution made to enterprise value during the financial year. This approach is made operational at both Group and segment level through key financial and non-finan- cial performance indicators (value drivers). The link between value added and the relevant value drivers is shown in a simplified form below. Value added – Return on capital (RoCE or RoE) × Profit – Expenses Revenues Capital employed Average weighted cost of capital rate Return on sales Capital turnover Cost of capital ÷ ÷ × Combined Management ReportDue to the high level of aggregation, it is impractical to manage the business on the basis of value added. This key indicator therefore only serves for reporting purposes. Relevant value drivers having a significant impact on business performance and therefore on enterprise value are defined for each controlling level. The financial and non-financial value drivers are reflected in the key performance indicators used to manage the business. In the case of project-re- lated decisions, the system follows a project-oriented management logic that is based on value added and profitability performance indicators, thereby provid- ing a fundamental basis for decision-making. Management of operating performance at segment level Operating performance at segment level is managed at an aggregated level on the basis of returns on capital. Depending on the business model, the segments are measured on the basis of return on total capital or return on equity. Specifically, return on capital employed (RoCE) is used for the Automotive and Motorcycles Return on capital employed • 20 45 segments and return on equity (RoE) for the Financial Services segment. These indicators combine a wide range of relevant economic information, such as profitability (return on sales) and capital efficiency (capital turnover) to provide a measurement of segment performance and the development of enterprise value. Automotive segment The most comprehensive key performance indica- tor used for the Automotive segment is RoCE. This indicator provides information on the profitability of capital employed and the operational business. RoCE is measured on the basis of segment profit before financial result and the average capital employed in the segment. The strategic target for the Automotive segment’s RoCE is 26 %. RoCE Automotive = Profit before financial result Average capital employed Profit before financial result in € million Average capital employed in € million Return on capital employed in % Automotive 4,499 6,182 15,513 12,420 2019 2018 2019 2018 2019 29.0 2018 49.8 Capital employed corresponds to the sum of all cur- rent and non-current operational assets, less liabilities that generally do not incur interest (e. g. trade payables and other provisions). Due to its key importance for the Group as a whole, the Automotive segment is managed on the basis of additional performance indicators which have a significant impact on RoCE and hence on segment performance. These value drivers are the number of vehicle deliveries and the operating return on sales (EBIT margin: segment-related profit / loss before financial result as a percentage of segment revenues) as the key performance indicator for segment prof- itability. The management system also takes into account average CO2 emissions for the fleet, which, through their influence on ongoing development costs and due to regulatory requirements, can have a significant long-term impact on Group performance. Fleet emissions correspond to average CO2 emissions of new cars sold in the EU-28 countries. By managing the business on the basis of key value drivers, it is possible to gain a better understanding of the causes of changes in the RoCE and to define suitable measures to influence it. 46 General Information and Group Profile Management System Motorcycles segment As with the Automotive segment, the Motorcycles segment is managed on the basis of RoCE. Capital employed is determined on the same basis as in the Automotive segment. The strategic RoCE target for the Motorcycles segment is 26 %. roce Motorcycles = Profit before financial result Average capital employed Return on capital employed • 21 Motorcycles Profit before financial result in € million Average capital employed in € million Return on capital employed in % 2019 194 2018 175 2019 660 2018 616 2019 29.4 2018 28.4 The principal value drivers are the number of motor- cycle deliveries and the operating return on sales (EBIT margin: segment-related profit / loss before financial result as a percentage of segment revenues) as the performance indicator for segment profitability. of return on equity. RoE is defined as segment profit before tax, divided by the average amount of equity capital in the Financial Services segment. The target is a long-term return on capital of at least 14 %. Financial Services segment As is common practice in the banking sector, the Financial Services segment is managed on the basis RoE Financial Services = Profit before tax Average equity capital Return on equity • 22 Profit before tax in € million Average equity capital in € million Return on equity in % 2019 2018* 2019 2018* 2019 Financial Services 2,272 2,143 15,146 14,522 15.0 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2018 14.8 Strategic management at Group level Strategic management and quantification of finan- cial implications for long-term corporate planning are performed primarily at Group level. The key performance indicators are Group profit before tax and the size of the Group’s workforce at the year-end. Group profit before tax provides a comprehensive measure of the Group’s overall performance after consolidation effects and a transparent basis for com- paring performance, particularly over time. The size of the Group’s workforce is monitored as an additional key non-financial performance indicator. Combined Management Report The information provided by these two key perfor- mance indicators is further complemented by pre-tax return on sales and value added. Value added, as a highly aggregated performance indicator, also provides an insight into capital efficiency and the (opportunity) cost of capital required to generate Group profit. A positive value added means that a company is gener- ating more value than the cost of capital. 47 Value added Group = earnings amount – cost of capital = earnings amount – (cost of capital rate × capital employed) Value added Group* • 23 in € million BMW Group Earnings amount Cost of capital (equity + debt capital) Value added Group 2019 2018 2019 2018 2019 2018 7,369 9,898 7,812 7,279 – 443 2,619 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Capital employed comprises the average amount of Group equity employed during the year as a whole, the financial liabilities of the Automotive and Motor- cycles segments, and pension provisions. The earn- ings amount corresponds to Group profit before tax, ad justed for interest expense incurred in conjunction with the pension provision and on the financial lia- bilities of the Automotive and Motorcycles segments (earnings before interest expense and taxes). The cost of capital is the minimum rate of return expected by capital providers in return for the capital employed. Since capital employed comprises an equity capital (e. g. share capital) and a debt capital element (e. g. bonds), the overall cost of capital rate is determined on the basis of the weighted average rates for equity and debt capital, measured using standard market procedures. The pre-tax average weighted cost of capi- tal for the BMW Group in 2019 was 12 %, unchanged from the previous year. Value-based project management Operational business in the Automotive and Motor- cycles segments is largely shaped by its life-cycle- dependent project character. Projects have a substantial influence on future business performance. Project decisions are therefore a crucial component of financial management in the BMW Group. Project decisions are based on calculations derived from expected cash flows of the individual project. Calculations are made for the full term of a project, incorporating future years in which the project is expected to generate cash flows. Project decisions are taken on the basis of net present value and the internal rate of return calculated for the project. The net present value of a project indicates the extent to which a project will be able to generate a positive contribution to earnings over and above the cost of capital. A project with a positive net present value enhances value added and therefore results in an increase in enterprise value. The internal rate of return of the project corresponds to the average return on capital employed in the project. It is equivalent to the multi-year average RoCE for an individual project. It is therefore consistent with one of the most important of the key performance indicators. For all project decisions, the project criteria and long-term periodic results impact are measured and incorporated in the long-term Group forecast. This approach enables an analysis of the impact of project decisions on periodic earnings and rates of return for each year during the term of the project. The overall result is a cohesive management model. 48 Report on Economic Position General and Sector- specific Environment REPORT ON ECONOMIC POSITION Automobile markets down on previous year BMW Group automobile deliveries nonetheless at new high level Financial Services segment posts record results GENERAL AND SECTOR-SPECIFIC ENVIRONMENT General economic environment The global economy was impacted by a variety of adverse factors during 2019, and the resulting 2.9 % growth rate was the slowest recorded for years. The economic slowdown was broadly based. Amongst the G7 countries, Japan was the only one to record an increase in economic output. The BRIC countries were also unable to escape the consequences of the slowdown, resulting in lower growth rates across the board. The 1.2 % growth rate recorded in the eurozone was also down on the previous year. Although major economies in the region continued to expand, the pace of growth in Germany (+ 0.6 %), France (+ 1.3 %), Italy (+ 0.2 %) and Spain (+ 2.0 %) was significantly low- er year-on-year, whereby exports, private consumption and a slight increase in public-sector spending con- tributed to the positive growth rates. Despite lower industrial production output, the unemployment rate continued to fall and is now at its lowest level since 2008. Against a backdrop of weaker economic per- formance and easing inflationary pressures, towards the end of the year the European Central Bank (ECB) decided to resume its securities purchase programme and reduce its deposit rate further. Economic performance in the United Kingdom (UK) was dominated by ongoing uncertainty regarding the terms of Brexit and hence the UK’s future relationship with the European Union (EU). Despite a further slight drop in the unemployment rate, private consumer sentiment failed to improve noticeably. Public-sector spending was increased substantially with a view to counteracting the slowing pace of the UK economy. Nevertheless, economic growth dropped for the fifth consecutive year to stand at 1.4 %. Combined Management Report49 Although the drop in consumer demand due to the value added tax hike was slightly greater than expect- ed, this effect was more than offset by the even more pronounced growth in consumer demand that had occurred prior to the hike. Government spending was increased on a significantly greater scale than one year earlier, thereby boosting the domestic economy. By contrast, exports fell year-on-year in 2019 as a consequence of the trade disputes between the USA and China. Currency markets The US dollar / euro exchange rate fluctuated between 1.09 and 1.15 US dollars to the euro during 2019, fin- ishing at an average rate of 1.12 US dollars to the euro for the year. The development of the British pound’s exchange rate over the year reflected the uncertainty of capital markets regarding their expectations of an orderly Brexit. As a consequence, the value of the British currency dropped to 0.93 pounds to the euro at one stage, compared to a high of 0.83, ultimately resulting in an average rate of 0.88 pounds to the euro in 2019, nearly unchanged from the previous year. The Chinese renminbi stabilised year-on-year with an average exchange rate of 7.73 renminbi to the euro over the year. The Japanese yen also appreciated in value with an average exchange rate of 122 yen to the euro during the year under report. Gross domestic product (GDP) in the USA was up by 2.3 % in 2019, marking the country’s tenth successive year of economic growth. Once again, domestic demand provided the momentum for growth. In addition to higher spending by private households, public-sector spending also rose significantly. Consumer sentiment within private households was underpinned by a his- torically low unemployment rate and rising wages. By contrast, the level of investment by companies and private households fell noticeably. Moreover, exports stagnated and industrial production contracted on a massive scale. Weak economic growth combined with a moderate inflation rate of 1.8 % were the decisive factors behind the US Reserve’s decision to cut interest rates sharply during the period under report. Growth in China came in at 6.1 % in 2019, slightly down on the previous year. Private consumer spending decreased year-on-year. The trade conflict with the USA caused import prices to increase, thereby triggering a rise in the inflation rate, the effect of which was felt most noticeably by private households. Similarly, there was no improvement in the willingness of companies to invest, with volumes even lower than one year earlier. During 2019, however, numerous protective tariffs imposed by the USA on Chinese products exacerbated the factors slowing down the Chinese economy, causing the government to undertake fiscal and monetary measures to prevent the economy from cooling too quickly. In Japan, GDP grew by 0.7 %, mainly attributable to a moderate year-on-year increase in private consumption. Exchange rates compared to the euro • 24 Index: December 2014 = 100 British Pound Chinese Renminbi Russian Rouble US Dollar Japanese Yen 150 100 50 2015 2016 2017 2018 2019 2020 150 100 50 Source: Reuters. 50 Report on Economic Position General and Sector- specific Environment Oil price trend • 25 Price per barrel of Brent Crude 100 50 0 Price in US dollars Price in euros 2015 2016 2017 2018 2019 2020 Source: Reuters. Metals price trend • 26 Index: December 2014 = 100 300 200 100 0 Source: Reuters. Palladium Lithium carbonate Gold Cobalt Platinum 2015 2016 2017 2018 2019 2020 100 50 0 300 200 100 0 Combined Management ReportEnergy and raw materials prices Increasing uncertainty regarding the global economy also put pressure on commodity markets in 2019. After substantial rises for steel in the previous year, prices consolidated at a lower level in 2019. Against this backdrop, prices for precious and non-fer- rous metals rose only slightly. Palladium and rhodium, which are mainly used in catalytic converters, were the exception to the general trend and became signifi- cantly more expensive during the reporting period. Prices for lithium and cobalt, which are used as raw materials in batteries, were well down in 2019 com- pared with the high levels of the recent past. Increased supply capacity and significantly lower-than- expected demand for these materials meant that prices remained at a lower level than in previous years. Despite some risks, oil markets were relatively calm in 2019. The drone attack on oil production facilities in Saudi Arabia caused prices to rise significantly in the short term, but had little impact on price levels in the medium term. Whereas prices in the region of 53 US dollars per barrel were still seen on the market at the beginning of the year, the price of Brent crude oil rose to a peak of 75 US dollars due to prevailing concerns. Overall, the average price per barrel fell sharply from 72 US dollars to 64 US dollars year-on- year. WTI, the benchmark for crude oil in the USA, followed a similar trend, with an average price of around 57 US dollars per barrel for the year as a whole. Steel price trend • 27 Index: January 2015 = 100 150 100 50 2015 2016 2017 2018 2019 2020 Source: Working Group for the Iron and Metal Processing Industry. 51 International automobile markets A downward trend was observable on most automo- bile markets in 2019. Accordingly, registration figures for passenger cars and light commercial vehicles fell worldwide by 2.0 % to a total of 83.5 million vehicles. International automobile markets • 28 Europe thereof Germany thereof France thereof Italy thereof Spain thereof UK USA China Japan Total Change in % + 1.1 + 4.9 + 1.6 + 0.1 – 4.6 + 4.0 – 1.2 – 3.9 – 0.8 – 2.0 International motorcycle markets Motorcycle markets in the 250 cc plus class generally performed well during 2019. The number of new reg- istrations worldwide increased by 3.1 % year-on-year. International motorcycle markets • 29 Europe thereof Germany thereof France thereof Italy thereof Spain America thereof USA thereof Brazil Total Change in % 8.2 7.5 12.0 5.5 14.5 – 3.3 – 4.8 13.2 3.1 OVERALL ASSESSMENT BY MANAGEMENT Overall assessment of business performance Despite challenging conditions and volatility on inter- national markets, the BMW Group can look back on an overall satisfactory business performance in 2019. Despite some downward trends in figures in the past financial year, the BMW Group’s results of operations, financial position and net assets are all indicative of its solid financial condition. Overall, in view of the various economic challenges arising during the year, business developed in line with management’s revised expectations, taking into account the provision recognised in connection with the EU Commission’s antitrust proceedings. This assessment also takes into account events after the end of the reporting period. The impact expected from the spread of the coronavirus has been taken into account in the out- look for 2020. 52 Report on Economic Position General and Sector- specific Environment Overall Assessment by Management Comparison of Forecasts for 2019 with Actual Results in 2019 International interest rate environment The trade dispute between the USA and China, increasing trade barriers and growing uncertainty as a result of geopolitical risks all had a negative impact on the global economy in 2019. The major central banks responded to these developments with expansionary monetary policies. In September, the European Central Bank decided to cut the deposit rate by 0.10 % to – 0.50 % and resume its bond purchase programme. Since November 2019, it has been buying securities at a monthly rate of € 20 billion; an end to the purchase programme has not been set. With the outcome of the UK’s EU exit negotiations being uncertain, the Bank of England (BoE) followed a “wait-and-see” approach and left the key interest rate unchanged at 0.75 % in 2019. During the period under report, the US Federal Reserve (Fed) cut interest rates for the first time since the financial crisis. After three reductions of 0.25 % in each case, at 31 December 2019 the benchmark interest rate was within a range of 1.50 to 1.75 %. After its meeting in October, the Fed signalled that it would not reduce interest rates further in the near future. In August, the Bank of China (PBOC) announced a reform of its lending rate mechanism, replacing the traditional benchmark interest rate with the market- o riented Loan Prime Rate (LPR). On introduction of the new system, the LPR stood at 4.25 %, 0.10 % lower than the former traditional benchmark rate. During the remainder of the year, the PBOC reduced the LPR to 4.15 % in two steps. Moderate economic growth, the increase of the value added tax and an inflation rate that continues to be significantly under the 2 % target prompted the Japanese central bank to maintain its highly expansive monetary policies. Combined Management ReportCOMPARISON OF FORECASTS FOR 2019 WITH ACTUAL RESULTS IN 2019 53 The following table shows the development of key per- formance indicators for the BMW Group as a whole as well as for the Automotive, Motorcycles and Financial Services segments in the financial year 2019 compared to the forecasts made in the Annual Report 2018. Key figures presented in the report have been rounded in accordance with standard commercial practice. In certain cases, this may mean that values do not add up exactly to the stated total and that percentages cannot be derived exactly from the values shown. BMW Group comparison of 2019 forecasts with actual outcomes 2019 • 30 Forecast for 2019 in 2018 Annual Report Forecast revision during the year Actual outcome in 2019 Group Profit before tax significant decrease € million Workforce at year-end in line with last year’s level 7,118 (– 26.1 %) significant decrease 133,778 (– 0.7 %) in line with last year’s level Automotive seGment Deliveries to customers 1 Fleet emissions 2 slight increase slight decrease EBIT margin between 6 and 8 Q1: between 4.5 and 6.5 Return on capital employed significant decrease motorcycles seGment Deliveries to customers EBIT margin Return on capital employed solid increase between 8 and 10 solid increase FinAnciAl services seGment Return on equity in line with last year’s level 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2019: 538,612 units). 2 EU-28. units 2,538,367 (+ 2.2 %) slight increase g CO2 / km % % units % % % 127 (– 0.8 %) in line with last year’s level 4.9 (– 2.3 %pts) 29.0 (– 20.8 %pts) significant decrease 175,162 (+ 5.8 %) solid increase 8.2 (+ 0.1 %pts) 29.4 (+ 1.0 %pts) slight increase 15.0 (+ 0.2 %pts) in line with last year’s level In an ad hoc announcement dated 5 April 2019, the BMW Group reported that the EU Commission had informed it of a “Statement of Objections” in conjunction with ongoing antitrust proceedings. The EU Commission is investigating whether German automobile manufacturers cooperated in techni- cal working groups to restrict competition in the development and rollout of emissions-reduction technologies. The Statement of Objections leads the BMW Group to conclude that it is probable (“more likely than not”) that the EU Commission will issue a significant fine. If necessary, the BMW Group will contest the EU Commission’s allegations with all the legal means at its disposal. 54 Report on Economic Position Comparison of Forecasts for 2019 with Actual Results in 2019 Irrespective thereof, the fact that a fine is “more likely than not” triggers a requirement to recognise a provision in accordance with International Financial Reporting Standards. Based on information currently available and in accordance with International Finan- cial Reporting Standards, a provision of approximately € 1.4 billion was recognised in the first quarter of 2019 to take account of financial impacts that cannot yet be definitively assessed. Group and Automotive seg- ment earnings for the first quarter as well as for the full financial year were impacted accordingly. The BMW Group has examined the objections and gained access to the documents in the EU Commission’s investigation file. In December 2019, the BMW Group submitted a detailed response to the EU Commission, which the latter will now examine before determining the next steps in the proceedings. Consequently, it is not yet possible to assess the ultimate financial impact definitively. Detailed information on the key performance indica- tors for the Group is presented as part of the following review of the BMW Group’s results of operations, financial position and net assets. The development of the key performance indicators for the Automo- tive, Motorcycles and Financial Services segments is described in the relevant sections on each segment. In December 2019, BMW Group was informed by the U. S. Securities and Exchange Commission (the SEC) that the SEC had commenced an inquiry into BMW Group’s vehicle sales* practices and reporting. On January 22, 2020, the SEC formally opened an investigation into potential violations of U. S. securities laws by BMW Group relating to dis- closures regarding BMW Group’s unit sales of new vehicles. BMW Group is reviewing the matter and cooperating with the SEC’s investigation. Information on contingent liabilities is provided in note 38 to the Group Financial Statements. * see Glossary for the definition of deliveries see note 38 The preparation of BMW Group’s retail vehicle deliv- ery data involves estimates and judgments and is subject to other uncertainties, including: — The vast majority of deliveries of vehicles are carried out by independent dealerships or other third parties, and BMW Group is reliant on such third parties to correctly report relevant data to BMW Group. — In addition, the definition of deliveries includes any vehicles delivered in the United States or Canada if: — the relevant dealers designate such vehicles as service loaner vehicles or demonstrator vehi- cles (BMW Group provides financial incentives in this regard to such dealers); or — such vehicles are company vehicles pur chased by dealers or other third parties at auctions or by dealers directly from BMW Group, each of which may not correlate to a sale to a consumer or other end user in the relevant reporting period. See Glossary – Explanation of Key Figures – Deliveries for the definition of deliveries. Retail vehicle deliveries during a given reporting period do not correlate directly to the revenue that BMW Group recognises in respect of such report- ing period. In connection with reviewing its sales practices and related reporting practices, BMW Group also reviewed prior period retail vehicle delivery data and separately determined that certain vehicle deliveries were not reported in the correct periods. BMW Group has revised the data on those vehicle deliveries that had not been reported in the correct periods as further described below, and is making, and will continue to make in the future, certain adjustments to its policies and procedures in order to improve the reliability and validity of its retail vehicle delivery data, in particular with respect to the timing of the recognition of deliveries. Specifically, the retail vehicle delivery data presented in this annual report (years 2015 through 2019) have been revised by adjusting the data for BMW Group’s six most significant markets to reflect the above. In the years 2015 through 2019, these six markets (China, USA, Germany, UK, Italy and Japan) represented on average 68.3 % of BMW Group’s total vehicle deliv- eries. For each of the years 2015 through 2019, these revisions amounted to less than 1 % of BMW Group’s total retail vehicle deliveries. The retail vehicle deliv- ery data for BMW Group’s other markets have not been adjusted, as BMW Group believes the impact to be immaterial. While BMW Group believes the retail vehicle delivery data presented in this annual report to be materially correct in accordance with BMW Group’s definition of deliveries, challenges and further revisions of such data cannot be ruled out. Combined Management ReportResults of operations of the BMW Group The BMW Group recorded a solid year-on-year increase in revenues for the financial year 2019. Alongside product mix effects, higher revenues from leasing and the sale of products previously leased to customers also had a positive influence in the year under report. Moreover, revenues were positively impacted by currency factors, mainly relating to the BMW Group condensed income statement • 31 in € million Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income and expenses Profit before financial result Financial result Profit before tax Income taxes Profit from continuing operations Profit / loss from discontinued operations Net profit Earnings per share of common stock in € Earnings per share of preferred stock in € in % Pre-tax return on sales Post-tax return on sales Gross profit margin Effective tax rate 55 exchange rates of the US dollar, Chinese renminbi, Japanese yen and Thai baht. In the previous year, revenues were also negatively impacted by the high level of competition due to the reaction of competitors to the early implementation of WLTP regulations as well as by the unfavourable effect of trade conflicts on selling prices. 2019 2018* Change in % 104,210 – 86,147 18,063 96,855 – 78,477 18,378 7.6 – 9.8 – 1.7 2.1 – – 17.0 – – 26.1 15.4 – 29.9 – – 28.9 – 29.5 – 29.5 – 9,568 123 8,933 694 9,627 – 2,530 7,097 – 33 7,064 10.60 10.62 2018* Change in %pts 9.9 7.3 19.0 26.3 – 3.1 – 2.5 – 1.7 3.8 – 9,367 – 1,285 7,411 – 293 7,118 – 2,140 4,978 44 5,022 7.47 7.49 2019 6.8 4.8 17.3 30.1 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 56 Group revenues by region were as follows: Report on Economic Position BMW Group revenues by region • 32 in % Europe Asia Americas Other regions Group BMW Group cost of sales • 33 in € million Manufacturing costs Cost of sales relating to financial services business thereof interest expense relating to financial services business Research and development expenses thereof amortisation of capitalised development costs Service contracts, telematics and roadside assistance Warranty expenses Other cost of sales Cost of sales 2019 44.4 30.6 22.7 2.3 2018* 46.2 30.9 20.2 2.7 100.0 100.0 2019 2018* Change in % 48,690 23,623 2,288 5,952 1,667 1,641 2,566 3,675 44,558 22,042 2,035 5,320 1,414 1,844 1,717 2,996 86,147 78,477 9.3 7.2 12.4 11.9 17.9 – 11.0 49.4 22.7 9.8 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Group cost of sales increased compared to the pre- vious year. Higher manufacturing costs due to stricter regulatory requirements (especially in connection with the reduction of fleet emissions), negative currency effects, higher raw material prices (espe- cially for palladium and rhodium) as well as higher warranty expenses all had a negative impact on cost of sales. in € million Research and development expenses Amortisation New expenditure for capitalised development costs Total research and development expenditure 2019 2018 5,952 – 1,667 2,134 6,419 5,320 – 1,414 2,984 6,890 In addition to the higher level of cost of sales incurred for the Financial Services business, there was a year- on-year increase in the area of research and develop- ment, where expenses rose to € 5,952 million (2018: € 5,320 million), mainly in relation to the electrification of vehicles (including the iNEXT), ongoing develop- ment work on autonomous driving and digitalisation. In the previous year, capitalised development costs related mainly to investments in new model series such as the X5, the BMW 3 Series and the BMW 8 Series, while in 2019 they related mainly to amounts invested in autonomous driving, the BMW 1 Series and a new generation of electrified vehicles. Furthermore, the higher level of costs capitalised in the previous years referred to above also resulted in increased amortisa- tion on capitalised development costs in 2019. Combined Management Report57 BMW Group performance indicators relating to research and development expenses • 34 in % Research and development expenditure ratio Capitalisation rate 2019 6.2 33.2 2018* Change in %pts 7.1 43.3 – 0.9 – 10.1 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Depreciation and amortisation on property, plant and equipment and intangible assets recorded in cost of sales and in selling and administrative expenses totalled € 6,017 million (2018: € 5,113 million). Selling and administrative expenses amounted to € 9,367 million and were therefore slightly down on the previous year (2018: € 9,568 million), helped by a decrease in personnel costs that was partially attrib- utable to amendments to pension plans in the USA. The net amount of other operating income and ex- penses decreased significantly from a positive amount of € 123 million to negative € 1,285 million, mainly due to the recognition of a provision of approximately € 1.4 billion in connection with the EU Commission antitrust proceedings. Further information is provided note 10 to the Group Financial Statements. in As a result, profit before financial result (EBIT) de- creased by € 1,522 million to € 7,411 million (2018: € 8,933 million). see note 10 The financial result deteriorated significantly year-on- year by € 987 million to a net expense of € 293 million. The main negative factor here was a € 496 million drop in the result from equity accounted investments, whereby a € 179 million increase in the Group’s share of earnings of BMW Brilliance Automotive Ltd. was more than offset by the negative at-equity result of € 662 million attributable to the YOUR NOW compa- nies. In addition to operating losses, the YOUR NOW at-equity result also included write-downs recorded at separate entity level amounting to € 277 million arising in conjunction with the reorientation of the YOUR NOW Group. Further information is provided in note 2 to the Group Financial Statements. see note 2 In addition, the higher interest expense arising in connection with the recognition of lease liabilities in accordance with IFRS 16 as well as the higher amount of interest unwound on non-current provisions for statutory and non-statutory warranty obligations had a negative impact on the net interest result. At a net negative amount of € 109 million, other finan- cial result was significantly down on the previous year (2018: net positive amount of € 51 million). The one- off revaluation gain of € 329 million arising from the pooling of mobility services with the Daimler Group was partially offset by impairment losses totalling € 240 million. In the previous year, other financial result also included a revaluation gain of € 209 million arising on the takeover of DriveNow. Other financial result was also adversely affected by revaluation losses recognised on interest rate hedges in connection with the refinancing of the Financial Services business. As forecast most recently in the Quarterly Statement to 30 September 2019, Group profit before tax for the full financial year was significantly down on the previous year and, at € 7,118 million (2018: € 9,627 mil- lion), was therefore in line with revised expectations. The income tax expense for the year amounted to € 2,140 million (2018: € 2,530 million). The effective tax rate increased to 30.1 % (2018: 26.3 %), mainly due to the non-deductibility of the expense recorded for the provision relating to EU Commission anti-trust proceedings as well as the non-deductibility of impair- ment losses relating to the YOUR NOW Group, recog- nised in other financial result. Tax income received for prior years – mainly due to the successful conclusion of intergovernmental tax treaties covering the topic of transfer pricing – had an offsetting effect. The net interest result deteriorated by € 331 million, mainly due to the reversal of provisions recorded in 2018 following the conclusion of mutual agreement procedures relating to taxes and customs. In the year under report, the workforce size, based on a total of 133,778 employees, remained at a simi- lar level year-on-year and was therefore in line with expectations (2018: 134,682 employees; – 0.7 % ). 58 Report on Economic Position Financial position of the BMW Group The consolidated cash flow statements for the Group and the Automotive and Financial Services segments show the sources and applications of cash flows for the financial years 2019 and 2018, classified according to operating, investing and financing activities. Cash and cash equivalents in the cash flow statements corre- spond to the amounts disclosed in the balance sheet. BMW Group cash flows • 35 Cash flows from operating activities are determined indirectly, starting with Group and segment net profit. By contrast, cash flows from investing and financing activities are based on actual payments and receipts. in € million 2019 2018 Change Cash inflow (+) / outflow (–) from operating activities Cash inflow (+) / outflow (–) from investing activities Cash inflow (+) / outflow (–) from financing activities Effects of exchange rate and changes in composition of Group Change in cash and cash equivalents 3,662 – 7,284 4,790 – 111 1,057 5,051 – 7,363 4,296 – 44 1,940 – 1,389 79 494 – 67 – 883 The decrease in cash inflow from the Group’s operat- ing activities was attributable in particular to higher tax payments, mainly relating to the tax reform in the USA. The decrease was exacerbated by the increase in working capital over the twelve-month period, primarily reflecting the slight increase in inventories held by the Automotive, Motorcycles and Financial Services segments. Total cash outflow from the Group’s investing activ- ities was slightly down on the previous year. Lower cash outflows for investments in property, plant and equipment and intangible assets (€ 875 million decrease) contrasted with higher net cash outflows for investments in financial assets (€ 761 million increase), the latter relating primarily to the acquisition of the YOUR NOW companies (cash outflow of € 890 million). The higher dividend received from BMW Brilliance Automotive Ltd., Shenyang (€ 259 million increase), also had a positive impact. The amount of cash inflow from the Group’s financing activities resulted mainly from the higher volume of asset-backed securities financing, while the repay- ment of loans had an offsetting effect. Combined Management Report59 Refinancing A broad range of instruments on international money and capital markets is used to refinance Group oper- ations worldwide. The funds raised are used almost exclusively to finance the BMW Group’s Financial Services business. The overall objective of Group financing is to ensure the solvency of the BMW Group at all times, focusing on three areas: 1. The ability to act through permanent access to strategically important capital markets 2. Autonomy through the diversification of refi- nancing instruments and investors 3. Focus on value through the optimisation of financing costs Financing measures undertaken at corporate level ensure access to liquidity for the Group’s operating subsidiaries at standard market conditions and con- sistent credit terms. Funds are acquired in line with a target liability structure, comprising a balanced mix of financing instruments. The use of longer-term instruments to fund the Group’s Financial Services business and the maintenance of a sufficiently high liquidity reserve serves to avoid the liquidity risk in the portfolio. This conservative financial approach also helps the Group’s rating. Further information is provided in the section Liquidity risks within the “Report on Outlook, Risks and Opportunities”. On account of its good ratings and the high level of acceptance it enjoys on capital markets, the BMW Group was again able to refinance operations at favourable conditions on debt capital markets during the financial year 2019. In addition to bonds, loan notes and private placements, the Group also issued commercial paper. As in previous years, all issues were in high demand, not only from private investors but also from institutional investors in particular. In addi- tion, retail customer and dealership financing receiv- ables as well as rights and obligations from leasing contracts are securitised in the form of asset-backed securities (ABS) financing arrangements. Specific banking instruments, such as customer deposits held by the Group’s own banks in Germany and the USA, are also deployed for financing purposes. In addition, loans are also taken from international banks. In 2019, the BMW Group issued three euro bench- mark bonds on the European capital market with a total issue volume of € 6.8 billion, as well as bonds on the US capital market with a total issue volume of USD 5.0 billion. Bonds were also issued in British pounds, Canadian dollars, Swiss francs and Norwe- gian krone for a total amount of € 2.0 billion. Private placements totalling € 4.4 billion were also issued, including, for the first time, so-called “Panda bonds” for an amount of 9.5 billion Chinese renminbi. A total of 13 public ABS transactions were executed in 2019, including five in China, two each in Japan, the USA and Germany, and one each in Canada and South Africa with a total volume equivalent to € 7.7 billion. Further funds were also raised via new and prolonged ABS conduit transactions in Japan, UK, Germany and Australia with a total volume equivalent to € 5.6 bil- lion. Other transactions remain in place in Germany, Switzerland and South Africa, amongst others. The following table provides an overview of amounts utilised at 31 December 2019 in connection with the BMW Group’s money and capital market programmes: Programme in € billion Programme framework Amount utilised* Euro Medium Term Notes Australian Medium Term Notes Commercial Paper 50.0 1.6 13.4 40.4 – 2.6 * Measured at exchange rates at the relevant transaction dates. At 31 December 2019, liquidity remained at a solid level of € 17.4 billion. The BMW Group also has access to a syndicated credit line, which was newly agreed upon in July 2017. The syndicated credit line of € 8 billion has a term up to July 2024 and is being made available by a consortium of 44 international banks. The credit line was not being utilised at 31 December 2019. Further information with respect to financial liabilities is provided in notes 31, 35 and 39 to the Group Financial Statements. see notes 31, 35 and 39 60 Net assets of the BMW Group Report on Economic Position BMW Group condensed balance sheet at 31 December • 36 in € million Assets Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred and current tax Other assets Inventories Trade receivables Cash and cash equivalents Assets held for sale Total assets equity A nd liABilities Equity Pension provisions Other provisions Deferred and current tax Financial liabilities Trade payables Other liabilities Liabilities in conjunction with assets held for sale Group 2019 20181 Change in % Currency-adjusted change2 in % Proportion of balance sheet total in % 2019 11,729 23,245 42,609 3,199 703 92,437 7,325 3,403 12,939 15,891 2,518 12,036 – 10,971 19,801 38,259 2,624 739 87,013 7,685 3,016 10,596 14,248 2,546 10,979 461 228,034 208,938 59,907 3,335 13,209 1,595 116,740 10,182 23,066 – 57,829 2,330 11,401 2,931 103,597 9,669 21,119 62 6.9 17.4 11.4 21.9 – 4.9 6.2 – 4.7 12.8 22.1 11.5 – 1.1 9.6 – 9.1 3.6 43.1 15.9 – 45.6 12.7 5.3 9.2 – 9.1 6.8 16.5 9.9 22.0 – 7.0 4.0 – 5.0 9.8 20.7 10.2 – 1.8 9.1 0.0 7.6 1.4 42.4 15.0 – 47.5 11.5 4.5 7.5 0.0 7.6 5.1 10.2 18.7 1.4 0.3 40.5 3.2 1.5 5.7 7.0 1.1 5.3 0.0 100.0 26.3 1.5 5.7 0.7 51.2 4.5 10.1 0.0 100.0 Total equity and liabilities 228,034 208,938 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 The adjustment for exchange rate factors is calculated by applying the relevant current exchange rates to the prior year figures. The balance sheet total of the BMW Group was signifi- cantly higher than at the end of the previous financial year. Currency impacts from the British pound, the US dollar, the Canadian dollar and the Thai baht contributed to this increase. The sharp rise in property, plant and equipment com- pared to one year earlier was mainly attributable to the recognition of right-of-use assets in accordance with IFRS 16, as a result of which property, plant and equipment increased by € 2.8 billion. In addition, substantial amounts were invested to develop the product portfolio. Leased products went up significantly year-on-year on the back of leasing portfolio growth in various countries, including Germany and the USA. Inventories also increased significantly compared to the previous year due to the build-up of inventories of higher-value vehicles such as the BMW X5 and X7 models. Higher inventories of raw materials and supplies also contributed to the rise, partly reflecting the higher purchase price of some precious metals, especially palladium. Combined Management ReportReceivables from sales financing increased solidly over the twelve-month period, mainly due to larger credit financing volumes in the UK and China. A total of 1,320,656 new credit financing contracts with retail customers were signed during the financial year 2019. Compared to the end of the previous financial year, the contract portfolio with dealers and retail customers under management grew by 4.5 % to 4,064,561 contracts. Group equity rose slightly by € 2,078 million to € 59,907 million, increased primarily by the profit of € 4,915 million attributable to shareholders of BMW AG and decreased by the dividend payment of € 2,303 million. The reduction in the equity ratio reflected the fact that – due to the effects described above – the balance sheet total rose at a faster rate than equity. The adoption of IFRS 16 therefore only had a limited impact on the equity ratio. 61 BMW Group equity ratio • 37 in % Group Automotive segment Financial Services segment 31. 12. 2019 31. 12. 2018* Change in %pts 26.3 35.5 9.9 27.7 41.0 10.1 – 1.4 – 5.5 – 0.2 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. Pension provisions increased significantly compared to the end of the financial year 2018, with lower discount rates in Germany and the UK in particular contributing to the rise. Other provisions increased markedly year-on-year due to the provision recognised in conjunction with ongoing EU Commission antitrust proceedings. Fur- ther information is provided in note 10 to the Group Financial Statements. see note 10 Financial liabilities were significantly higher than at the end of the previous financial year, mainly as a result of new bonds issued. This also includes the 144A bond in the USA and the first Panda bond placed on the Chinese capital market. Overall, the results of operations, financial position and net assets position of the BMW Group remained stable during the year under report. Value added statement The value added statement shows the value of work performed by the BMW Group during the financial year, less the value of work bought in. Deprecia- tion and amortisation, cost of materials, and other expenses are treated as bought-in costs in the value added calculation. The allocation statement applies value added to each of the participants involved in the value added process. The bulk of the net value added benefits employees. The remaining proportion in the Group is retained to finance future operations. The gross value added amount treats depreciation as a component of value added which, in the allocation statement, would be treated as internal financing. Net valued added by the BMW Group remained at a high level in the financial year 2019. 62 Report on Economic Position BMW Group value added statement • 38 Work perFormed Revenues Financial income Other income Total output Cost of materials 2 Other expenses Bought-in costs Gross value added Depreciation and amortisation of total tangible, intangible and investment assets Net value added AllocAtion Employees Providers of finance Government / public sector Shareholders Group Minority interest Net value added 2019 in € million 2019 in % 2018 1 in € million 2018 1 in % Change in % 104,210 – 22 1,031 99.0 0.0 1.0 96,855 988 774 98.2 1.0 0.8 105,219 100.0 98,617 100.0 57,358 14,923 72,281 32,938 10,749 22,189 12,451 2,466 2,250 1,646 3,269 107 54.5 14.2 68.7 31.3 10.2 21.1 56.1 11.1 10.1 7.4 14.7 0.5 53,132 12,342 65,474 33,143 8,601 24,542 12,479 2,266 2,733 2,303 4,671 90 53.9 12.5 66.4 33.6 8.7 24.9 50.8 9.2 11.2 9.4 19.0 0.4 22,189 100.0 24,542 100.0 7.6 – 33.2 6.7 8.0 20.9 10.4 – 0.6 25.0 – 9.6 – 0.2 8.8 – 17.7 – 28.5 – 30.0 18.9 – 9.6 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 Cost of materials comprises all primary material costs incurred for vehicle production plus ancillary material costs (such as customs duties, insurance premiums and freight). BMW Group value added 2019 • 39 in % Depreciation and amortisation 10.2 14.2 Other expenses Cost of materials 54.5 21.1 Net value added 56.1 % Employees 11.1 % Providers of finance 10.1 % Government / public sector 7.4 % Shareholders 14.7 % Group 0.5 % Minority interest Combined Management ReportResults of operations by segment BMW Group revenues by segment • 40 in € million Automotive Motorcycles Financial Services Other Entities Eliminations Group BMW Group profit / loss before tax by segment • 41 in € million Automotive Motorcycles Financial Services Other Entities Eliminations Group BMW Group margins by segment • 42 in % Automotive Gross profit margin EBIT margin Motorcycles Gross profit margin EBIT margin 63 2019 20181 Change in % Currency adjusted change 2 in % 91,682 2,368 29,598 5 – 19,443 104,210 85,846 2,173 27,705 6 – 18,875 96,855 6.8 9.0 6.8 – 16.7 – 3.0 7.6 5.2 8.1 4.6 – 18.0 0.1 6.1 2019 20181 Change in % 4,467 187 2,272 – 96 288 7,118 6,977 169 2,143 – 45 383 9,627 – 36.0 10.7 6.0 – – 24.8 – 26.1 2019 20181 Change in %pts 14.9 4.9 19.3 8.2 16.2 7.2 20.0 8.1 – 1.3 – 2.3 – 0.7 0.1 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 The adjustment for exchange rate factors is calculated by applying the relevant current exchange rates to the prior year figures. 64 Report on Economic Position Review of Operations Automotive Segment REVIEW OF OPERATIONS Automotive Segment Automobile deliveries at record level The BMW Group delivered a total of 2,538,367 1 BMW, MINI and Rolls-Royce brand automobiles in 2019, thereby setting a new record for the total number of deliveries to customers (2018: 2,483,292 1, 2 units; + 2.2 %). Volumes also developed well for each of the Group’s brands. The BMW brand achieved a new high to date, with 2,185,793 1 units (2018: 2,114,963 1, 2 units; + 3.3 %) delivered to customers. MINI remained slightly below the previous year’s figure, with 347,474 units delivered worldwide (2018: 364,135 2 units; – 4.6 %). Rolls-Royce Motor Cars exceeded the 5,000-unit threshold for the first time, with 5,100 vehicles handed over to customers (2018: 4,194 2 units; + 21.6 %). This signifi- cant increase also represents a new record for the ultra-luxury marque. As foreseen in the outlook for the financial year 2019, Automotive segment deliveries increased slightly and were therefore in line with expectations. The ongoing electrification of the product range is also having a significant impact. As targeted, the BMW Group finished the year with half a million electrified vehicles on roads across the globe. The broad range of electrified vehicles on offer is ideally suited to meeting customer needs and constitutes an important aspect of the BMW Group’s contribution to effective climate protection. Fleet carbon dioxide (CO2) emissions 3 at previous year’s level CO2 emissions from fleet vehicles delivered in Europe in 2019 amounted to 127 g CO2 / km (2018: 128 g CO2 / km; – 0.8 %) and were therefore at the previous year’s level. The original forecast predicted a slight decrease. The lower proportion of diesel- powered vehicles delivered in 2019 meant that no further reduction in fleet CO2 emissions was achieved compared to the previous year. 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2019: 538,612 units, 2018: 455,581 units). Deliveries up in Asia and in the Americas, slightly down in Europe Deliveries of BMW Group automobiles in Asia rose by a solid 6.8 % in 2019. In total, 930,085 1 BMW, MINI and Rolls-Royce brand vehicles (2018: 871,181 1, 2 units) were delivered to customers in this region. Figures for China developed very positively, rising to 724,733 1 units (2018: 635,813 1, 2 units; + 14.0 %). The BMW Group’s performance in Europe was held down by a number of factors, in particular due to the prevalence of political uncertainty in a number of countries. At 1,083,669 units, deliveries of the Group’s three brands decreased marginally year-on- year (2018: 1,097,117 2 units; – 1.2 %). Contrary to this broader trend, business in Germany developed positively, with a total of 330,507 units delivered, 6.4 % up on the previous year (2018: 310,576 2 units). In the UK, volumes fell slightly year-on-year to 233,780 units (2018: 236,752 2 units; – 1.3 %), not least due to uncertainty regarding Brexit. On the American continent, business conditions were characterised by growing competition within a declining market. With 472,904 units delivered, the BMW Group nevertheless exceeded the previous year’s figure (2018: 457,095 2 units; + 3.5 %). Sales figures for the Group’s three brands in the USA were solidly up year-on-year, with 375,751 units delivered (2018: 355,373 2 units; + 5.7 %). The BMW Group also ended 2019 as the leading premium automobile manufacturer in the USA. BMW Group – key automobile markets 2019 • 43 as a percentage of deliveries 3 EU-28 Other 29.2 28.6 China Japan 2.4 Italy 2.9 UK 9.2 14.7 USA 13.0 Germany 2 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjust- ments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment en ables better com- parability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. Combined Management ReportBMW Group deliveries of vehicles by region and market 1 • 44 65 in 1,000 units Europe thereof Germany thereof UK Americas thereof USA Asia 2 thereof China 2 Other markets Total 2 2019 2018 2017 2016 2015 1,083.7 1,097.1 1,103.2 1,091.9 1,003.1 330.5 233.8 472.9 375.8 930.1 724.7 51.7 310.6 236.8 457.1 355.4 871.2 635.8 57.9 296.5 242.4 456.1 358.8 847.5 595.0 61.9 298.5 252.4 453.4 359.5 739.4 508.8 67.8 287.4 232.3 503.9 413.8 685.5 465.8 65.3 2,538.4 2,483.3 2,468.7 2,352.4 2,257.9 1 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment en ables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2019: 538,612 units, 2018: 455,581 units, 2017: 385,705 units, 2016: 311,473 units, 2015: 281,357 units). The BMW X family again benefited from strong demand in 2019. Worldwide deliveries of X family vehicles rose to 963,994 units, a significant 22.3 % year-on-year increase (2018: 788,063 1 units). A signif- icant contribution to this growth was made by the highly successful BMW X3 model, deliveries of which rose by more than one-half to 316,883 units (2018: 200,151 1 units; + 58.3 %) due to the full availability of the model produced in China. Deliveries of the BMW X2 (91,812 units; 2018: 66,792 1 units; +37.5 %) and the X4 (61,598 units; 2018: 46,894 1 units; + 31.4 %) increased by around one-third. At 165,537 units, deliv- eries of the BMW X5 once again exceeded the previous year’s very high level (2018: 155,134 1 units; + 6.7 %). The positive resonance identified around the market launch of the new X7, which has been available since March 2019, was also reflected in its subsequent sales performance (2019: 39,924 units; 2018: 15 units). BMW 2 brand achieves new volume record BMW brand deliveries rose by 3.3 % to 2,185,793 units in 2019, reaching a new record level for the ninth year in succession (2018: 2,114,963 1 units). The models of the BMW X family, the BMW i3, the new BMW Z4 and the new BMW 8 Series all made positive contributions to the overall growth. Moreover, the X1 and X5 (both from the BMW X family) as well as the BMW Z4 were all global market leaders in their own segments. The BMW i3 continues to perform well as a highly success- ful model for mobility in metropolitan areas. At 359,211 units, sales of the BMW 3 Series were slightly down on the previous year (2018: 364,347 1 units; – 1.4 %), partially influenced by model changes to the Sedan in March and the Touring in September. Moreover, the new extended-wheelbase version has only been available in China since June 2019. The launch of the new models helped boost deliveries, particularly during the final quarter, resulting in double-digit volume growth. Between October and Decem- ber 2019, the BMW Group delivered 106,155 units of the BMW 3 Series worldwide, 20.6 % more than in the previous year (2018: 87,987 1 units). Worldwide deliveries of the BMW 5 Series fell to 353,268 units (2018: 381,749 1 units; – 7.5 %). The new BMW Z4, which has been available since March 2019, enjoyed strong demand during the period under report (2019: 15,827 units). Sales figures for the new BMW 8 Series also developed very encouragingly and had totalled 12,219 units (2018: 923 units) by the end of the report- ing period. 66 Combined Management Report Report on Economic Position Review of Operations Automotive Segment Deliveries of BMW vehicles by model variant 1, 2 • 45 in units BMW 1 Series BMW 2 Series BMW 3 Series BMW 4 Series BMW 5 Series BMW 6 Series BMW 7 Series BMW 8 Series BMW Z4 BMW X1 BMW X2 BMW X3 BMW X4 BMW X5 BMW X6 BMW X7 BMW i BMW total 2019 2018 Change in % Proportion of BMW sales volume 2019 in % 173,870 115,184 359,211 74,238 353,268 25,181 50,552 12,219 15,827 266,124 91,812 316,883 61,598 165,537 22,116 39,924 42,249 198,548 153,073 364,347 108,376 381,749 26,244 56,208 923 85 283,709 66,792 200,151 46,894 155,134 35,368 15 37,347 2,185,793 2,114,963 – 12.4 – 24.8 – 1.4 – 31.5 – 7.5 – 4.1 – 10.1 – – – 6.2 37.5 58.3 31.4 6.7 – 37.5 – 13.1 3.3 8.0 5.3 16.4 3.4 16.2 1.2 2.3 0.6 0.7 12.2 4.2 14.5 2.8 7.6 1.0 1.8 1.9 100.0 1 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2019: 538,612 units, 2018: 455,581 units). 2 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment en ables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. BMW model range significantly expanded A total of 12 new BMW models, including four M models, were launched during 2019. Two model revisions were also brought to market during the same period. March saw the launch of the seventh-gener- ation BMW 3 Series Sedan, the new BMW 8 Series Convertible, the BMW Z4 Roadster and the BMW X7. In the same month, the BMW 7 Series became available across the dealer organisation following an extensive model revision. In summer, the ex tended- wheelbase version of the 3 Series Sedan went on sale in China. In autumn, BMW launched successor models for the 3 Series Touring and the 1 Series. The new BMW 8 Series Gran Coupé also became available in autumn 2019. 3 Fuel consumption and CO2 emis- sions informa- tion are available on page 70. BMW M achieves record result 3 With 136,173 units delivered during the twelve-month period, BMW M GmbH achieved the best result to date in its almost 50-year history (2018: 103,580 2 units; + 31.5 %), ensuring it a leading market position among the pro- viders in its competitive field. The addition of the new X3 M and X4 M as well as the first two M8 models significantly extends the range of vehicles offered by the BMW Group subsidiary. All new models are now immediately available at market launch as competition models with more powerful engines. In addition to the X models (X3 M, X4 M, X5 M and X6 M), the BMW M2 CS and – within the luxury class – the M8 Coupé, M8 Convertible and M8 Gran Coupé all made their débuts during the year under report. 2019 thus saw the launch of the largest number of BMW M models to date. MINI down on previous year In 2019, due to external factors, the MINI brand was not quite able to match the high level of deliveries achieved one year earlier. In particular, Brexit-driven uncertainty and intense competition in the small and compact car segment played a significant role. Never- theless, thanks to its underlying strength in numerous markets, the MINI brand managed to grow its overall share in the highly competitive premium segment. At 347,474 units, MINI brand deliveries worldwide were slightly down year-on-year (2018: 364,135 1 units; – 4.6 %). The MINI Countryman nearly reached the 100,000 unit Deliveries of MINI vehicles by model variant 1 • 46 in units MINI Hatch (3- and 5-door) MINI Convertible MINI Clubman MINI Countryman MINI total Rolls-Royce looks back on successful year In 2019, Rolls-Royce Motor Cars surpassed the 5,000 threshold for the first time in over 100 years of cor- porate history, also setting a new record with 5,100 deliveries worldwide (2018: 4,194 1 units; + 21.6 %). The new Rolls-Royce Cullinan 2, which has been available to customers since the end of 2018, made a major contribution to this performance (2,508 units; 2018: 544 1 units). One of the key factors for the success of Rolls-Royce Motor Cars is its bespoke range. At Rolls-Royce, the term bespoke refers to equipment configurations with which the vehicles are highly individualised in accordance with customer requirements. The result is the creation of unique vehicles that secure Rolls-Royce Motor Cars an outstanding position in the luxury segment. 67 mark again (98,845 units; 2018: 99,594 1 units; – 0.8 %). However, partly due to the decisive contribution made by the popular plug-in hybrid model, it nevertheless remained a cornerstone for the MINI brand. The MINI Hatch (3- and 5-door) achieved a volume of 177,560 units (2018: 184,008 1 units; – 3.5 %). The revised model of the MINI Clubman was also launched during the year under report. The MINI Convertible remains the world’s best-selling vehicle of its kind. The John Cooper Works brand also continues to enjoy strong demand. 2019 2018 Change in % Proportion of MINI sales volume 2019 in % 177,560 184,008 30,384 40,685 98,845 32,738 47,795 99,594 347,474 364,135 – 3.5 – 7.2 – 14.9 – 0.8 – 4.6 51.2 8.7 11.7 28.4 100.0 The product range also includes Black Badge variants of the Dawn, Ghost, Wraith and Cullinan models. In addition to bespoke equipment options, the Black Badge vehicles also offer more powerful engine performance. Deliveries of Rolls-Royce vehicles by model variant 1 • 47 in units 2019 2018 Change in % Phantom 2 Ghost Wraith / Dawn Cullinan 2 Rolls-Royce total 604 662 1,326 2,508 5,100 831 1,003 1,816 544 4,194 – 27.3 – 34.0 – 27.0 – 21.6 1 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment en- ables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. 2 Fuel consumption and CO2 emissions information are available on page 70. 68 Report on Economic Position Review of Operations Automotive Segment Deliveries of electrified automobiles up on previous year At the end of the year under report, the BMW Group’s vehicle portfolio included 11 all-electric or electri- fied models in various segments. These models are sold on more than 70 markets around the world, underlining the BMW Group’s leading position world- wide in terms of combined deliveries of all-electric and plug-in hybrid vehicles as well as being market leader in Germany. Worldwide deliveries of electrified BMW and MINI brand vehicles in 2019 totalled 146,160 units (2018: 142,385 1 units; + 2.7 %). The number of BMW plug-in hybrid vehicles delivered was influenced by the 3 Series and X5 model changes as well as by the launch of the X3 in autumn 2019. The total of 86,947 BMW hybrid drive vehicles delivered to customers during the period under report was down on the very high figure achieved one year earlier (2018: 91,759 1 units; – 5.2 %). The new models helped gener- ate a positive trend in the fourth quarter of 2019, as sales of hybrid-drive BMW vehicles during the final three months of the year increased significantly by 16.1 % to 33,250 units (2018: 28,649 1 units). Over the twelve-month period, the BMW i3 recorded a 14.1 % increase in worldwide deliveries to 39,501 units (2018: 34,623 1 units). The electrified MINI Countryman 2 also benefited from strong demand, with 16,964 units delivered to customers during the period under report (2018: 13,279 1 units; + 27.8 %). Deliveries of electrified models 1 • 48 in units BMW i BMW e MINI Electric Total 2019 2018 Change in % 42,249 86,947 16,964 37,347 91,759 13,279 146,160 142,385 13.1 – 5.2 27.8 2.7 1 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment en- ables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. 2 Fuel consumption and CO2 emissions information are available on page 70. Greater choice of electrified vehicles 2 During the current financial year, BMW will launch three further models featuring hybrid technology, namely the BMW X1, the X2 and the BMW 3 Series Touring. Two additional all-electric models will be added with the MINI Cooper SE and the BMW iX3. The BMW Group is consciously focusing on battery electric vehicles (BEV) and plug-in hybrid technologies (PHEV). Flexible platforms are being used to cover varying regional customer requirements, enabling buyers to select the drivetrain system best suited to their mobility requirements. The BMW Vision iNEXT was showcased in 2019 with the aim of providing a preview of tomorrow’s mobil- ity. The vehicle embodies the fusion of electric and autonomous driving as well as next-level connectivity. Segment revenues at record level, earnings negatively impacted by provision The Automotive segment recorded a solid year-on- year increase in revenues. Alongside positive currency effects, the main influencing factor was the product mix effect generated by increased deliveries of the X7 and the BMW 8 Series, which were launched in 2019, the X4, the X5, and the Rolls-Royce Cullinan, all of which were available for the full twelve-month period in 2019. Growth in after-sales business due to the increased size of the global vehicle fleet also had a positive impact on revenues. In the previous year, rev- enues were also negatively impacted by the high level of competition caused by the reaction of competitors to the early implementation of WLTP regulations as well as the tougher market situation triggered by trade conflicts. The rejuvenation of the product portfolio has also helped the segment to achieve higher prices. Segment cost of sales increased moderately compared to the previous year. This was mainly due to higher manufacturing costs driven by stricter regulatory requirements (especially in relation to the reduction of fleet emissions), negative currency effects and higher raw material prices (particularly for palladium and rhodium). The increase in research and development expenses described above also had a negative impact. Warranty expenses increased mainly as a result of allocations to provisions in light of local changes to legislation as well as additional allocations to provi- sions in individual markets. Combined Management ReportThe net amount of other operating income and ex penses deteriorated from a positive amount of € 134 million to negative € 1,359 million year-on-year, mainly due to the provision recognised for the EU Commission’s antitrust proceedings referred to above. Further infor- mation is provided in note 10 to the Group Financial Statements. see note 10 The EBIT margin came in at 4.9 % (2018: 7.2 %; – 2.3 per- centage points). As forecast in the Quarterly Statement to 30 September 2019 the EBIT margin was within the target range of 4.5 to 6.5 % and therefore in line with revised expectations. In the Annual Report 2018, the segment EBIT margin was forecast to be within the target range of 6 to 8 %. The Automotive segment’s financial result finished at a net negative amount of € 32 million, significantly down on the previous year (2018: net positive amount € 795 million). The deterioration mainly reflected the negative impact of the result from equity-accounted investments on the one hand and other financial result Free cash flow Automotive segment • 49 69 on the other (the latter excluding the revaluation losses recognised on interest rate hedges), in both cases described above in the analysis of the Group’s results of operations. Profit before tax for the year was significantly lower than one year earlier. The Automotive segment’s RoCE in 2019 fell signifi- cantly to 29.0 % (2018: 49.8 %; – 20.8 percentage points), mainly due to the lower EBIT. Other factors with a negative impact on RoCE were the increase in capital employed due to the first-time recognition of right-of- use assets in accordance with IFRS 16 and the higher level of capital expenditure, particularly in conjunction with the development of the product portfolio. The long-term target RoCE of at least 26 % for the Auto- motive segment was slightly exceeded. As forecast in the outlook for the financial year 2019, RoCE decreased significantly and was therefore in line with expectations. Free cash flow for the Automotive segment was as follows: in € million 2019 2018 Change Cash inflow (+) / outflow (–) from operating activities Cash inflow (+) / outflow (–) from investing activities Adjustment for net investment in marketable securities and investment funds Free cash flow Automotive segment 9,690 – 7,165 42 2,567 9,352 – 6,769 130 2,713 338 – 396 – 88 – 146 The change in working capital included in the cash inflow from operating activities resulted mainly from the higher level of inventories and was offset by a decrease in trade payables. Following the adoption of IFRS 16, lease payments are included in cash flows from financing activities, giving rise to a positive effect of € 470 million. The increase in cash outflow from investing activities mainly reflected the changes described in the Group Cash Flow Statement with respect to investments in property, plant and equip- ment and intangible assets, financial assets and divi- dends received. The liquidation of a Group company in the previous financial year also had a negative effect. 70 Report on Economic Position Review of Operations Automotive Segment Motorcycles Segment In the Automotive segment, net financial assets com- prised the following: Net financial assets Automotive segment • 50 in € million 2019 2018 Change Cash and cash equivalents Marketable securities and investment funds Intragroup net financial assets Financial assets Less: external financial liabilities* Net financial assets Automotive segment * Excluding derivative financial instruments. 9,077 4,470 7,784 8,631 4,321 7,694 21,331 20,646 446 149 90 685 – 3,754 17,577 – 1,158 19,488 – 2,596 – 1,911 The increase in external financial liabilities was main- ly attributable to the recognition of lease liabilities according to IFRS 16 amounting to € 2.8 billion. Fur- note 6 to the Group ther information is provided in Financial Statements. see note 6 BMW Group fuel consumption and CO2 emissions information • 51 Model BmW Group electriFied models BMW iX3 BMW X1 xDrive25e BMW X2 xDrive25e BMW 330e Touring BMW 330e xDrive Touring MINI Cooper SE Countryman ALL4 MINI Cooper SE BmW BMW X3 M BMW X4 M BMW X5 M BMW X6 M Competition BMW M8 Competition Coupé BMW M8 Competition Convertible BMW M8 Competition Gran Coupé BMW M2 CS rolls-royce Cullinan 1 Provisionary data based on WLTP. 2 Provisionary data. Fuel consumption in l / 100 km (combined) CO2 emissions in g / km (combined) Electric power consumption in kWh / 100 km ( combined) 0 1.9 2.1 – 1.9 2.1 – 1.7 2.5 – 2.0 2.1 – 1.9 0 0 43 47 – 43 48 – 39 56 – 46 47 – 43 < 20 1 13.8 14.2 – 13.7 2 19.4 – 15.7 2 22.3 – 17.8 2 13.9 – 13.5 0 16.8 – 14.8 10.5 239 10.6 – 10.5 240 – 239 13 12.7 10.6 10.8 10.7 296 289 242 246 244 10.4 – 9.6 238 – 219 14.5 330 – 328 Combined Management ReportMotorcycles Segment Solid increase in motorcycle deliveries With the delivery of 175,162 units in 2019, the Motor- cycles segment exceeded the previous year’s figure by 5.8 %, marking a new record for the ninth consecutive year (2018: 165,566 units). As anticipated in the outlook for the financial year 2019, the Motorcycles segment achieved a solid increase in deliveries and was therefore in line with expectations. Deliveries up in nearly all markets The number of motorcycles sold in Europe rose by 7.0 % to 104,994 units (2018: 98,144 units). Deliveries in Germany increased by 10.4 % to 26,292 units (2018: 23,824 units). Growth rates in Italy (15,580 units, 2018: 14,110 units; + 10.4 %) and Spain (12,607 units, 2018: 11,124 units; + 13.3 %) were also up on a dou- ble- digit scale year-on-year. In France, motor cycle deliveries grew slightly by 4.1 % to 17,300 units (2018: 16,615 units). The only year-on-year decline occurred in the USA, where – within a declining market – BMW Motorrad saw deliveries fall slightly to 13,379 units (2018: 13,842 units; – 3.3 %). A particularly sharp rise of 36.7 % was recorded for Brazil, where, for the first time, more than 10,000 BMW motor- cycles were sold in a single year (10,064 units; 2018: 7,361 units). Model range further rejuvenated BMW Motorrad introduced four new and two revised models during the period under report. In Febru- ary 2019, it launched three new models – the F 850 GS Adventure (Adventure segment) and the C 400 X and the C 400 GT (Urban Mobility segment). These were followed by the revised R 1250 R (Roadster segment) in April and the new S 1000 RR (Sport segment) in July. The revised version of the R 1250 RS (Sport segment) has been available to customers since September. 71 Numerous other new models and concept studies were also presented during the year under report. The Concept R18 was unveiled at the Concorso d’Eleganza Villa d’Este – a new interpretation of BMW Motorrad classics. The special limited edition of the R nine T / 5 model was presented during the BMW Motorrad Days event. At the International Motorcycle Fair in Milan (EICMA), customers had the opportunity to familiarise themselves with the new models F 900 R (Roadster segment), F 900 XR and S 1000 XR (Adventure segment) and the Concept Study R18 / 2, a modern interpretation of a dynamic, high-performance cruiser. BMW Group deliveries of motorcycles • 52 in 1,000 units 164.2 165.6 175.2 137.0 145.0 180 90 0 2015 2016 2017 2018 2019 BMW Group – key motorcycle markets 2019 • 53 as a percentage of sales volume Other 45.7 Brazil 5.7 15.0 Germany 9.9 France 8.9 Italy 7.6 USA 7.2 Spain 72 Report on Economic Position Review of Operations Motorcycles Segment Financial Services Segment Strong segment performance The Motorcycles segment also recorded solid year- on- year revenue growth. In addition to the higher number of units delivered, product mix and currency effects also had a positive impact on the performance in 2019. The segment EBIT margin edged up to 8.2 % (2018: 8.1 %; + 0.1 percentage points) and therefore within the range of 8 to 10 % forecast in the Annual Report 2018. Profit before tax for the twelve-month period was significantly higher than one year earlier. The return on capital employed (RoCE) for the Motor- cycles segment in 2019 increased slightly to 29.4 % (2018: 28.4 %; + 1.0 percentage points), mainly due to the higher level of EBIT. In the most recent outlook provided in the Quarterly Statement to 30 Septem- ber 2019, a solid increase was still being forecast. The deviation in this case was due to the higher amount of capital employed. The long-term target RoCE of 26 % for the Motorcycles segment continued to be surpassed. Combined Management ReportFinancial Services Segment Successful financial year for the Financial Services segment The Financial Services segment performed strongly in 2019 within a challenging, volatile environment. Segment profit before tax rose by 6.0 % to a record level of € 2,272 million (2018 1: € 2,143 million). In balance sheet terms, business volume grew by 7.3 % to stand at € 142,834 million (2018 1: € 133,147 mil- lion). The contract portfolio under management at 31 December 2019 comprised 5,973,682 contracts, therefore growing slightly by 4.7 % year-on-year (2018: 5,708,032 contracts). More than two million new contracts concluded Thanks to its strong performance, the Financial Ser- vices segment surpassed the threshold of two million new customer contracts in a single year for the first time. In total, 2,003,782 credit financing and leasing contracts were concluded with retail customers dur- ing the period under report, a solid 5.0 % year-on- year increase (2018: 1,908,640 contracts). The biggest growth markets were China and the USA. While the number of new contracts grew slightly by 3.4 % in the credit financing line of business, the correspond- ing increase for leasing business was 8.2 %. Overall, leasing accounted for 34.1 % and credit financing for 65.9 % of new business. In the pre-owned financing and leasing business for BMW and MINI brand vehicles, 398,144 new contracts were signed during the twelve-month period (2018: 396,610 contracts; + 0.4 %). The total volume of new credit financing and leasing contracts concluded with retail customers amounted to € 61,353 million, representing a solid year-on-year increase (2018: € 55,817 million; + 9.9 %). Adjusted for currency factors, the increase was 7.9 %. 73 The proportion of new BMW Group vehicles either leased or financed by the Financial Services segment in the financial year 2019 amounted to 52.2 % 2, 2.1 per- centage points up on the previous year (2018: 50.1 %), mainly due to growth in China and the USA. The total portfolio of financing and leasing contracts with retail customers again developed positively in 2019, growing 4.8 % year-on-year. In total, 5,486,319 contracts were in place with retail customers at 31 December 2019 (2018: 5,235,207 contracts). The China region continued to record the fastest growth rate of all regions, significantly enlarging its contract portfolio by 19.8 % compared to one year earlier. The Europe / Middle East / Africa region (+ 5.6 %) and the EU Bank 3 (+ 4.0 %) grew year-on-year, while the total contract portfolio in the Americas region (+ 0.7 %) hov- ered around the previous year’s level. The Asia / Pacific region saw a slight decrease in the volume of its con- tract portfolio (– 2.5 %). Contract portfolio of Financial Services segment • 54 in 1,000 units 6,000 3,000 0 5,115 5,381 4,719 5,708 5,974 2015 2016 2017 2018 2019 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the 2 The calculation only includes automobile markets in which the Financial Services segment adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. is represented by a consolidated entity. 3 With effect from the beginning of the fourth quarter of 2019, the EU Bank comprises BMW Bank GmbH and its branches in Italy, Spain and Portugal. The former subsidiary in France was transferred for organisational purposes to the Europe / Middle East / Africa region in conjunction with strategic realignments. 74 BMW Group new vehicles financed or leased by Financial Services segment 1, 2 • 55 Report on Economic Position Review of Operations Financial Services Segment in % 46.1 49.9 46.7 50.1 52.2 Leasing 22.0 22.4 20.7 21.2 22.3 Financing 24.1 27.5 26.0 28.9 29.9 60 30 0 2015 2016 2017 2018 2019 1 Until 2015 excluding Rolls-Royce. 2 Delivery figures have been adjusted retrospectively going back to 2015, as described in the section “Comparison of forecasts for 2019 with actual outcomes in 2019”. Contract portfolio retail customer financing of Financial Services segment 2019 • 56 in % per region Asia / Pacific 8.1 China 12.2 EU Bank 3 18.5 35.5 Europe / Middle East / Africa 25.7 America 3 With effect from the beginning of the fourth quarter of 2019, the EU Bank comprises BMW Bank GmbH and its branches in Italy, Spain and Portugal. The former subsidiary in France was transferred for organisational purposes to the Europe / Middle East / Africa region in conjunction with strategic realignments. Slight growth in fleet business The BMW Group is one of Europe’s foremost leasing and full-service providers. Under the brand name Alphabet, the Financial Services segment’s fleet management business offers leasing and financing arrangements as well as specific services to commer- cial customers. The number of fleet contracts rose by 2.5 % during the financial year 2019. Included in the total contract portfolio with retail customers referred to above, the segment was thus managing a portfolio of 717,353 fleet contracts at the end of the reporting period (2018: 700,080 contracts). Dealership financing slightly up on previous year The total volume of dealership financing continued growing during the financial year 2019 to stand at € 21,227 million at the end of the reporting period (2018: € 20,438 million; + 3.9 %). Financial Services segment posts record earnings The Financial Services segment achieved a solid increase in revenues during the period under report on the back of portfolio growth, higher revenues from the sale of returned leasing vehicles, and favourable currency factors. Cost of sales relating to Financial Services business increased by € 1,849 million (2018: € 24,089 million). Consistent with the development of revenues, the main factors for the increase were expenses associated with the sale of returned leasing vehicles as well as risk provisioning expenses driven by portfolio growth. Profit before tax in the Financial Services segment rose by 6.0 %, representing a solid year-on-year increase. As predicted in the Annual Report 2018, the 15.0 % return on equity generated by the Financial Services segment in 2019 was at a similar level to the previ- ous year (2018: 14.8 %; + 0.2 percentage points) and exceeded the RoE target of at least 14 %. Combined Management Report75 Net cash inflows and outflows for the Financial Ser- vices segment were as follows: Net cash flows for the Financial Services segment • 57 in € million 2019 2018 Change Cash inflow (+) / outflow (–) from operating activities Cash inflow (+) / outflow (–) from investing activities Cash inflow (+) / outflow (–) from financing activities Net – 5,345 – 6,790 129 5,300 84 130 6,793 133 1,445 – 1 – 1,493 – 49 The decrease in cash outflow from the Financial Ser- vices segment’s operating activities was mainly due to the higher profit before tax and the lower increase in receivables from sales financing compared to the previous year. Cash inflow from financing activities was mainly driven by the increase in asset-backed securities financing and the repayment of loans. Risk profile Despite ongoing political and economic uncertainties, such as Brexit and trade disputes, the risk profile across the Financial Services segment’s total portfolio remained stable at a low level. The risk profile of the segment’s credit financing port- folio also remained stable at a low level. The credit loss ratio on the total credit portfolio amounted to 0.26 % at 31 December 2019 and was therefore nearly unchanged compared to one year earlier (2018: 0.25 %). This figure comprises a credit loss ratio for leasing business of 0.15 % (2018: 0.14 %) and a credit loss ratio for financing business with retail customers of 0.41 % (2018: 0.38 %). Further information on the risk situation is provided in the section Risks and Opportunities. Development of credit loss ratio • 58 in % 0.5 0.25 0 0.37 0.32 0.34 0.25 0.26 2015 2016 2017 2018 2019 Other Entities Segment / Eliminations Profit before tax recorded for the Other Entities segment and eliminations fell by € 146 million. The significant drop was due in particular to revaluation losses (included in other financial result) arising on interest rate and currency hedges in connection with the refinancing of the Financial Services busi- ness. In addition, a sharp rise in the number of new operating lease contracts had a negative impact due to the elimination of margins relating to the leased products concerned. 76 Report on Economic Position Comments on Financial Statements of BMW AG COMMENTS ON FINANCIAL STATEMENTS OF BMW AG Bayerische Motoren Werke Aktiengesellschaft (BMW AG), based in Munich, Germany, is the parent Company of the BMW Group. The comments on the BMW Group and Automotive segment provided in earlier sections apply to BMW AG, unless presented differently in the following section. The Financial Statements of BMW AG are drawn up in accordance with the provisions of the German Commercial Code (HGB) and the relevant supplementary provisions contained in the German Stock Corporation Act (AktG). On 10 March 2020, the Financial Statements of BMW AG were drawn up by the Board of Management. Based on current developments regarding the spread of corona- virus, the Board of Management on 16 March 2020 adjusted the original outlook for the BMW Group, the assumptions regarding the development of the global economy and the economic risks and opportunities for the financial year 2020 in the Combined Management Report, as well as the statement regarding the Events after the end of the reporting period. On the same day, the Financial Statements of BMW AG were drawn up anew by the Board of Management. The key financial performance indicator for BMW AG is the dividend payout ratio (unappropriated profit of BMW AG in accordance with HGB in relation to the net profit for the year of BMW Group in accor dance with IFRS). The key non-financial performance indicators are essentially identical and concurrent with those of the BMW Group. These are described in detail in the Report on Economic Position section of the Combined Management Report. Differences in accounting treatments based on HGB (used for the Company Financial Statements) and IFRS (used for the Group Financial Statements) are mainly to be found in connection with the capitali- sation of intangible assets, the creation of valuation units, the recognition and measurement of financial instruments and provisions as well as the recognition of deferred tax assets. Differences also arise in the presentation of assets and liabilities and of items in the income statement. Business environment and review of operations The general and sector-specific environment of BMW AG is essentially the same as that of the BMW Group and is described in the Report on Economic Position sec- tion of the Combined Management Report. BMW AG develops, manufactures and sells auto- mobiles and motorcycles as well as spare parts and accessories manufactured in-house, by foreign subsidiaries and by external suppliers, and performs services related to these products. Sales activities are carried out primarily through branches, sub sidiaries, independent dealerships and importers. In the financial year 2019, BMW AG increased automobile deliveries by 35,898 units to 2,555,795 units. This figure includes 534,638 units relating to series sets supplied to the joint venture BMW Brilliance Auto- motive Ltd., Shenyang, an increase of 44,056 units over the previous year. At 31 December 2019, BMW AG employed a workforce of 88,303 people (31 December 2018: 89,842 people). Combined Management ReportResults of operations BMW AG Income Statement • 59 in € million Revenues Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Other operating income * Other operating expenses * Result on investments Financial result Income taxes Profit after income tax Other taxes Net profit Transfer to revenue reserves Unappropriated profit available for distribution 77 2019 2018 84,691 – 70,178 14,513 – 3,979 – 2,776 – 5,528 1,295 – 2,526 1,858 39 – 767 2,129 – 22 2,107 – 461 1,646 78,355 – 63,841 14,514 – 4,078 – 2,803 – 5,859 2,184 – 1,158 2,344 – 1,452 – 872 2,820 – 19 2,801 – 498 2,303 * Separate presentation of other operating income and expenses from the financial year 2019. Prior year’s figures will be presented analogously. Revenues increased by € 6,336 million year-on-year, primarily reflecting growth in the volume of deliveries to customers. In geographical terms, the increase re- lated mainly to China and the USA. Revenues totalled € 84,691 million (2018: € 78,355 million), of which Group internal revenues accounted for € 57,412 million (2018: € 58,707 million) or 67.8 % (2018: 74.9 %). Cost of sales increased by 9.9 % to € 70,178 million, mostly due to the higher number of deliveries and the rise in cost of materials. Gross profit decreased by € 1 million to € 14,513 million. Selling and administrative expenses were slightly lower than in the previous year. The expense for income taxes relates primarily to current tax for the financial year 2019. After deducting the expense for taxes, the Company reports a net profit of € 2,107 million, compared to € 2,801 million in the previous year. Subject to the shareholders’ approval of the appro- priation of results at the Annual General Meeting, the unappropriated profit available for distribution amounts to € 1,646 million (2018: € 2,303 million). As a percentage of Group net profit, the dividend corresponds to a payout ratio of 32.8 % (2018: 32.0 %). 78 Report on Economic Position Comments on Financial Statements of BMW AG Research and development expenses related mainly to new vehicle models (including the new 1 Series, the 2 Series Gran Coupé and the X6), expenditure on the development of reference architectures, powertrain systems and automated driving, as well as higher expenditure on vehicle electrification. Compared to the previous year, research and development expenses decreased by 5.6 %. Other operating income fell to € 1,295 million (2018: € 2,184 million), whereby the change was mainly attributable to a positive prior-year effect resulting from the change in method for measuring provisions for statutory and non-statutory warranties and prod- uct guarantees. Other operating expenses totalling € 2,526 million (2018: € 1,158 million) were impacted mainly by the recognition of the provision recognised in connection with ongoing EU Commission antitrust proceedings. Income from profit transfer agreements with Group companies, reported in the line item Result on invest- ments, decreased year-on-year. By contrast, financial result improved by € 1,491 million, mainly due to higher income from designated plan assets offset against pension obligations. The lower impairment loss of € 30 million (2018: € 119 million) recognised on the investment in SGL Carbon SE, Wiesbaden, also had the effect of keeping down the deterioration in earnings for the year. Combined Management ReportFinancial and net assets position BMW AG Balance Sheet at 31 December • 60 in € million Assets Intangible assets Property, plant and equipment Investments Tangible, intangible and investment assets Inventories Trade receivables Receivables from subsidiaries Other receivables and other assets Marketable securities Cash and cash equivalents Current assets Prepaid expenses Surplus of pension and similar plan assets over liabilities Total assets equity A nd liABilities Subscribed capital Capital reserves Revenue reserves Unappropriated profit available for distribution Equity Registered profit-sharing certificates Pension provisions Other provisions Provisions Liabilities to banks Trade payables Liabilities to subsidiaries Other liabilities Liabilities Deferred income Total equity and liabilities 79 2019 2018 405 12,473 3,762 16,640 5,994 964 16,698 3,513 4,109 6,757 252 11,976 3,559 15,787 4,811 947 8,570 3,595 4,080 6,542 38,035 28,545 58 1,086 535 668 55,819 45,535 659 2,210 10,564 1,646 15,079 658 2,177 10,103 2,303 15,241 28 28 205 8,784 8,989 511 5,751 21,777 187 28,226 3,497 55,819 214 7,824 8,038 545 5,560 12,670 285 19,060 3,168 45,535 Capital expenditure on intangible assets and prop- erty, plant and equipment in the year under report totalled € 3,233 million (2018: € 2,975 million), up by 8.7 % compared to the previous year. Depreciation and amortisation amounted to € 2,573 million (2018: € 2,470 million). The carrying amount of investments rose to € 3,762 mil- lion (2018: € 3,559 million), mainly due to additions to investments in subsidiaries amounting to € 257 million. The impairment loss recognised on the investment in SGL Carbon SE, Wiesbaden, amounting to € 30 million (2018: € 119 million) had an offsetting effect. 80 Report on Economic Position Comments on Financial Statements of BMW AG Inventories increased to € 5,994 million (2018: € 4,811 million), mainly due to the build-up of raw materials, supplies and goods for resale and the first-time inclusion in inventories of prepayments on orders. Receivables from subsidiaries, most of which relate to intragroup financing receivables, increased to € 16,698 million (2018: € 8,570 million), primarily due to the change in the exercise of the option to offset receivables from and payables to subsidiaries with effect from the financial year 2019. The decrease in other receivables and other assets to € 3,513 million (2018: € 3,595 million) was mainly attributable to lower receivables from companies with which an investment relationship exists. The increase in tax receivables had an offsetting effect. As a result of the lower unappropriated profit com- pared with the dividend paid for the previous financial year, equity decreased by € 162 million to € 15,079 mil- lion. The equity ratio fell from 33.5 % to 27.0 %, mainly due to the higher balance sheet total. In order to secure pension obligations, cash funds to- talling € 497 million were transferred to BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA), to be invested in plan assets. Plan assets are offset against the related guaranteed obligations. The resulting surplus of assets over liabil- ities is reported in the BMW AG balance sheet on the line item Surplus of pension and similar plan assets over liabilities. Provisions for pensions went down from € 214 million to € 205 million, after offsetting pension plan assets against pension obligations. Other provisions increased year-on-year, mainly due to the provision recognised in connection with EU Commission antitrust proceedings. Liabilities to banks decreased by € 34 million, mainly as a result of the repayment of project-related loans. Liabilities to subsidiaries amounting to € 21,777 mil- lion (2018: € 12,670 million) comprised mainly financial liabilities. In addition to higher intragroup financing liabilities, the increase was primarily due to the change in the exercise of the option to offset receivables from and payables to subsidiaries with effect from the financial year 2019. Deferred income increased by € 329 million to € 3,497 million and included mainly amounts for services still to be performed relating to service and maintenance contracts. Liquidity within the BMW Group is ensured by means of a liquidity concept applied uniformly across the Group. This involves concentrating a significant part of the Group’s liquidity at the level of BMW AG. An important instrument in this context is the cash pool based at BMW AG. The liquidity position reported by BMW AG therefore reflects the global activities of BMW AG and other Group companies. Cash and cash equivalents increased by € 215 million to € 6,757 million, mainly as a result of net positive cash inflows from operating activities. Investments in long-lived assets and the payment of the dividend for the previous financial year had an offsetting effect. Combined Management ReportRisks and opportunities BMW AG’s performance is essentially dependent on the same set of risks and opportunities that affect the BMW Group and which are described in detail in the Report on Outlook, Risks and Opportunities section of the Combined Management Report. As a general rule, BMW AG participates in the risks entered into by Group companies in proportion to the respective shareholding percentage. At the same time, the result in investments has a significant impact on the earn- ings of BMW AG. BMW AG is integrated in the Group-wide risk man- agement system and internal control system of the BMW Group. Further information is provided in the section Internal Control System Relevant for Account- ing and Financial Reporting Processes within the Combined Management Report. Outlook For the financial year 2020, BMW AG forecasts a divi- dend payout ratio (unappropriated profit of BMW AG in accordance with HGB in relation to the BMW Group net profit for the year in accordance with IFRS) within a range of between 30 and 40 % (2019: 32.8 %). Due to its significance in the Group and its close ties with Group companies, expectations for BMW AG with respect to its non-financial performance indica- tors correspond largely to the BMW Group’s outlook. This is described in detail in the Report on Outlook, Risks and Opportunities section of the Combined Management Report. 81 Events after the end of the reporting period On 30 January 2020, the World Health Organisation (WHO) declared an international health emergency due to the outbreak of coronavirus. Since 11 March the WHO has characterised the spread of the corona- virus as a pandemic. The continuing spread of the coronavirus and the impact on the business development of BMW AG is being continually monitored. Based on current devel- opments, BMW AG expects that the increasing spread of the coronavirus and the necessary containment measures will have a negative impact on BMW AG vehicle deliveries in all key sales markets. Risks also exist for upstream and downstream processes, for example, through possible bottlenecks due to supply shortages. Current assessments and assumptions for the financial year 2020, to the extent already known to BMW AG, have been taken into account and described in the outlook report. Apart from these assessments, no further significant negative effects are known or can be estimated at the present time. However, further negative effects could arise in the course of the year. No other events have occurred since the end of the financial year that could have a major impact on the results of operations, financial position and net assets of BMW AG. PricewaterhouseCoopers GmbH Wirtschaftsprüfungs- gesellschaft, Frankfurt am Main, Munich branch, has issued an unqualified audit opinion on the financial statements of BMW AG, of which the balance sheet and the income statement are presented here. The BMW AG financial statements for the financial year 2019 will be submitted to the operator of the electronic version of the German Federal Gazette and can be obtained via the Company Register website. These financial statements are available on the homepage of the BMW Group under www.bmwgroup.com / ir. 82 Report on Outlook, Risks and Opportunities Outlook REPORT ON OUT- LOOK, RISKS AND OPPORTUNITIES Economic development significantly slowed by spread of coronavirus Automobile markets in decline as consequence worldwide BMW Group outlook for 2020 signifi- cantly impacted by coronavirus OUTLOOK The report on outlook, risks and opportunities describes the expected development of the BMW Group in 2020, including the significant risks and opportunities, from a Group management perspective. In line with the Group’s internal management system, the outlook covers a period of one year. Risks and opportunities are managed on the basis of a two-year assessment. The report on risks and opportunities therefore addresses a period of two years. The report on outlook, risks and opportunities con- tains forward-looking statements that are based on the BMW Group’s expectations and assessments and which can be influenced by unforeseeable events. As a result, actual outcomes can deviate either positively or negatively from the expectations described below – for example on account of political and economic developments. Further information is provided in the section Risks and Opportunities. Its continuous forecasting process ensures the BMW Group’s ability to exploit opportunities quickly and systematically as they arise and react in a similar way to unexpected risks. The principal risks and opportunities are described in detail in the section Risks and Opportunities. The matters discussed therein are relevant for all of the BMW Group’s key performance indicators and could result in variances between the outlook and actual outcomes. Combined Management ReportAssumptions used in the outlook The following outlook relates to a forecast period of one year and is based on the composition of the BMW Group during that time. The outlook takes account of all information available at the time of reporting and any which could have an effect on the overall perfor- mance of the Group. The expectations contained in the outlook are based on the BMW Group’s forecasts for 2020 and reflect its most recent status. The basis for the preparation of and the principal assumptions used in the forecasts – which consider the consensual opinions of leading organisations, such as economic research institutes and banks – are set out below. The BMW Group’s outlook is drawn up on the basis of these assumptions. The high degree of uncertainty surrounding the global spread and resulting consequences of coronavirus makes it difficult to provide an accurate forecast of the BMW Group’s business performance for the finan- cial year 2020. Based on the latest developments, the BMW Group expects the spread of coronavirus and the required containment measures to have a negative impact on delivery volumes in all major markets over the year 2020 as a whole. This assessment is based on the assumption that deliveries across all markets will return to normal after a few weeks. Any potential longer-term effects on deliveries due to the spread of coronavirus and the associated volatility on financial markets cannot be assessed at present and are there- fore not included in the outlook. In the UK, in addition to the consequences of corona- virus, uncertainties relating to EU exit negotiations on a trade agreement are having the effect of impairing the reliability of forecasts drawn up by businesses. Irrespective of these matters, the BMW Group is working on the basis that an agreement between the EU and UK will be finalised by 31 December 2020. Furthermore, the BMW Group anticipates that trade tensions between the USA and China will continue to be a source of uncertainty, but that the current tariffs will not see a further increase. The Group also assumes that trade between the EU and the USA will not be subject to additional tariffs. From the beginning of the financial year 2020, the key performance indicator for the workforce size will be based solely on the number of core and temporary employees. This change is in line with the reorgan- isation of internal management, which focuses on these employee groups. Employee groups such as apprentices, students gaining work experience and doctoral candidates primarily serve to secure the next generation of employees and promote the training of young people, and are therefore excluded from an internal management perspective. For this reason, they will no longer be included in the key performance indicator for the workforce size. 83 Economic outlook The global economy will be significantly impacted by the knock-on consequences of coronavirus. Despite the fact that wide-ranging monetary and fiscal policy measures have already been initiated in many coun- tries, global growth is likely to be significantly lower than in the previous year. Although the provisional agreement in the trade dispute between the USA and China as well as the reduced level of concern regarding a potentially disorderly withdrawal of the UK from the EU gave rise to some optimism at the beginning of the year, the positive impact in these two areas is likely to be far outweighed by the knock-on consequences of coronavirus. At present, it is not possible to provide an exact assessment of the situation. Further information on political and global economic risks is also provided in the section Risks and Opportunities. GDP in the eurozone is likely to grow significantly more sluggishly in 2020 than the predicted rate of 1.0 %. The growth rate in Germany is likely to be even slower. Similarly, prospects for the economies of other member states in the eurozone are also on the gloomy side. France and Spain will grow only marginally at most, while Italy, the first country in Europe to be affected by coronavirus, is likely to go in recession. In the UK, apart from the impact of coronavirus, eco- nomic performance in 2020 will also depend on the progress of negotiations with the EU regarding a free trade agreement. Overall, GDP growth in 2020 is likely to be significantly below the most recently predicted level of 1.0 %. In the USA, growth is expected to continue slowing down in 2020. The spread of coronavirus and the resulting containment measures are likely to reduce eco nomic momentum to a level considerably lower than the most recently predicted 1.7 %, despite developments on the labour and property markets remaining positive. The US Federal Reserve has already responded to the spread of coronavirus with interest rate cuts and will likely adopt further mea sures to support the economy. Even without the impact of coronavirus, the ongoing normalisation of the Chinese economy would have caused the country’s growth rate to continue falling in 2020. However, the extent of the slowdown will now be much greater and certainly be below the most recently predicted rate of 5.6 %. Rather than growing slightly, the Japanese economy is likely to contract due to coronavirus, particularly in view of the fact that the value added tax hike in October 2019 is bound to exert downward pressure on private consumption for some time to come. As an export-oriented country, Japan is likely to be hit harder by a decline in world trade than China, for example. 84 Report on Outlook, Risks and Opportunities Outlook Currency markets Currencies of particular importance for the interna- tional operations of the BMW Group are the Chinese renminbi, the British pound, the Japanese yen and the US dollar. All of these major currencies are again expected to be subject to a high degree of fluctuation in 2020. The US dollar could benefit from its function as a “safe haven” in 2020 due to the spread of coronavirus. Overall, therefore, the US dollar is more likely to move sideways against the euro. In the case of the Chinese renminbi, the close eco- nomic links between the USA and China suggest that the currencies of these two countries will develop relatively synchronously. The renminbi is likely to depreciate marginally against the euro in 2020. The value of the British pound is currently being largely determined by the progress of the Brexit negotiations. Accordingly, the most likely scenario is a volatile sideways movement of the pound against the euro. The Japanese central bank’s highly expansionary monetary policy is unlikely to change in 2020. The euro / yen exchange rate is therefore likely to follow a sideways trend. The currencies of numerous emerging economies could come under further downward pressure against the US dollar and the euro, particularly in countries such as Russia, Brazil and India. International automobile markets According to the original forecasts, new registrations worldwide were expected to decrease slightly in 2020 (83.1 million units; – 0.5 %). However, due to the worldwide spread of coronavirus, new registrations are now expected to drop significantly. International motorcycle markets Prior to the outbreak of coronavirus, the BMW Group had predicted that the global motorcycle markets in the 250 cc plus class would grow slightly in 2020. For instance, the upward trend seen on major European markets such as France and Spain was expected to con- tinue. In Germany and Italy, the markets were forecast to remain stable. By contrast, the USA was predicted to see a further slight decline in motorcycle registrations in 2020, whereas Brazil was expected to see a slight increase. However, due to the spread of coronavirus, global motorcycle markets in the 250 cc plus class are now expected to decline slightly year-on-year. International interest rate environment Protectionism and the ongoing trade dispute between the USA and China are casting a shadow over global growth prospects for 2020. The new coronavirus, which is spreading worldwide, poses an additional risk for the global economy. Various central banks and governments have already taken action to coun- teract the economic impact of the virus with a raft of monetary policy measures. In view of the developments regarding coronavirus, the US Federal Reserve lowered its benchmark interest rates by 0.5 percentage points on 3 March 2020 and by 1 percentage point on 15 March 2020. In connection with the latest developments, further reductions appear to be likely over the course of the year. Further central banks are expected to take measures to mitigate the negative impact on the global economy and to ensure liquidity on the markets. Apart from the consequences of the spread of corona- virus and other global developments, the progress of negotiations on a trade agreement between the EU and the UK are likely to have a considerable impact on the UK economy. The Bank of England is also expected to adopt measures to counter the negative economic impact of coronavirus and to stabilise the economy. Combined Management ReportThe economic consequences of the coronavirus and the trade war with the USA are likely to continue having an adverse impact on the Chinese economy in 2020. A mixture of reforms as well as monetary and fiscal policy measures is intended to counteract any sharp slowdown in economic growth. Despite the government’s economic mea sures against the negative effects of the tax increase, the economy in Japan is likely to be impacted negatively by the coronavirus. It is expected that the Japanese central bank will continue its extremely low interest rate poli- cies, in order to reach the target of 2 % price stability. Expected consequences for the BMW Group Future developments on international automobile markets also have a direct impact on the BMW Group. Challenges in the competitive environment will have a significant effect on sales volumes in some countries. Due to its global business model, the BMW Group is well placed at all times to capitalise on any opportu- nities that present themselves, even at short notice. Coordination between the Group’s sales and produc- tion networks also enables it to balance out the impact of unforeseeable developments in the various regions. Investments in markets important for the future also form a basis for further growth, while simultaneously strengthening the global presence of the BMW Group. In view of the increasingly unpredictable conse quences of economic and political conditions around the world, actual economic growth in some regions may deviate from expected trends and outcomes. Areas affected in this context include trade and customs policies, security and potential additional international trade conflicts. 85 Direct effects of coronavirus on the BMW Group Prior to the outbreak of coronavirus, the BMW Group’s original forecast for the Automotive segment envis- aged a slight increase in deliveries to customers and an EBIT margin of between 6 and 8 %. Group profit before tax was expected to increase significantly. The spread of coronavirus has slowed down the growth of the BMW Group’s deliveries in China. In light of the sharp increase in corona infections in other regions of the world, currently particularly in Europe and North America, the BMW Group now expects worldwide deliveries to customers to be significantly down on the previous year. Due to the lower volume of deliveries in China com- pared to the original forecast, the necessary contain- ment measures and a similar trend already emerging in other regions of the world, including Europe and North America, earnings of the Automotive segment are likely to be negatively impacted, particularly in the first half of the year. The negative effect on the EBIT margin of the Automotive segment over the full twelve-month period is currently expected to be in the region of four percentage points. Based on the latest forecast, the EBIT margin for the Automotive segment is therefore expected to be within the range of 2 and 4 %. In the Financial Services segment, the number of new contracts is expected to decrease and the risk provi- sioning expense to increase. As a result, the return on equity is forecast to drop slightly year-on-year. Taking into account the effects described above, Group profit before tax is expected to be significantly lower than in 2019. Furthermore, risks also exist for upstream processes, including possible bottlenecks due to supply shortages. The BMW Group continues to observe developments closely and is ready to take all necessary measures. 86 Report on Outlook, Risks and Opportunities Outlook Outlook for the BMW Group Overall assessment by Group management Within a volatile environment, now overshadowed by the global spread of coronavirus, business is ex- pected to develop negatively during the financial year 2020. While numerous new automobile and motor- cycle models as well as individual mobility-related services will generate additional momentum, the various factors described above are likely to have a major offsetting impact. Research and development expenses will remain at a high level in connection with future- oriented projects. In light of the impact of the global spread of coronavirus, profit before tax during the period covered by the outlook is likely to decrease significantly. For the same reason, Automotive segment deliv- eries to customers are likely to be well down on the previous year. At the same time, fleet carbon dioxide emissions are forecast to drop considerably. Influenced by the negative factors described above, the Automotive segment’s EBIT margin in 2020 is expected to lie within a target range of 2 and 4 %. The latest prediction is that the RoCE in this segment is likely to be significantly lower than one year earlier. The RoE in the Financial Services segment is expected to decrease slightly, mainly due to the higher risk provisioning expense. The Motorcycles segment is now expected to record a slight decrease of deliveries to customers, down on the previous forecast of a solid increase. The EBIT margin is expected to lie within a target range of 6 and 8 %, while the RoCE is likely to be slightly under the pre- vious year’s level. The targets are to be achieved with a workforce size which – based on the new method of calculation described above – will be at a similar level to the previous year (workforce size at the end of 2019 based on the new definition: 126,016 employees; workforce size based on the previous definition: 133,778 employees). The prevailing high level of uncertainty – particularly in connection with the further spread of corona- virus, economic and political developments such as the negotiations between the EU and the UK on a trade agreement by 31 December 2020, as well as international trade and customs policies – may cause economic developments in many regions to deviate markedly from expected trends and outcomes. Any such deviations could have a significant impact on the business performance of the BMW Group. Furthermore, the actual business performance of the BMW Group may also differ from current expectations as a result of the risks and opportunities described below in the Report on Risks and Opportunities. Combined Management ReportBMW Group key performance indicators • 61 Group Profit before tax Workforce at year-end Automotive seGment Deliveries to customers 2 Fleet emissions 3 EBIT margin Return on capital employed motorcycles seGment Deliveries to customers EBIT margin Return on capital employed 87 2019 reported 2019 adjusted 2020 Outlook1 € million 7,118 – significant decrease 133,778 126,016 in line with last year’s level units 2,538,367 g CO2 / km % % units % % 127 4.9 29.0 175,162 8.2 29.4 – – – – – – – – significant decrease significant decrease between 2 and 4 significant decrease slight decrease between 6 and 8 slight decrease slight decrease FinAnciAl services seGment Return on equity % 15.0 1 Based on adjusted figures. 2 Including the joint venture BMW Brilliance Automotive Ltd., Shenyang (2019: 538,612 units). 3 EU-28. 88 Report on Outlook, Risks and Opportunities Risks and Opportunities RISKS AND OPPORTUNITIES As a worldwide-leading provider of premium cars, motorcycles and mobility services, as well as related financial services, the BMW Group is exposed to numerous uncertainties and change. Making full use of the opportunities arising out of change is a fundamental basis of the Group’s corporate success. In order to achieve growth, profitability, efficiency and continued sustainable activities going forward, the BMW Group must consciously assume risks. Management of opportunities and risks is essential for the Group to react appropriately to changes in political, economic, technical or legal conditions. Opportunities and risks which are likely to materi alise are taken into account in the Outlook Report. The following sections focus on potential future devel- opments or events, which could result in a positive (opportunity) or a negative (risk) deviation from the BMW Group’s outlook. The earnings impact of risks and opportunities is assessed separately without offsetting. Opportunities and risks are assessed with respect to a medium-term period of two years. Risk management in the BMW Group • 62 As part of the risk management process, all individual and cumulative risks that represent a threat to the suc- cess of the business are monitored and managed. Any risks capable of posing a threat to the going-concern status of the BMW Group are strictly avoided. Where no specific reference is made, opportunities and risks relate to the Automotive segment. The scope of entities consolidated in the Report on Risks and Opportuni- ties corresponds to the scope of consolidated entities included in the BMW Group Financial Statements. Risk management system The objective of the risk management system, and the main function of risk reporting, is to identify, mea- sure and, where possible, actively manage internal or external risks that could threaten the attainment of the Group’s corporate targets. According to Group-wide rules, every employee and manager has a duty to report risks through the relevant reporting channels. The key elements of a good risk culture are rooted in the core values of the BMW Group, its risk management manual and in the principles of its risk management strategy. The risk management system is organised formally as a decentralised, Company-wide network and is steered by a centralised risk management function. Every BMW Group division is represented within the risk management organisation by Network Representatives. Group-wide risk management Identification Analysis and Measurement Effectiveness Practicability Compliance Committee Reporting / Monitoring Completeness Risk Management Steering Committee Controlling Supervisory Board Board of Management Measures Group Audit Internal Control System Combined Management ReportThis formal structure reinforces the network’s visibility and underlines the importance of risk management within the BMW Group. Responsibilities and tasks of the centralised risk management function and the Network Representatives are clearly documented and accepted. In view of the dynamic growth of business and the increasingly volatile environment in which it operates, the BMW Group’s Corporate Audit reviews its risk management system for effectiveness and appropriateness on an annual basis. Other functions such as compliance (see the section Corporate Governance) and the internal control sys- tem (see the section Internal Control System) form key interfaces with the risk management system. As an independent part of the organisation, Group Internal Audit also ensures the appropriateness and effectiveness of these functions. During 2019, the risk management system was fur- ther enhanced by focusing on the concept of simula- tion-based risk aggregation and by looking at risks not only from the perspective of areas of responsibility, but also from a process-oriented perspective, with a view to improving the informative value of risk-bearing capac- ity and in order to gain a better insight into the chains of effects between individual risks. For this purpose, individual risks from different areas of responsibil- ity were allocated to the relevant process steps and dependencies between individual risks mapped out. Risk management process The risk management process covers the entire Group and comprises the early identification of risks, detailed analysis and risk assessment, the coordinated use of relevant management tools as well as monitoring and evaluation of measures taken. Significant risks reported from within the network are firstly presented for review to the Risk Management Steering Committee, chaired by Group Controlling. After review, the risks are reported to the Board of Management and the Supervisory Board. All risks are assessed using a loss distribution approach, thereby enabling better comparability of risks for both internal and external reporting purposes. Risks are classified according to the extent of their average earnings impact, taking into account the probability of occurrence (risk amount) or the risk-bearing capacity (potential worst-case earnings impact). Risk assessment for the BMW Group is performed in conjunction with the calculation of risk-bearing capac- ity. For this purpose, risks measured on a worst-case basis are aggregated using a value-at-risk model (99 % confidence level) with correlation effects taken into account, and compared with the asset cushion. 89 The risk-bearing capacity is regularly monitored by means of an integrated limit system for individual risk categories. The risk management system is regularly examined by Group Internal Audit. The incorporation of new insights and requirements ensures continual improvement to the system. Training programmes and information events are regularly conducted across the BMW Group, particularly within the risk management network. These measures are essential ways of preparing those involved in the process for new or additional demands. Alongside comprehensive risk management, sustain- able business practice also constitutes a core strategic principle for the BMW Group. Sustainability-related risks are therefore also integrated in the Group-wide risk network. In accordance with the CSR Directive Implementation Act, risks that can have an impact on the non-financial aspects referred to in the law were reviewed as part of the reporting process. Significant risks in this context are defined as risks from business activities, business relationships and products / ser- vices of the BMW Group that are highly likely to have a serious adverse impact. No significant risks were identified during the review. The Group’s Non- Financial Declaration is provided in the Sustainable Value Report 2019, which is available on the Internet at www.bmwgroup.com / svr. In the Financial Services segment risk management also addresses regulatory requirements, such as Basel III. Internal methods to identify, measure, manage and monitor risks within the Financial Services segment comply with national and international standards. Risk management within the Financial Services busi- ness is built on the prevailing risk culture, the defined risk strategy, the internal capital adequacy assessment process framework and a set of rules comprising prin- ciples and guidelines. The risk management process is ensured in organisational terms by means of a clear division between front- and back-office activities and a comprehensive internal control system. The main tool used to manage risks within the Financial Services segment is ensuring the segment’s risk-bearing capac- ity. Risks – in the sense of unexpected losses – must be covered at all times. This is achieved by means of risk-covering assets (asset cushions) in the form of equity capital derived from the entity’s risk appetite. Unexpected losses are measured according to various value-at-risk models, which are validated at regular intervals. Risks are also aggregated after taking account of correlation effects. In addition to assessing the Group’s ability to bear risk, stress scenarios are also examined. The segment’s risk-bearing capacity is also regularly monitored by means of an integrated limit system for the various risk categories. 90 Report on Outlook, Risks and Opportunities Risks and Opportunities Risk measurement Based on their significance with respect to the results of operations, financial position and net assets of the BMW Group, risks are classified as high, medium or low. The impact of risks is measured and reported net of risk mitigation measures that are already taking effect (net basis). In the following sections, “earnings impact” is used consistently to cover the overall impact on results of operations, financial position and net assets. The potential earnings impact arising on the occur- rence of a risk, measured on the basis of a worst-case scenario over the two-year assessment period, is classified as follows: Class Low Medium High Potential earnings impact in a worst case scenario > € 0 – 500 million > € 500 – 2,000 million > € 2,000 million The risk amount, which indicates the significance of risks for the BMW Group, corresponds to the average earnings impact, taking into account probability of occurrence and risk mitigation measures that are already taking effect. The following criteria apply for the purposes of clas- sifying the risk amount: Class Low Medium High Risk amount > € 0 – 50 million > € 50 – 400 million > € 400 million Opportunities management system and opportunity identification A dynamic market environment also gives rise to opportunities. The BMW Group continually monitors macroeconomic trends as well as developments within the sector and overall environment. This includes external regulations, suppliers, customers and com- petitors. Identifying opportunities is an integral part of the strategic planning process of the BMW Group. The Group’s product and service portfolio is continu ally reviewed on the basis of these analyses. This results, for example, in new product projects being pre sented to the Board of Management for consideration. Prob- able measures aimed at increasing profitability are already incorporated in the outlook. Continuous monitoring of major business processes and strict cost controls are essential for ensuring strong profitability and return on capital employed. In order to be able to compete successfully in the long term and at the same time help advance the move towards climate neutrality that is being demanded by politicians and society alike, it is the BMW Group’s policy to design flexible platforms for rear- and front- wheel drive vehicles, enabling it to produce different drivetrain systems on the back of a single architecture and therefore optimise plant structures. The implementation of identified opportunities is undertaken on a decentralised basis within the rele- vant functions. The significance of opportunities for the BMW Group is classified on a qualitative basis in the categories “significant” and “insignificant”. Combined Management ReportRisks and opportunities The following table provides an overview of all risks and opportunities and indicates their significance for the BMW Group. Overall, no risks which could threaten the continued existence of the BMW Group were identified either at the balance sheet date or at the date on which the Group Financial Statements were drawn up. 91 Risks Opportunities Classification of risk amount Change compared to prior year Classification Change compared to prior year risks A nd opportunities Macroeconomic risks and opportunities Strategic and sector risks and opportunities Changes in legislation and regulatory requirements Market developments Risks and opportunities relating to operations Production and technology Purchasing Sales network Information, data protection and IT Financial risks and opportunities Foreign currencies Raw materials Liquidity Pension obligations Risks and opportunities relating to the provision of financial services Credit risk Residual value Interest rate changes Operational risks Legal risks Macroeconomic risks and opportunities Economic conditions influence business performance and hence the results of operations, financial posi- tion and net assets of the BMW Group. Unforeseen disruptions in global economic relations can have highly unpredictable effects. Economic risks can result in lower purchasing power in the countries and regions affected and cause reduced demand for the products and services offered by the BMW Group, while at the same time having a negative impact on production. Macroeconomic risks could – due to sales volume fluctuations – have a high earnings impact over the two-year assessment period. Overall, the risk amounts attached to macroeconomic risks are classified as high. In view of the political events of recent years, global economic developments continue to be subject to a high degree of uncertainty, in particular with respect to potential barriers to global trade. A reorientation of US economic policy, changes within the EU and High High High Low High Medium Medium Low High Medium High Medium Medium Medium Stable Insignificant Stable Stable Stable Insignificant Insignificant High Increased Insignificant Medium Decreased Insignificant Stable Stable Insignificant Insignificant Decreased Stable Stable Stable Stable Stable Stable Stable Stable Significant Significant – Significant Insignificant Decreased Significant Significant – – Stable Stable – – Stable Stable Stable Stable Stable Stable Stable Stable – Stable possible economic agendas by parties within the EU that are critical of globalisation and could therefore jeopardise stability could lead to more restrictive trade practices in the coming years. A possible introduction of further trade barriers, including anti-dumping customs duties and duties aimed at protecting national security by the US administration, could have a significantly adverse impact on the BMW Group’s operations through less favourable conditions for importing vehicles. Moreover, countermeasures by the USA’s trading partners could slow down global economic growth and have a sustained adverse impact on the export of vehicles produced in the USA. The BMW Group’s “production follows the market” strategy involves local production both in the USA and with other important trade partners. Local production reduces the existing risk of trade barriers. Nevertheless, any increase in trade barriers would have an adverse impact on the BMW Group. 92 Report on Outlook, Risks and Opportunities Risks and Opportunities The withdrawal of the UK from the EU could have a long-term adverse impact on the BMW Group, particularly as a result of increased trade barriers in the form of customs duties in relation to the Euro- pean single market. Any such trade barriers could have a negative impact on volumes and costs both for vehicles and components produced in the EU for the UK as well as those produced in the UK for the European market. In extreme cases, this could result in production losses due to delays in customs clearance. In addition, it cannot be ruled out that Brexit could lead to reduced customer spending in the wake of weaker economic performance, particularly in the UK, but also in parts of the EU. In the short and medium term, uncertainty regarding the outcome of the negotiations with the EU on a trade agreement by 31 December 2020 is likely to exacerbate these factors and cause further unfavourable currency effects. A possible further economic downturn in countries of the EU could also potentially reduce growth prospects for the BMW Group. European integration with a unified economic and currency area is an important pillar of economic stability in Europe. The transition in China from an investment-driven to a consumer-driven economy is associated with slower growth rates and, potentially, greater instability in the short to medium term on financial markets. If the Chinese economy were to grow at a significantly slower pace than expected, the consequence would be not only a decline in automobile sales, but also, potentially, lower demand for raw materials, which would have a negative impact above all on emerging economies such as Brazil, Russia or South Africa. A drop in raw material prices could result for the BMW Group in lower demand from these countries, while at the same time bringing down raw material procurement costs for the BMW Group. Turmoil on the Chinese property, stock and banking markets as well as the pursuit of overly restrictive monetary policies by the US Federal Reserve could pose consid- erable risks for global financial market stability, such as increased currency fluctuations and unfavourable consequences for emerging markets in particular. Furthermore, increasing political unrest, military con- flicts, terrorist activities, natural disasters or pandemics could have a lasting negative impact on the global economy and international capital markets. The enormous uncertainty currently regarding the global spread and impact of the coronavirus makes it difficult to make an accurate forecast of vehicle deliveries. If the sales situation across all markets does not normalise after a few weeks, further effects on the BMW Group’s vehicle deliveries to customers as well as on upstream and downstream processes may materialise that cannot be assessed in terms of either their duration or negative impact. The Group is observing the situation closely and is taking appro- priate measures. Should the global economy develop significantly better than presented in the outlook, opportunities could arise for the BMW Group’s revenues and earn- ings. Significantly stronger GDP growth in China, demand- oriented reforms within the eurozone, the intensification of trade relations between the EU and the UK, de-escalation of the trade dispute between the USA and its trading partners or more robust consumer spending in emerging markets due to ris- ing raw material prices could result in significantly stronger sales volume growth, reduced competitive pressures and corresponding improvement in pric- ing. The planned expansion of production capacities will enable emerging opportunities to be exploited. Macroeconomic opportunities that could generate a sustainable impact on earnings are currently clas- sified by the BMW Group as insignificant. Strategic and sector risks and opportunities Changes in legislation and regulatory requirements The sudden introduction of more stringent legis- lation and regulations, particularly with regard to emissions, safety and consumer protection as well as regional vehicle-related purchase and usage taxes, represents a significant risk for the automobile indus- try. Country- and sector-specific trade barriers may also change at short notice. A sudden tightening of regulations in any of these areas may necessi- tate significantly higher investments and ongoing expenses or influence customer behaviour. If the risk of market disruptions as a result of unforeseeable short-term changes in legislation and regulations were to materialise, this could have a high negative impact on earnings over the two-year assessment period and beyond. The risk amount attached to these risks is classified as high. At present, the BMW Group can observe a continu- ous trend towards more stringent vehicle emissions regulations, particularly in relation to conventional drivetrain systems. The BMW Group is addressing this risk on the one hand through its ongoing systematic development of highly efficient combustion engines, with the aim of further reducing fuel consumption and emissions. At the same time, it is pressing ahead with its plan for electrified vehicles across all brands and model series. A main focus area of the BMW Group is the systematic electrification of all brands and model series. By the end of 2021, the BMW Group aims to have more than one million electrified vehicles on the roads. Combined Management ReportFurther risks can result from the tightening of existing import and export regulations. These lead primarily to additional expenses, but can also restrict imports and exports of vehicles or parts. An established regulatory framework for innovative mobility solutions as well as government incentives are important prerequisites for introducing product innovations, such as automated driving, and for scaling up the range of electric mobility offerings. In the case of BMW Group electrified vehicles, a faster expansion of charging infrastructure could increase acceptance and help boost sales of planned or recently introduced product innovations com- pared to forecast. This includes implementation of the 360° ELECTRIC portfolio in the field of electric mobility and collaboration with Toyota on hydrogen fuel cell technology. The BMW Group’s earnings could also be positively affected in the short to medium term by changes in trade policies. A possible reduction in tariff barri- ers, import restrictions or direct excise duties could lower the cost of materials or enable products and services to be offered to customers at lower prices. Further opportunities for the earnings performance of the BMW Group from changes in legislation and regulatory requirements compared to the outlook are classified as insignificant. Market development In addition to economic factors and sector-specific political conditions, increasingly fierce competition among established manufacturers and the emergence of new competitors could also have effects which are difficult to predict. Unforeseen consumer pref e rences and changes in brand perceptions can give rise to opportunities and risks. If market risks were to mate- rialise, they could have a high earnings impact over the two-year assessment period. The risk amount is classified as high. A potential further intensification in competition could put pressure on sales volumes, selling prices and margins. For instance, the planned introduction of the RDE II standard could result in market distortions – similar to those which arose on the conversion to the new WLTP test procedure in 2018 – even though the BMW Group is compliant with the new requirements. Changes in customer behaviour can also be brought about by changes in attitudes, values, environmental factors and fuel or energy prices. The BMW Group’s flexible sales and production processes enable risks to be reduced and newly arising opportunities in market and product segments to be taken. Local restrictions affecting product usage in specific sectors may limit BMW Group sales in individual mar- kets. In some urban areas, for instance, local measures 93 have been, or are being, introduced, includ ing entry restrictions, congestion charges or, in some situations, highly restrictive registration rules. These may impact local demand for the BMW Group vehicles affected and hence have a negative impact on sales, margins and, possibly, the residual values of these vehicles. The BMW Group is addressing this risk, for example, by broadening its range of electrified vehicles. New opportunities are being sought to create added value for customers, and thereby to realise significant opportunities with respect to sales growth and pri c- ing. Further development of the product and mobil- ity portfolio and expansion in growth regions offer the most important medium- to long-term growth opportunities for the BMW Group. Continued growth depends above all on the ability to develop innovative products and services and bring them to market. If the negative impact of the current competitive situation is reduced more quickly than expected, additional opportunities will arise for the BMW Group. Com- pared to the assumptions made in the outlook, the BMW Group expects these opportunities to have no significant earnings impact over the two-year assess- ment period. Risks and opportunities relating to operations Risks and opportunities relating to production and technologies Risks relating to production processes and technology fields can lead to unplanned interruptions in produc- tion or additional costs due to vehicle recall actions. If risks arising from production processes and tech- nologies were to materialise, they could have a high earnings impact over the two-year assessment period. The corresponding risk amounts are classified as high. During the process of expanding the division-based perspective by a process-oriented perspective, the individual risks were combined to create an overall view of the development and production process. As a result, the risk assessment was increased compared to the previous year. Potential causes of production downtimes include fire, machine and tooling breakdowns, IT malfunctions, temporary disruption in utility supply or transporta- tion and logistical disruptions. All production units have a variety of measures in place to deal with potential production interruptions and downtimes, some of which are integrated into the planning process and can be implemented operationally with a high degree of flexibility. These measures are highly relevant in terms of both the amount of damage and the probability of occurrence of risks. Examples include the interchangeability of production facilities, preventive maintenance of production facilities, the maintenance of adequate safety stock levels and the management of spare parts across the plant network. 94 Report on Outlook, Risks and Opportunities Risks and Opportunities Risk is also reduced through flexible working hour models and working time accounts as well as the ability to build individual vehicle models or engine types with a high degree of flexibility – either addi- tionally or alternatively – at other sites, depending on requirements. The focus is on ensuring that customers can take delivery of their vehicle, both on time and in the premium quality expected. Technical fire protection systems, rapid response by on-site fire brigades and appropriate employee train- ing represent the three key strategies for preventing or reducing potential damage from fires. Furthermore, policies are in place with insurance companies of high credit standing for fire-related events that lead to significant production interruptions at the Group’s or at suppliers’ premises. Measures undertaken in conjunction with the latest challenges posed by Brexit include appropriate increases in levels of safety stocks, enhancing flexibility along the supply chain and estab- lishing specific IT solutions to handle related financial and logistics processing issues. In addition, in order to counter the risk of limited availability of products, particularly at the start of production for new vehicle projects, appropriate quality management processes are in place to monitor and secure their success. Targeted cyberattacks could cause damage to pro- duction facilities, resulting in long downtimes and, consequently, substantial losses. This threat is being countered by the rollout of new detection, analysis and response measures. Vehicles may be damaged or destroyed due to natural hazards or other risks during transport from produc- tion plants to the sales regions. As a consequence of the growing number of major claims, deductible amounts included in transport insurance policies have already risen significantly. In fact, as more and more insurance companies withdraw from this market seg- ment, there is a risk that it could become economically unviable to take out insurance, as a result of which the BMW Group would be required to bear the losses itself. The BMW Group recognises appropriate provisions for statutory and non-statutory warranty obligations. It cannot be ruled out, however, that additional costs could arise in connection with vehicle recall actions that are either not covered or not fully covered by pro- visions. Despite thorough quality assurance processes, such risks can always arise if materials and / or processing procedures used prove insufficient, in some cases years after the launch of a product. Further information on risks relating to provisions for statutory and non-statutory warranty obligations is provided in note 33 of the Group Financial Statements. The BMW Group sees opportunities in production processes and technology fields primarily through the competitive edge gained from mastering new and complex technologies. Digitalisation within the production area is being driven by technological and IT innovations. Lean processes will remain the basis for efficient production systems in the future. Digital solutions invariably offer added value if they add to the efficiency of serial processes. A good example of this in the field of production logistics is the use of smart transport robots, which help optimise processes relating to parts handling and order picking. Given the long lead times in developing new prod- ucts and processes, additional opportunities are not expected to have a significant impact on earnings during the outlook period. Risks and opportunities relating to purchasing Purchasing risks relate primarily to supply risks caused by the failure of a supplier as well as to threats to BMW Group-relevant know-how within the supplier network. Production problems at the level of suppliers could lead to consequences from increased expendi- ture for the BMW Group to production interruptions and a corresponding reduction in sales volume. The increasing complexity of the supplier network, especially at the level of lower tier suppliers, whose operations can only be influenced indirectly by the BMW Group, is a further potential cause of down- times at supplier locations. Moreover, the increased threat of cyberattacks along the value chain affects supply security maintenance and the protection of BMW Group-relevant know-how. In order to ensure a uniform level of information security for all parties concerned along the value chain, the BMW Group impresses on suppliers the importance of obtaining appropriate IT security certification. The BMW Group employs a comprehensive set of monitoring and proactive control measures to ensure that supply industry participants are able to rise to the current challenges facing them. If purchasing risks were to materialise, they could have a high earnings impact over the two-year assessment period. The level of risk attached to purchasing risks is classified as medium. Through an intensified imple- mentation of measures regarding fire protection and protection from cyberattacks at the level of suppliers, the risk has decreased compared to the previous year. Close cooperation between carmakers and suppliers in the development and production of vehicles and the provision of services generates economic benefits, but also raises levels of dependency. Potential reasons for the failure of individual suppliers include in particular IT-related risks, non-compliance with sustainability or see note 33 Combined Management Reportquality standards, insufficient financial strength of a supplier, the occurrence of natural hazards, fires and insufficient supply of raw materials. As part of supplier preselection, the BMW Group checks for compliance with the sustainability standards for the supplier network. This includes consideration of and compliance with internationally recognised human rights and applicable labour and social standards. In addition, the technical and financial capabilities of suppliers are monitored, especially where mod- ular-based production is concerned. Supplier sites are assessed for exposure to natural hazards, such as floods or earthquakes, in order to identify supply risks regarding parts and materials at an early stage and implement appropriate precautions. Fire risks at series suppliers are evaluated by means of questionnaires, compliance with a defined set of criteria and selective site inspections. The risks associated with the supply of raw materials are countered by reducing the use of raw materials or substituting them with alternative raw materials. By monitoring and developing global supplier markets, the BMW Group continuously strives to optimise its competitiveness by working together with the world’s best product and service providers. Within the Purchasing and Supplier Network, oppor- tunities arise above all in the area of global sourcing and associated efficiency improvements. Making good use of suppliers’ innovations is an important prerequisite for developing future-oriented mobility products and services. Similarly, favourable loca- tion-specific cost factors, in particular those arising in connection with local supplier structures in close proximity to new and existing BMW Group produc- tion plants as well as the introduction of innovative production technologies, could lead to lower cost of materials for the BMW Group. One goal of the BMW Group is to have battery cells manufactured in Europe. A key prerequisite for this is the further development of battery cell technology and exper- tise of the processes for cell production. Contracts have been concluded with various suppliers as part of the electrification strategy. Integration of previ- ously unidentified innovations from the supplier market in the Group’s product range could provide a further source of opportunities. The BMW Group offers innovative suppliers numerous possibilities for creating specific contractual arrangements which are attractive for those developing innovative solutions. Compared to the assumptions made in the outlook, the BMW Group does not expect such additional opportunities to have a significant earnings impact over the two-year assessment period. 95 Risks and opportunities relating to the sales network In order to sell its products and services, the BMW Group employs a global sales network, comprising primarily independent dealerships, branches, subsidiaries and importers. In addition, a pilot project for direct sales will be launched in South Africa in 2020. Any threat to the continued activities of parts of the sales network would entail risks for the BMW Group. The occur- rence of sales and marketing risks is associated with a low earnings impact over the two-year assessment period. The risk amount is classified as low. New developments in the field of digital commu- nication and connectivity in particular offer new opportunities for the BMW Group’s brands. Based on data from the vehicle, customers can elect to use a specified service, at which stage they will be required to consent to the transfer of the relevant telematics data. Service providers that are requested to perform the work receive the necessary data via the BMW Group’s secure back-end. This information provides the basis for customised, data-based and innovative service options. Additional opportunities could arise if new sales channels contribute to greater brand reach to customer groups than currently envisaged in the outlook. Compared to the assumptions made in the outlook, the BMW Group expects these opportunities to have no significant earnings impact over the two- year assessment period. Information, data protection and IT Increasing digitalisation across all areas of business places considerable demands on the confidentiality, integrity and availability of electronically processed data and the associated use of information technology (IT). In addition to the increased threat of cybercrime, regulations covering the handling of personal data are becoming more stringent, for example as a result of the EU General Data Protection Regulation. If risks relating to information security, data protection and IT were to materialise, they could have a high earnings impact over the two-year assessment period. Despite extensive security measures and constant efforts to ensure compliance with applicable data protection legislation, the risks in this area are classified as high. In addition to cyberattacks and direct physical inter- vention, lack of knowledge or misconduct on the part of employees may also represent a danger to the confidentiality, integrity and availability of informa- tion, data and systems. Direct consequences include expenditure required to limit the immediate damage and to restore systems promptly. Negative impacts on revenue due to the non-availability of products and services or disruptions in the production of compo- nents or vehicles are also possible. A further indirect result could be reputational damage. 96 Report on Outlook, Risks and Opportunities Risks and Opportunities Great importance is attached to the protection of the confidentiality, integrity and availability of business information as well as employee and customer data, for instance as a result of unauthorised access or mis- use. Data security is an integral component of all busi- ness processes and is aligned with the International Standard ISO / IEC 27001. As part of risk management, information security, data protection and IT risks are systematically documented, allocated appropriate measures by the departments concerned and contin- uously monitored with regard to threat level and risk mitigation. Regular analyses and controls as well as rigorous security management ensure an appropri- ate level of security. Despite continuous testing and preventative security measures, it is impossible to eliminate risks completely in this area. All employees are required to treat with care information such as confidential business, customer and employee data, to use information systems securely and to handle risks with transparency. Group-wide requirements are documented in a comprehensive set of principles, guidelines and instructions, such as, for example, the Privacy Corporate Rules for handling personal data. Regular communication and awareness-raising mea- sures create a high level of security and risk awareness. With regard to cooperation agreements and business partnerships, the BMW Group protects its intellec- tual property as well as customer and employee data through clear instructions on information security and data protection and the use of information technology. Information pertaining to key areas of expertise as well as sensitive personal data are subject to particularly stringent security measures. Technical data protection incorporates industry-wide standards and good practices. Responsibility for information security and data protection lies for each Group entity with the Board of Management or relevant management team. With the advance of digitalisation, the BMW Group is improving the customer experience in its existing lines of business. At the same time, new business segments are emerging, which have only become feasible as a result of innovation in the area of information technology. The development and pro- vision of digital services for customers, increased vehicle connectivity and automated driving solu- tions are opening up new opportunities. Via BMW ConnectedDrive and BMW CarData, the range of services and apps on offer to customers is constantly being expanded and updated. Since March 2019, the BMW Intelligent Personal Assistant enables customers to access functions and information by voice interaction with an intelligent, digital charac- ter. The BMW Group expects these opportunities to have no significant earnings impact over the assessment period as compared to the assumptions made in the outlook. Financial risks and risks relating to the use of financial instruments Currency risks and opportunities As an internationally operating enterprise, the BMW Group conducts business in a variety of cur- rencies, thus giving rise to currency risks and oppor- tunities. A substantial portion of Group revenues, purchasing and funding occur outside the eurozone (particularly in China and the USA). Regularly up- dated cash-flow-at-risk models and scenario analyses are used to measure currency risks and opportunities. If currency risks were to materialise, they could be associated with a medium earnings impact over the two-year assessment period. The risk amount attached to currency risks is classified as medium. Significant opportunities can arise if currency devel- opments are favourable for the BMW Group. Operational currency management is based on the results of currency risk analyses. The BMW Group manages currency risks at both strategic (medium and long term) and operational level (short and medium term). Medium- and long-term measures include increasing production volumes and purchase volumes in foreign currency regions (natural hedging). Currency risks are managed in the short to medium term and for operational purposes by means of hedging on financial markets. The principal objective is to increase planning reliability for the BMW Group. Hedging transactions are entered into only with financial partners of good credit standing. Opportunities are also secured through the use of options during specific market phases. Risks and opportunities relating to raw material prices As a large-scale manufacturing company, the BMW Group is exposed to purchase price risks, par- ticularly in relation to raw materials used in vehicle production. The analysis of raw material price risk is based on planned purchases of raw materials and components containing those raw materials. If risks relating to raw materials prices were to materialise, they could have a medium earnings impact over the two-year assessment period. The risk amount is classified as medium. Significant opportunities could arise if raw materials prices developed favourably for the BMW Group. Changes in commodity prices are monitored on the basis of a well-defined management process. The principal objective is to increase planning reliability for the BMW Group. Price fluctuations for precious metals (platinum, palladium, rhodium), non-ferrous metals (aluminium, copper, lead, nickel) and, to some extent, for steel and steel ingredients (iron ore, coking coal) and energy (gas, electricity) are hedged using financial derivatives and supply contracts with fixed pricing arrangements. Combined Management Report97 liquidity risks The major part of the Financial Services segment’s credit financing and leasing business is refinanced on capital markets. Liquidity risks can arise in the form of rising refinancing costs or from restricted access to funds as a consequence of the general market situation. If liquidity risks were to materialise, they would be likely to have a low earnings impact over the two-year assessment period. The risk amount associated with liquidity risk, including the risk of the BMW Group’s rating being downgraded, is classified as low. Based on the experience of the financial crisis, a liquidity concept has been drawn up, which is rigor- ously adhered to and continuously developed. Use of the “matched funding principle” to finance the Financial Services segment’s operations generally eliminates liquidity risks. Solvency is assured at all times throughout the BMW Group by maintaining a liquidity reserve and by the broad diversification of refinancing sources. Regular measurement and mon- itoring ensure that cash inflows and outflows for the various maturities and currencies offset each other. This approach is incorporated in the BMW Group’s liquidity concept. The liquidity position is monitored continuously and managed through Group-wide planning of financial requirements and funding. A diversified refinancing strategy reduces dependency on any specific type of instrument. Moreover, the BMW Group’s solid financial and earnings position results in high credit ratings from internationally recognised rating agencies. Further information on risks in conjunction with financial instruments is provided in note 39 to the Group Financial Statements. see note 39 Risks and opportunities relating to pension obligations Pension obligations are influenced in particular by fluctuations of market yields on corporate bonds, as well as by other economic and demographic para- meters. Opportunities and risks arise depending on changes in these parameters. If risks relating to pension obligations materialised, they could have a high earnings impact over the two-year assessment period. Despite the high level of external funding, the risk amounts relating to pension obligations are classified as high. Within a favourable capital mar- ket environment, the return generated by growth- oriented pension assets may exceed expectations and reduce the deficit of the relevant pension plans. This could have a significantly favourable impact on the net asset position of the BMW Group. Future pension payments are discounted on the basis of market yields on high-quality corporate bonds. These yields are subject to market fluctuation and therefore influence the level of pension obligations. Changes in other parameters, such as rises in infla- tion and longer life expectancy, also impact pension obligations and payments. Regulatory requirements can influence the amount of pension obligations. The BMW Group’s pension obligations are mainly held in external pension funds or trust arrangements and the related assets legally separated from those of the Group. The amount of funds required to finance pension payments out of operations in the future is substantially reduced by the fact that the Group’s pension obligations are mainly settled out of pension fund assets. The pension assets of the BMW Group comprise inter- est-bearing securities, equities, real estate and other investment classes. Assets held by pension funds and trust arrangements are monitored continuously and managed on a risk-and-return basis. Diversification of investments also helps to mitigate risk. In order to reduce fluctuations in pension funding shortfalls, investments are structured to match the timing of pension payments and the expected development of pension obligations. Remeasurements on the liability and fund asset sides are recognised net of deferred taxes in other comprehensive income and hence directly in equity (within revenue reserves). see note 32 Further information on risks in conjunction with note 32 of the pension provisions is provided in Group Financial Statements. Risks and opportunities relating to the Financial Services segment The categories of risk relating to financial services comprise credit and counterparty risk, residual value risk, interest rate risk, operational risks and liquidity risk. Evaluation of liquidity risk for the Financial Services segment is included in the liquidity risk category for the Group as a whole. The segment’s total risk exposure was covered at all times during the 2019 financial year by the avail- able risk-covering assets. As a result, the Financial Services segment’s risk-bearing capacity was assured at all times. Automotive segments. The risk amount is classified as high for the Group as a whole. Opportunities can arise out of a positive deviation between the actual market value and the original residual value forecast. The BMW Group classifies potential residual value opportunities as significant. Each vehicle’s estimated residual value is calculated on the basis of historical external and internal data. This estimation provides the expected market value of the vehicle at the end of the contractual period. Developments on pre-owned car markets represents an important factor for the BMW Group. In 2019, the electrification of vehicles also played a major role in the public debate. Prices in pre-owned vehicle markets in the premium segment remained within the normal range. As part of the management of residual value risks, the net present value of risk costs is calcu lated at contract inception. Market developments are observed throughout the contractual period and the risk assessment updated. Interest rate risks and opportunities relating to the Financial Services segment Interest rate risks in the Financial Services segment relate to potential losses caused by changes in market interest rates. These can arise when fixed interest rate periods do not match for assets and liabilities recog- nised in the balance sheet. If interest rate risks were to materialise, they could have a medium earnings impact over the two-year assessment period. The risk amount is classified as medium. Favourable interest rate developments compared to the outlook represent opportunities which the BMW Group classifies as significant. Interest rate risks in the Financial Services business are managed by matching maturities for refinancing and by employing interest-rate deriva- tives. If the relevant recognition criteria are fulfilled, derivatives used by the BMW Group are accounted for as hedging instruments. Further information on risks in conjunction with financial instruments is provided note 39 to the Group Financial Statements. in see note 39 98 Report on Outlook, Risks and Opportunities Risks and Opportunities Credit and counterparty risks and opportunities relating to the Financial Services segment Credit and counterparty default risk arises within the Financial Services segment if a contractual partner (e. g. a customer or dealer) either becomes unable or only partially able to fulfil its contractual obligations, so that lower income is generated or losses incurred. If credit and counterparty risks were to materialise, they could have a medium earnings impact over the two-year assessment period. The risk amount is clas- sified as medium. The BMW Group classifies potential opportunities in this area as insignificant. Initial and continuous creditworthiness testing is an important aspect of the BMW Group’s credit risk management. For this reason, every borrower’s credit- worthiness is tested for all credit financing and leasing contracts entered into by the BMW Group. Opportu- nities may arise if the managed portfolio performs better over time than estimated when the credits were granted. Intensive management of purchasing pro- cesses and collateral assessment as well as favourable macroeconomic developments could boost these opportunities. In the case of retail customer financing, creditworthiness is assessed using validated scoring systems integrated into the purchasing process. In the area of dealership financing, creditworthiness is assessed by means of ongoing credit monitoring and an internal rating system that takes account not only of the material credit standing of the borrower, but also of qualitative factors such as past reliability in business relations. Changes in the creditworthiness of customers arising during the credit term are covered by risk provisioning procedures. The credit risk of the individual customers is quantified on a monthly basis and, depending on the outcome, taken into account within the risk provisioning system. Macroeconomic developments are currently subject to a higher degree of volatility. If developments are more favourable than assumed in the outlook, credit losses may be reduced, leading to a positive earnings impact. Residual value risks and opportunities relating to the Financial Services segment Risks and opportunities arise in conjunction with leasing contracts if the market value of a leased vehicle at the end of the contractual term of a lease differs from the residual value estimated at the inception of the lease and factored into the lease payments. A residual value risk exists if the expected market value of the vehicle at the end of the contractual term is lower than its estimated residual value at the date the contract is entered into. If residual value risks were to materialise, they could have a high earnings impact from the Group’s perspective over the two-year assessment period. A high earnings impact would then arise for the affected Financial Services and Combined Management Report99 typical for the sector or may result as a consequence of realigning product or purchasing strategies to changed market conditions. Particularly in the US market, class action lawsuits and product liability risks can have substantial financial consequences and cause damage to the Group’s public image. More rigorous application or interpretation of exist- ing regulations could result in a greater number of recalls. The high quality of the Group’s products, which is ensured by regular quality audits and ongo- ing improvement measures, helps reduce this risk. Compared with the risk situation presented in the Group Management Report 2018, the assessment of legal risks in conjunction with antitrust allega- tions made against five German car manufacturers has become more concrete following receipt of the Statement of Objections from the EU Commission. The EU Commission alleges that the manufacturers colluded with the aim of restricting innovation and competition with regard to certain exhaust treatment systems for diesel- and petrol-driven passenger vehi- cles. The current investigations are solely concerned with possible infringements of competition law. The EU Commission is not alleging that the BMW Group conducted a deliberate and unlawful manipulation of the emissions control system. The Statement of Objections leads the BMW Group to believe that it is probable (“more likely than not”) that the Com- mission will issue a significant fine. The BMW Group will contest the Commission’s allegations with all legal means at its disposal if necessary. A provision of approximately € 1.4 billion was recognised in accordance with International Financial Reporting Standards for negative financial impacts that cannot yet be definitively assessed. The BMW Group has reviewed the objections and the case information from the EU Commission. In December 2019 the BMW Group submitted a detailed reply to the objections of the Commission. The EU Commission will examine the response and, on the basis of that, determine the next procedural steps. Therefore, the financial impacts cannot yet be definitively assessed. Operational risks relating to the Financial Services segment Operational risks are defined in the Financial Services segment as the risk of losses arising as a consequence of unsuitability or failure of internal procedures ( process risks), people (personnel-related risks), sys- tems (infrastructure and IT risks) and external events (external risks). The recording and measurement of risk scenarios, loss events and countermeasures in the operational risk management system provide the basis for a systematic analysis and management of potential or materialised operational risks. Annual self-assessments are also carried out. If operational risks were to materialise, they would be likely to have a low earnings impact over the two-year assessment period. The risk amount is classified as medium. Legal risks The BMW Group is exposed to various legal risks, not least as a result of its global operations. Legal risks may result from non-compliance with laws or other legal requirements or from legal disputes with business partners or other market participants. If legal risks were to materialise, they could have a high earnings impact over the two-year assessment period. The risk amount attached to significant identified legal risks is classified as medium. However, it cannot be ruled out that new legal risks, as yet unforeseen, could materialise that could have a high earnings impact for the BMW Group. The increasing globalisation of the BMW Group’s operations and of business interdependencies in general, combined with the variety and complexity of legal provisions, including, increasingly, import and export regulations, give rise to an increased risk of non-compliance with applicable law. A Compliance Management System is in place at BMW Group to ensure that the representative bodies, managers and staff across the globe consistently act in a lawful manner. In 2019 the system was further enhanced, particularly with a focus on the characteristics of the roles and responsibilities in the Group-wide Compliance Management as well as the monitoring of compliance trainings and additional preventative activities. Further information on the BMW Group’s Compliance Management System can be found in the section Corporate Governance. Like all entities with international operations, the BMW Group is confronted with legal disputes, alleged claims (particularly relating to warranties and product liability or rights infringements) and proceedings initiated by government agencies. Any of these could, amongst other consequences, have an adverse impact on the Group’s reputation. Such proceedings are 100 Report on Outlook, Risks and Opportunities Risks and Opportunities Internal Control System Relevant for Accounting and Financial Reporting Processes The BMW Group recognises appropriate levels of provision for lawsuits. In addition, a part of these risks is insured where this makes business sense. Any additional risks from legal proceedings are reported as other contingent liabilities. It cannot be ruled out, however, that damages could arise that are either not covered or not fully covered by insurance policies or provisions or reported as contingent liabilities. In accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), the required infor- mation is not provided if the BMW Group concludes that disclosure of the information could seriously prejudice the outcome of the relevant legal proceed- ings. Further information on contingent liabilities is provided in note 38 to the Group Financial Statements. see note 38 Overall assessment of the risk and opportunities situation The assessment of overall risk situation is based on a consolidated view of all significant individual risks. The overall risk situation for the BMW Group remains unchanged compared to the previous year. Simi larly, there has also been no significant change in the opportunities situation. In addition to the risk categories described above, unforeseen events could have a negative impact on business operations and hence on the BMW Group’s results of operations, financial position and net assets as well as on its reputation. A comprehensive risk management system is in place to ensure that the BMW Group successfully manages these risks. Management of the BMW Group does not see any threat to the BMW Group’s status as a going concern. As in the previous year, identified risks are considered to be manageable. Were they to materialise, however, they could – like the opportunities – have an impact on the underlying key performance indicators, which could therefore result in deviations from the outlook. The BMW Group’s financial position is stable, with liquidity requirements currently covered by available liquidity and credit lines. Combined Management ReportINTERNAL CONTROL SYSTEM* RELEVANT FOR ACCOUNTING AND FINANCIAL REPORTING PROCESSES * Disclosures pursuant to § 289 and § 315 HGB. The internal control system relevant for accounting and financial reporting processes has the task of ensuring that accounting and financial reporting by the BMW Group is both accurate and reliable. Inter- nationally recognised standards for internal control systems have been taken into account in the design of the components of the BMW Group’s internal control system. The system comprises: — Group-wide mandatory accounting guidelines, — controls integrated into processes and IT systems, — organisational measures incorporating the principle of the separation of duties, and — process-independent monitoring measures. The internal control system is subject to continuous improvement, with system effectiveness assessed regularly on the basis of centralised and decentralised process analyses, analyses of data within the various financial systems and audit procedures. The principal features of the internal control system, as far as they relate to individual entity and Group accounting and financial reporting processes, are described below. Guidelines for recognising, measuring and allocating items to accounts are available to all employees via the intranet. New accounting standards are assessed for their impact on the BMW Group’s accounting and financial reporting. Accounting guidelines and processes are reviewed continuously and revised at least once a year or more frequently, if necessary. 101 Controls are integrated into accounting and financial reporting processes at both individual entity and Group level, taking account of the principle of the separation of duties. Important accounting-related IT systems incorporate controls which, among others, prevent business transactions from being recorded incorrectly and ensure that business transactions are recorded completely and in good time and measured properly in accordance with applicable requirements. Controls are also in place to test the appropriateness of consolidation procedures. As part of the ongoing development of IT systems for accounting and financial reporting processes, whether at individual entity or Group level, such controls are adapted to take account of new requirements and opportunities arising with advances in information technology. In addition, the BMW Group uses data analysis tools to identify and subsequently eliminate any control weaknesses. Responsibilities for ensuring the effectiveness of the internal control system in relation to individual entity and Group accounting and financial reporting processes are clearly defined and allocated to the rele- vant line and process managers. These report annually on their assessment of the effectiveness of the internal control system for accounting and financial reporting. The assessment also includes the results of internal and external audits as well as of ongoing data analysis. In this context, the Group’s units confirm the effec- tiveness of the internal control system for accounting and financial reporting. The results of the assessment are gathered and documented with the aid of appro- priate tools. Weaknesses in the control system are eliminated, taking into account their potential impact on accounting processes. The Board of Management and Audit Committee are briefed annually on the assessment of the effectiveness of the internal control system for accounting and financial reporting. The Board of Management and, where appropriate, the Supervisory Board are informed immediately in the event of any significant changes in the effectiveness of the internal control system. 102 Disclosures Relevant for Takeovers and Explanatory Comments DISCLOSURES RELEVANT FOR TAKEOVERS* AND EXPLANATORY COMMENTS * Disclosures pursuant to § 289a and § 315a HGB. Composition of subscribed capital The subscribed capital (share capital) of BMW AG amounted to € 658,862,500 at 31 December 2019 (2018: € 658,122,100) and, in accordance with Article 4 no. 1 of the Articles of Incorporation is sub-divided into 601,995,196 shares of common stock (91.37 %) (2018: 601,995,196; 91.47 %) and 56,867,304 shares of non-voting preferred stock (8.63 %) (2018: 56,126,904; 8.53 %), each with a par value of € 1. The Company’s shares are issued to bearer. The rights and duties of shareholders derive from the German Stock Corporation Act (AktG) in conjunction with the Company’s Articles of Incorporation, the www.bmwgroup.com. The full text of which is available at right of shareholders to have their shares evidenced is excluded in accordance with the Articles of Incor- poration. The voting power attached to each share corresponds to its par value. Each € 1 of par value of share capital represented in a vote entitles the holder to one vote (Article 18 no. 1 of the Articles of Incorporation). The Company’s shares of preferred stock are shares within the meaning of § 139 ff. AktG, which carry a cumulative preferential right in terms of the allocation of profit and for which voting rights are excluded. These shares confer voting rights only in exceptional cases stipulated by law, in particular when the prefer- ence amount has not been paid or has not been fully paid in one year and the arrears are not paid in the subsequent year alongside the full preference amount due for that year. With the exception of voting rights, holders of shares of preferred stock are entitled to the same rights as holders of shares of common stock. Article 24 of the Articles of Incorporation confers preferential treatment to the non-voting shares of preferred stock with regard to the appropriation of the Company’s unappropriated profit. Accordingly, the unappropriated profit is required to be appropriated in the following order: (a) subsequent payment of any arrears on dividends on non-voting shares of preferred stock in the order of accruement (b) payment of an additional dividend of € 0.02 per € 1 par value on non-voting preferred shares (c) uniform payment of any other dividends on shares of common and preferred stock, provided the shareholders do not resolve otherwise at the Annual General Meeting Restrictions affecting voting rights or the transfer of shares As well as shares of common stock, the Company has also issued non-voting shares of preferred stock. Further information can be found in the section “Composition of subscribed capital”. When the Company issues non-voting shares of preferred stock to employees in conjunction with its Employee Share Programme, these shares are gener- ally subject to a Company-imposed blocking period of four years, calculated from the beginning of the calendar year in which the shares are issued. Contractual holding period arrangements also apply to shares of common stock acquired by Board of Manage- ment members and certain senior department heads in conjunction with the share-based remuneration programmes (Compensation Report of the Corporate Governance section; note 41 to the Group Financial Statements). see note 41 Combined Management ReportDirect or indirect investments in capital exceeding 10% of voting rights Based on the information available to the Company, the following direct or indirect holdings exceeding 10 % of the voting rights at the end of the reporting period were held at the stated reporting date:1 103 in % Stefan Quandt, Germany AQTON SE, Bad Homburg v. d. Höhe, Germany AQTON Verwaltung GmbH, Bad Homburg v. d. Höhe, Germany AQTON GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe, Germany Susanne Klatten, Germany Susanne Klatten Beteiligungs GmbH, Bad Homburg v. d. Höhe, Germany 1 Based on voluntary notifications provided by the listed shareholders as at 31 December 2018. 2 Controlled entities, of which 3 % or more are attributed: AQTON SE, AQTON Verwaltung GmbH, AQTON GmbH & Co. KG für Automobilwerte. 3 Controlled entities, of which 3 % or more are attributed: AQTON Verwaltung GmbH, AQTON GmbH & Co. KG für Automobilwerte. 4 Controlled entities, of which 3 % or more are attributed: AQTON GmbH & Co. KG für Automobilwerte. 5 Controlled entities, of which 3 % or more are attributed: Susanne Klatten Beteiligungs GmbH. Direct share of voting rights Indirect share of voting rights 0.2 9.0 16.6 0.2 20.7 25.6 2 16.6 3 16.6 4 20.75 The voting percentages disclosed above may have changed subsequent to the stated date if these changes were not required to be reported to the Company. As the Company’s shares are issued to bearer, the Company is generally aware of changes in sharehold- ings only if such changes are subject to mandatory notification rules. Shares with special rights which confer control rights There are no shares with special rights which confer control rights. Control of voting rights when employees participate in capital and do not exercise their control rights directly Like all other shareholders, employees exercise their control rights pertaining to shares they have acquired in conjunction with the Employee Share Programme and / or the share-based remuneration programme directly on the basis of relevant legal provisions and the Company’s Articles of Incorporation. Statutory regulations and Articles of Incorporation provisions with regard to the appointment and removal of members of the Board of Management and changes to the Articles of Incorporation The appointment or removal of members of the Board of Management is based on the rules contained in § 84 f. AktG in conjunction with § 31 of the German Co-Determination Act (MitbestG). Amendments to the Articles of Incorporation must comply with § 179 ff. AktG. Amendments must be decided upon by the shareholders at the Annual General Meeting (§ 119 (1) no. 5, § 179 (1) AktG). The Supervisory Board is authorised to approve amend- ments to the Articles of Incorporation which only affect its wording (Article 14 no. 3 of the Articles of Incorpo- ration). Resolutions are passed at the Annual General Meeting by simple majority of votes exercised unless otherwise explicitly required by binding provisions of law or, when a majority of share capital is required, by simple majority of shares represented in the vote (Article 20 no. 1 of the Articles of Incorporation). Authorisations of the Board of Management in particular with respect to the issuing or buying back of shares The Board of Management is authorised to buy back shares and sell repurchased shares in situations spec- ified in § 71 AktG, for example to avert serious and imminent damage to the Company and / or to offer shares to persons employed or previously employed by BMW AG or one of its affiliated companies. In accordance with Article 4 no. 5 of the Articles of Incorporation, the Board of Management is authorised, with the approval of the Supervisory Board, to increase for cash contributions BMW AG’s share capital during the period until 15 May 2024 by up to € 4,259,600 for the purposes of an Employee Share Programme by issuing new non-voting shares of preferred stock, which carry the same rights as existing non-voting preferred stock (Authorised Capital 2019). Subscrip- tion rights of existing shareholders are excluded. No conditional capital is in place at the reporting date. 104 Disclosures Relevant for Takeovers and Explanatory Comments Significant agreements of the Company taking effect in the event of a change in control following a takeover bid BMW AG is party to the following major agreements, which contain provisions that would apply in the event of a change in control or the acquisition of control as a result of a takeover bid: — An agreement concluded with an international consortium of banks relating to a syndicated credit line, which was not being utilised at the balance sheet date, entitles the lending banks to give extraordinary notice to terminate the credit line, such that all outstanding amounts, including interest, would fall due immediately if one or more parties jointly acquire direct or indirect control of BMW AG. The term control is defined as the acquisition of more than 50 % of the share capital of BMW AG, the right to receive more than 50 % of the dividend or the right to direct the affairs of the Company or appoint the majority of mem- bers of the Supervisory Board. — A cooperation agreement concluded with Peugeot SA relating to small (1- to 1.6-litre) petrol engines entitles each of the cooperation partners to give extraordinary notification of termination in the event of a competitor acquiring control over the other contractual party and if any concerns of the other contractual party re- gard ing the impact of the change of control on the cooperation arrangements are not resolved during the subsequent discussion process. — BMW AG acts as guarantor for all obligations aris- ing from the joint venture agreement relating to BMW Brilliance Automotive Ltd. in China. This agreement grants an extraordinary right of termi- nation to either joint venture partner in the event that – either directly or indirectly – more than 25 % of the shares of the other party are acquired by a third party or the other party is merged with another legal entity. The termination of the joint venture agreement may result in the sale of the shares to the other joint venture partner or in the liquidation of the joint venture entity. — Framework agreements are in place with finan- cial institutions and banks (ISDA Master Agree- ments) with respect to trading activities with derivative financial instruments. These agree- ments include an extraordinary right of termina- tion which triggers actions in the event that the creditworthiness of the party involved is signifi- cantly weaker following a direct or indirect acqui- sition of beneficially owned equity capital that confers the power to elect a majority of the Super- visory Board of a contractual party or any other ownership interest that enables the acquirer to exercise control over a contractual party or which constitutes a merger or a transfer of net assets. — Financing agreements in place with the European Investment Bank (EIB) entitle the EIB to request early repayment of the loans in the event of an imminent or actual change in control of BMW AG, if the EIB has reason to assume – after the change in control has taken place or 30 days after it has made a request to discuss the situation – that the change in control could have a significantly adverse impact, or if the borrower refuses to hold any such discussions. A change in control of BMW AG arises if one or more individuals take over or lose control of BMW AG, with control being defined in the above-mentioned financ- ing agreements as (i) holding or having control over more than 50 % of the voting rights, (ii) the right to appoint the majority of the members of the Board of Management or Supervisory Board, (iii) the right to receive more than 50 % of divi- dends payable or (iv) any other comparable con- trolling influence over BMW AG. — BMW AG and Daimler AG have entered into a Joint Venture Agreement relating to mobility services in the areas of car sharing, ride hailing, parking, charging and multimodality, which entitles both Daimler AG and BMW AG (here- after principals) to initiate a bidding procedure in the event that (i) the other principal receives notice in accordance with § 33 of the German Securities Trading Act (WpHG) that – including shares attributed pursuant to § 34 WpHG – a shareholding of more than 50 % has been attained or, in accordance with § 20 AktG of the German Stock Corporation Act (AktG) that a sharehold- ing of more than 50 % has been attained or (ii) a shareholder or a third party – including shares attributed pursuant to § 30 WpHG – holds more than 50 % of the voting rights or shares in the other principal, or (iii) the other principal has concluded a control agreement as dependent com pa ny. The outcome of such a bidding pro- cedure is that the joint venture will go to the principal making the highest bid. Combined Management Report105 — The collaboration agreement between BMW AG and Mercedes-Benz AG relating to the develop- ment of technologies for second-generation auto- mated driving (from 2024) may be terminated by either party if a third party – directly or indirectly – acquires at least 30 % of the voting rights in one of the contractual parties (§ 29 (2) and § 30 of the German Securities Acquisition and Takeover Act (WpÜG)). — BMW AG has agreed with Great Wall Motor Company Limited to establish the joint venture Spotlight Automotive Ltd. in China. The agree- ment grants an extraordinary right of termina- tion to either joint venture partner in the event that – either directly or indirectly – more than 25 % of the shares of the other party are acquired by a third party or the other party is merged with another legal entity. The termination of the joint venture agreement may result in the sale of the shares to the other joint venture partner or in the liquidation of the joint venture entity. — Several supply and development contracts between BMW AG and various industrial customers, all relating to the sale of components for drivetrain systems, grant an extraordinary right of ter- mination to the relevant industrial customer in specified cases of a change in control at BMW AG (for example BMW AG merges with a third party or is taken over by a third party; an automobile manufacturer acquires more than 50 % of the voting rights or share capital of BMW AG). — BMW AG is party to the shareholder agreement relating to There Holding B. V., which is the majority shareholder of the HERE Group. In accordance with the shareholder agreement, each contractual party is required to offer its directly or indirectly held shares in There Holding B. V. for sale to the other shareholders in the event of a change in control. A change in control of BMW AG arises if a person or entity takes over or loses control of BMW AG, with control defined as (i) holding or having control over more than 50 % of the voting rights, (ii) the possibility to control more than 50 % of vot- ing rights exercisable at Annual General Meet- ings on all or nearly all matters, or (iii) the right to determine the majority of members of the Board of Management or the Supervisory Board. Furthermore, a change in control occurs if com- petitors of the HERE Group or certain potential competitors of the HERE Group from the tech- nology sector acquire at least 25 % of BMW AG. If none of the other shareholders acquire these shares, the other shareholders are entitled to resolve that There Holding B. V. be dissolved. — The development collaboration agreement between BMW AG, Intel Corporation and Mobileye Vision Technologies Ltd., relating to the development of technologies used in highly and fully automated vehicles, may be terminated by any of the con- tractual parties if a competitor of one of the parties acquires and subsequently holds at least 30 % of the voting shares of one of the contrac- tual parties. — The development collaboration agreement between BMW AG, FCA US LLC and FCA Italy S. p. A., relating to the development of technologies used in automated vehicles, may be terminated by any of the contractual parties if certain competi- tors in the technology sector acquire and sub- sequently hold at least 30 % of the voting shares of the other contractual party. 106 Disclosures Relevant for Takeovers and Explanatory Comments Compensation agreements with members of the Board of Management or with employees in the event of a takeover bid BMW AG has not concluded any compensation agreements with members of the Board of Manage- ment or with employees for situations involving a takeover offer. Combined Management Report3 Group Financial Statements Income Statement Statement of Comprehensive Income Balance Sheet Cash Flow Statement Notes GROUP FINANCIAL STATEMENTS Page 108 Income Statement Page 108 Statement of Comprehensive Income Page 110 Balance Sheet Page 112 Cash Flow Statement Page 114 Statement of Changes in Equity Page 116 Notes to the Group Financial Statements Page 116 Accounting Principles and Policies Page 133 Notes to the Income Statement Page 141 Notes to the Statement of Comprehensive Income Page 142 Notes to the Balance Sheet Page 164 Other Disclosures Page 184 Segment Information Page 190 List of Investments at 31 December 2019 108 BMW Group Income Statement Statement of Com- prehensive Income BMW GROUP INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME Income Statement for Group and Segments • 63 in € million Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income Other operating expenses Profit / loss before financial result Result from equity accounted investments Interest and similar income Interest and similar expenses Other financial result Financial result Profit / loss before tax Income taxes Profit / loss from continuing operations Profit / loss from discontinued operations Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € Group Automotive (unaudited supplementary information) Motorcycles (unaudited supplementary information) Financial Services Other Entities (unaudited supplementary (unaudited supplementary (unaudited supplementary information) information) Eliminations information) Note 2019 20181 2019 2018 2019 2018 2019 20181 2019 2018 2019 20181 7 8 9 10 10 24 11 11 12 13 31 14 14 14 14 104,210 – 86,147 18,063 – 9,367 1,031 – 2,316 7,411 136 179 – 499 – 109 – 293 7,118 – 2,140 4,978 44 5,022 107 4,915 7.47 7.49 – 7.47 7.49 96,855 91,682 85,846 – 78,477 – 78,062 – 71,918 13,620 – 7,762 976 – 2,335 4,499 136 420 – 737 149 – 32 4,467 – 1,354 3,113 44 3,157 30 3,127 13,928 – 7,880 810 – 676 6,182 632 567 – 533 129 795 6,977 – 1,853 5,124 – 33 5,091 30 5,061 18,378 – 9,568 774 – 651 8,933 632 397 – 386 51 694 9,627 – 2,530 7,097 – 33 7,064 90 6,974 10.60 10.62 – 10.60 10.62 2,368 – 1,911 457 – 264 2,173 – 1,738 435 – 263 2 – 1 194 – 1 – 8 – – 7 187 – 56 131 – 131 – 131 4 – 1 175 – – – 6 – – 6 169 – 45 124 – 124 – 124 29,598 27,705 – 25,938 – 24,089 – 19,443 – 18,875 19,764 19,268 3,660 – 1,341 73 – 80 2,312 – 4 – 7 – 37 – 40 2,272 – 672 1,600 – 1,600 77 1,523 3,616 – 1,362 42 – 124 2,172 – 12 – 14 – 27 – 29 2,143 – 502 1,641 1,641 – 60 1,581 5 – 5 – 24 173 – 125 29 – 1,515 – 1,419 – 221 – 125 – 96 29 – 67 – 67 – – – 67 1,178 – 1,145 6 – 6 – 79 126 – 80 – 27 – – 51 – 18 – 45 – 36 – 81 – 81 – – – 81 321 24 – 193 225 377 – 1,761 1,672 – – – 89 288 – 87 201 201 – – 201 393 16 – 208 230 431 – 1,360 1,312 – – – 48 383 – 94 289 289 – – 289 Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income Other operating expenses Profit / loss before financial result Result from equity accounted investments Interest and similar income Interest and similar expenses Other financial result Financial result Profit / loss before tax Income taxes Profit / loss from continuing operations Profit / loss from discontinued operations Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Statement of Comprehensive Income for Group • 64 in € million Net profit Remeasurement of the net defined benefit liability for pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Marketable securities (at fair value through other comprehensive income) Derivative financial instruments Costs of hedging Other comprehensive income from equity accounted investments Deferred taxes Currency translation foreign operations Items that can be reclassified to the income statement in the future Other comprehensive income for the period after tax Total comprehensive income Total comprehensive income attributable to minority interests Total comprehensive income attributable to shareholders of BMW AG 2 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. Note 2019 20182 5,022 – 1,254 32 387 – 867 42 – 706 125 – 3 171 544 173 – 694 4,328 107 4,221 19 31 7,064 935 – 217 718 – 30 – 1,381 – 620 – 157 674 192 – 1,322 – 604 6,460 90 6,370 Group Financial Statements 109 Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income Other operating expenses Profit / loss before financial result Result from equity accounted investments Interest and similar income Interest and similar expenses Other financial result Financial result Profit / loss before tax Income taxes Profit / loss from continuing operations Profit / loss from discontinued operations Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € Group (unaudited supplementary (unaudited supplementary Automotive information) Motorcycles information) Financial Services (unaudited supplementary information) Other Entities (unaudited supplementary information) Eliminations (unaudited supplementary information) Note 2019 20181 2019 2018 2019 2018 2019 20181 2019 2018 2019 20181 – 19,443 – 18,875 19,764 19,268 29,598 27,705 – 25,938 – 24,089 3,660 – 1,341 73 – 80 2,312 – 4 – 7 – 37 – 40 2,272 – 672 1,600 – 1,600 77 1,523 3,616 – 1,362 42 – 124 2,172 – 12 – 14 – 27 – 29 2,143 – 502 1,641 – 1,641 60 1,581 5 – 5 – 24 173 – 125 29 – 1,515 – 1,419 – 221 – 125 – 96 29 – 67 – – 67 – – 67 6 – 6 – 79 126 – 80 – 27 – 321 24 – 193 225 377 – 1,178 – 1,145 – 1,761 1,672 – 51 – 18 – 45 – 36 – 81 – – 81 – – 81 – – 89 288 – 87 201 – 201 – 201 393 16 – 208 230 431 – – 1,360 1,312 – – 48 383 – 94 289 – 289 – 289 96,855 91,682 85,846 – 78,477 – 78,062 – 71,918 2,368 – 1,911 457 – 264 2,173 – 1,738 435 – 263 Income Statement for Group and Segments • 63 in € million Revenues Cost of sales Gross profit Selling and administrative expenses Other operating income Other operating expenses Profit / loss before financial result Result from equity accounted investments Interest and similar income Interest and similar expenses Other financial result Financial result Profit / loss before tax Income taxes Profit / loss from continuing operations Profit / loss from discontinued operations Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € 7 8 9 10 10 24 11 11 12 13 31 14 14 14 14 104,210 – 86,147 18,063 – 9,367 1,031 – 2,316 7,411 136 179 – 499 – 109 – 293 7,118 – 2,140 4,978 44 5,022 107 4,915 7.47 7.49 – 7.47 7.49 18,378 – 9,568 774 – 651 8,933 632 397 – 386 51 694 9,627 – 2,530 7,097 – 33 7,064 90 6,974 10.60 10.62 – 10.60 10.62 13,620 – 7,762 976 – 2,335 4,499 136 420 – 737 149 – 32 4,467 – 1,354 3,113 3,157 44 30 3,127 13,928 – 7,880 810 – 676 6,182 632 567 – 533 129 795 6,977 – 1,853 5,124 – 33 5,091 30 5,061 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Statement of Comprehensive Income for Group • 64 in € million Net profit Deferred taxes Remeasurement of the net defined benefit liability for pension plans Items not expected to be reclassified to the income statement in the future Marketable securities (at fair value through other comprehensive income) Derivative financial instruments Costs of hedging Deferred taxes Currency translation foreign operations Other comprehensive income from equity accounted investments Items that can be reclassified to the income statement in the future Other comprehensive income for the period after tax Total comprehensive income Total comprehensive income attributable to minority interests Total comprehensive income attributable to shareholders of BMW AG 2 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. 2 – 1 194 – 1 – – 8 – 7 187 – 56 131 131 – – 131 387 – 867 42 – 706 125 – 3 171 544 173 – 694 4,328 107 4,221 4 – 1 175 – – – – 6 – 6 169 – 45 124 124 – – 124 7,064 935 – 217 718 – 30 – 1,381 – 620 – 157 674 192 – 1,322 – 604 6,460 90 6,370 Note 2019 20182 5,022 – 1,254 32 19 31 110 BMW Group Balance Sheet at 31 December 2019 BMW GROUP BALANCE SHEET AT 31 DECEMBER 2019 in € million Note 2019 1. 1. 2019 1 31. 12. 20182 2019 2018 2019 2018 2019 20182 2019 2018 2019 20182 Group Automotive (unaudited supplementary information) Motorcycles (unaudited supplementary information) Financial Services Other Entities (unaudited supplementary (unaudited supplementary (unaudited supplementary information) information) Eliminations information) 11,729 23,245 42,609 3,199 703 51,030 1,370 2,194 1,325 10,971 22,163 38,259 2,624 739 48,313 1,010 1,640 847 10,971 19,801 38,259 2,624 739 48,313 1,010 1,638 847 11,212 22,749 – 3,199 5,144 – 131 3,451 2,203 10,472 19,372 – 2,624 4,843 – 216 3,043 4,633 137,404 126,566 124,202 48,089 45,203 15,891 2,518 41,407 5,955 1,209 11,614 12,036 – 14,248 2,546 38,700 6,675 1,378 9,749 10,979 463 14,248 2,546 38,700 6,675 1,378 9,749 10,979 461 14,404 2,228 – 4,772 1,000 33,492 9,077 – 13,071 2,287 – 4,988 618 21,859 8,631 461 90,630 84,738 84,736 64,973 51,915 127 407 – – – – – – 36 570 679 186 – – – 1 11 – 877 95 399 – – – – – – 33 527 568 167 – – – 2 12 – 749 50,348 46,114 – 7,739 – 7,855 51,079 48,333 389 89 – 1 139 512 3,351 105,908 808 103 41,407 1,009 84 5,106 2,075 – 403 30 – 1 138 485 2,835 98,339 609 91 38,700 1,325 91 5,081 1,985 – 1 – – – – – 1 – 187 125 873 – 1 – – – – – 1 – 460 669 351 – 6,847 6,660 – 11,289 – 10,765 1,168 84 38,919 47,019 695 28 33,956 41,340 – 49 – 68 – 20 – 39 – 1,853 – 1,918 – 43,184 – 40,610 – 64,182 – 61,207 – 13 – 98 64,692 48,775 – 91,677 – 65,968 50,592 47,882 65,878 50,256 – 91,690 – 66,066 228,034 211,304 208,938 113,062 97,118 1,447 1,276 156,500 146,221 112,897 91,596 – 155,872 – 127,273 659 2,161 57,667 – 1,163 59,324 658 2,118 55,830 – 1,338 57,268 658 2,118 55,862 – 1,338 57,300 583 529 529 59,907 57,797 57,829 40,174 39,778 3,335 5,788 632 70,647 5,100 85,502 7,421 963 46,093 10,182 17,966 – 2,330 5,530 1,762 66,744 5,293 81,659 5,871 1,158 39,260 9,669 15,826 64 2,330 5,530 1,773 64,772 5,293 79,698 5,871 1,158 38,825 9,669 15,826 62 2,820 5,605 543 2,680 7,929 2,089 5,354 1,016 1,017 7,558 19,577 17,034 6,962 704 1,929 8,814 34,902 – 5,433 933 879 8,360 24,639 62 – 96 81 – – 569 746 105 – – 413 183 – 701 – 64 70 – – 506 640 101 – – 348 187 – 636 15,545 14,806 21,972 20,683 – 17,784 – 17,438 – 3,749 – 3,841 – 68 – 39 – 43,139 – 40,272 47 102 3,804 18,170 39,639 61,762 299 184 26,938 943 50,829 – 49 106 4,576 19,170 36,333 60,234 328 208 25,705 950 43,990 – 372 – 34 49,865 102 128 – 22 44,624 1,168 55 75 12 – 9 17 11 – 17,239 12,339 – 13 – 98 23,171 12,595 – 91,119 – 65,585 79,193 71,181 40,552 24,971 – 91,132 – 65,683 Current provisions and liabilities Liabilities in conjunction with assets held for sale 50,373 45,942 – 46,956 – 44,152 Non-current provisions and liabilities Current provisions and liabilities 82,625 71,848 71,411 53,311 40,306 Total equity and liabilities 228,034 211,304 208,938 113,062 97,118 1,447 1,276 156,500 146,221 112,897 91,596 – 155,872 – 127,273 Total equity and liabilities 1 The figures to 1 January 2019 have been adjusted, based on the first-time application of IFRS 16, see note 6 to the Group Financial Statements. 2 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. ASSetS Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred tax Other assets Non-current assets Inventories Trade receivables Receivables from sales financing Financial assets Current tax Other assets Cash and cash equivalents Assets held for sale Current assets Total assets equIty A nd lIAbIlItI eS Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Non-current provisions and liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities Liabilities in conjunction with assets held for sale 21 22 23 24 25 26 13 28 29 30 25 26 27 28 31 31 31 31 31 32 33 13 35 36 33 34 35 37 36 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – ASSetS Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred tax Other assets Non-current assets Inventories Trade receivables Receivables from sales financing Financial assets Current tax Other assets Cash and cash equivalents Assets held for sale Current assets Total assets equIty A nd lIAbIlItI eS Subscribed capital Capital reserves Revenue reserves Accumulated other equity Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities Equity attributable to shareholders of BMW AG Group Financial Statementsin € million Note 2019 1. 1. 2019 1 31. 12. 20182 2019 2018 2019 2018 2019 20182 2019 2018 2019 20182 Group (unaudited supplementary (unaudited supplementary Automotive information) Motorcycles information) Financial Services (unaudited supplementary information) Other Entities (unaudited supplementary information) Eliminations (unaudited supplementary information) 389 89 403 30 50,348 46,114 – 1 – 1 51,079 48,333 139 512 3,351 105,908 808 103 41,407 1,009 84 5,106 2,075 – 138 485 2,835 98,339 609 91 38,700 1,325 91 5,081 1,985 – 1 – – – 6,847 – 1,168 84 38,919 47,019 – 1 – 187 125 1 – – – – – – – – 7,739 – 7,855 – – 6,660 – 11,289 – 10,765 – 695 28 – 49 – 68 – 20 – 39 – 1,853 – 1,918 33,956 41,340 – 43,184 – 40,610 – 64,182 – 61,207 – 1 – 460 669 – – – – 13 – – – – – 98 – 64,692 48,775 – 91,677 – 65,968 873 – 351 – – – – – Total assets 228,034 211,304 208,938 113,062 97,118 1,447 1,276 156,500 146,221 112,897 91,596 – 155,872 – 127,273 90,630 84,738 84,736 64,973 51,915 877 749 50,592 47,882 65,878 50,256 – 91,690 – 66,066 583 529 529 59,907 57,797 57,829 40,174 39,778 15,545 14,806 21,972 20,683 – 17,784 – 17,438 ASSetS Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred tax Other assets Non-current assets Inventories Trade receivables Receivables from sales financing Financial assets Current tax Other assets Cash and cash equivalents Assets held for sale Current assets equIty A nd lIAbIlItI eS Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities Liabilities in conjunction with assets held for sale 137,404 126,566 124,202 48,089 45,203 21 22 23 24 25 26 13 28 29 30 25 26 27 28 31 31 31 31 31 32 33 13 35 36 33 34 35 37 36 11,729 23,245 42,609 3,199 703 51,030 1,370 2,194 1,325 15,891 2,518 41,407 5,955 1,209 11,614 12,036 – 659 2,161 57,667 – 1,163 59,324 3,335 5,788 632 70,647 5,100 85,502 7,421 963 46,093 10,182 17,966 – 10,971 22,163 38,259 2,624 739 48,313 1,010 1,640 847 14,248 2,546 38,700 6,675 1,378 9,749 10,979 463 658 2,118 55,830 – 1,338 57,268 2,330 5,530 1,762 66,744 5,293 81,659 5,871 1,158 39,260 9,669 15,826 64 10,971 19,801 38,259 2,624 739 48,313 1,010 1,638 847 14,248 2,546 38,700 6,675 1,378 9,749 10,979 461 658 2,118 55,862 – 1,338 57,300 2,330 5,530 1,773 64,772 5,293 79,698 5,871 1,158 38,825 9,669 15,826 62 11,212 22,749 3,199 5,144 – – 131 3,451 2,203 14,404 2,228 4,772 1,000 33,492 9,077 – – 2,820 5,605 543 2,680 7,929 6,962 704 1,929 8,814 34,902 – 10,472 19,372 2,624 4,843 – – 216 3,043 4,633 13,071 2,287 – 4,988 618 21,859 8,631 461 2,089 5,354 1,016 1,017 7,558 5,433 933 879 8,360 24,639 62 Non-current provisions and liabilities 19,577 17,034 1 The figures to 1 January 2019 have been adjusted, based on the first-time application of IFRS 16, see note 6 to the Group Financial Statements. 2 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 127 407 – – – – – – 36 570 679 186 – – – 1 – 11 – 96 81 – – 569 746 105 – – – 413 183 701 95 399 – – – – – – 33 527 568 167 – – – 2 – 12 – 64 70 – – 506 640 101 – – – 348 187 636 47 102 3,804 18,170 39,639 61,762 299 184 26,938 943 50,829 – 49 106 4,576 19,170 36,333 60,234 328 208 25,705 950 43,990 – 372 – 34 49,865 102 128 – 22 44,624 1,168 – – – – – 3,749 – 3,841 – 68 – 39 – 43,139 – 40,272 Current provisions and liabilities 82,625 71,848 71,411 53,311 40,306 79,193 71,181 40,552 24,971 – 91,132 – 65,683 Current provisions and liabilities Total equity and liabilities 228,034 211,304 208,938 113,062 97,118 1,447 1,276 156,500 146,221 112,897 91,596 – 155,872 – 127,273 Total equity and liabilities 50,373 45,942 – 46,956 – 44,152 Non-current provisions and liabilities 55 75 9 17 17,239 12,339 12 11 – – – 13 – – – – 98 – 23,171 12,595 – 91,119 – 65,585 Other provisions Current tax Financial liabilities Trade payables Other liabilities – – – – Liabilities in conjunction with assets held for sale 111 ASSetS Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred tax Other assets Non-current assets Inventories Trade receivables Receivables from sales financing Financial assets Current tax Other assets Cash and cash equivalents Assets held for sale Current assets Total assets equIty A nd lIAbIlItI eS Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities 112 BMW Group Cash Flow Statement BMW GROUP CASH FLOW STATEMENT in € million Net profit Profit / loss from discontinued operations Current tax expense Income taxes paid Interest received 2 Other interest and similar income / expenses 2 Depreciation and amortisation of tangible, intangible and investment assets Other non-cash income and expense items Result from equity accounted investments Gain / loss on disposal of tangible and intangible assets and marketable securities Change in deferred taxes Change in leased products Change in receivables from sales financing Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in provisions Change in other operating assets and liabilities Cash inflow / outflow from operating activities Total investment in intangible assets and property, plant and equipment Proceeds from subsidies for intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investment assets Acquisitions of subsidiaries and other business units Proceeds from the disposal of investment assets and other business units 3 Investments in marketable securities and investment funds Proceeds from the sale of marketable securities and investment funds Cash inflow / outflow from investing activities Payments into equity Payment of dividend for the previous year Intragroup financing and equity transactions Interest paid 2 Proceeds from non-current financial liabilities 4 Repayment of non-current financial liabilities 4 Change in other financial liabilities Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 With the exception of interest from lease liabilities, interest relating to financial services business is classified as revenues / cost of sales. 3 Includes dividends received from investment assets amounting to € 643 million (2018: € 384 million). 4 Gross cash flows presented, which were presented as net amounts in the prior year. Group 2019 20181 (unaudited supplementary (unaudited supplementary Automotive information) Financial Services information) 2019 20181 2019 20181 5,022 – 44 3,316 – 3,389 91 51 6,017 – 200 – 136 4 – 1,176 – 3,825 – 3,560 – 1,117 – 1,560 14 429 1,512 1,096 3,662 7,064 33 2,218 – 1,972 170 – 199 5,113 111 – 632 – 34 312 – 1,642 – 5,724 – 619 – 403 112 – 328 – 88 940 5,051 – 6,902 – 7,777 – 6,734 – 7,618 – 19 – 13 Total investment in intangible assets and property, plant and equipment 50 32 – 1,598 – 1,087 – 775 822 – 7,284 21 107 – 164 – 209 623 – 3,725 3,761 – 7,363 33 25 – 2,366 – 2,630 – – 199 150,517 – – 136 30,762 – 143,500 – 22,564 305 4,790 – 28 – 83 – 1,161 4,296 – 19 – 25 1,057 1,940 10,979 12,036 9,039 10,979 9,352 – 5,345 5,091 33 1,886 – 1,751 170 – 165 4,982 83 – 632 – 35 – 71 – – – 758 – 390 59 – 427 332 187 18 105 – 145 – 209 1,210 – 3,692 3,562 – 6,769 – 2 – 31 – 25 1,474 7,157 8,631 1,600 – 1,602 – 345 – 3 54 23 – – – 930 – 3,600 – 3,589 – 222 – 193 – 11 – 18 – 59 118 2 1 – – – – 57 – 268 356 129 491 5,300 6 – 90 1,985 2,075 1,641 308 – 299 – – 1 – 1 34 33 24 – 1,732 – 5,726 130 – 39 60 109 – 7 – 1,198 – 6,790 3 2 – – 2 – – – – 63 199 130 827 6,793 – 4 – 129 1,856 1,985 33 25 – 2,366 – 2,630 – 2,085 – 1,053 2,099 – 136 5,491 – 1 5,097 1 132,408 12,940 – 410 – 133,089 – 12,071 3,157 – 44 1,638 – 1,984 91 61 5,853 – 262 – 136 – 284 3 – – – 831 – 1,255 43 381 1,745 683 9,690 50 31 – – 1,557 1,087 – 507 465 – 7,165 877 – 197 173 – 605 – – 22 28 446 8,631 9,077 Depreciation and amortisation of tangible, intangible and investment assets Other interest and similar income / expenses 2 Gain / loss on disposal of tangible and intangible assets and marketable securities Profit / loss from discontinued operations Net profit Current tax expense Income taxes paid Interest received 2 Other non-cash income and expense items Result from equity accounted investments Change in deferred taxes Change in leased products Change in receivables from sales financing Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in provisions Change in other operating assets and liabilities Cash inflow / outflow from operating activities Proceeds from subsidies for intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investment assets Acquisitions of subsidiaries and other business units Proceeds from the disposal of investment assets and other business units 3 Investments in marketable securities and investment funds Proceeds from the sale of marketable securities and investment funds Cash inflow / outflow from investing activities Payments into equity Payment of dividend for the previous year Intragroup financing and equity transactions Interest paid 2 Proceeds from non-current financial liabilities4 Repayment of non-current financial liabilities4 Change in other financial liabilities Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December Group Financial StatementsOther interest and similar income / expenses 2 Depreciation and amortisation of tangible, intangible and investment assets Gain / loss on disposal of tangible and intangible assets and marketable securities Profit / loss from discontinued operations in € million Net profit Current tax expense Income taxes paid Interest received 2 Other non-cash income and expense items Result from equity accounted investments Change in deferred taxes Change in leased products Change in receivables from sales financing Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in provisions Change in other operating assets and liabilities Cash inflow / outflow from operating activities Total investment in intangible assets and property, plant and equipment Proceeds from subsidies for intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investment assets Acquisitions of subsidiaries and other business units Proceeds from the disposal of investment assets and other business units 3 Investments in marketable securities and investment funds Proceeds from the sale of marketable securities and investment funds Cash inflow / outflow from investing activities Payments into equity Payment of dividend for the previous year Intragroup financing and equity transactions Interest paid 2 Proceeds from non-current financial liabilities 4 Repayment of non-current financial liabilities 4 Change in other financial liabilities Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 5,022 – 44 3,316 – 3,389 91 51 6,017 – 200 – 136 4 – 1,176 – 3,825 – 3,560 – 1,117 – 1,560 14 429 1,512 1,096 3,662 50 32 – – 1,598 1,087 – 775 822 – 7,284 33 – – 199 150,517 305 4,790 – 28 – 83 7,064 33 2,218 – 1,972 170 – 199 5,113 111 – 632 – 34 312 – 1,642 – 5,724 – 619 – 403 112 – 328 – 88 940 5,051 21 107 – 164 – 209 623 – 3,725 3,761 – 7,363 25 – – 136 30,762 – 1,161 4,296 – 19 – 25 – 2,366 – 2,630 – 143,500 – 22,564 1,057 1,940 10,979 12,036 9,039 10,979 113 Group 2019 20181 Automotive (unaudited supplementary information) Financial Services (unaudited supplementary information) 2019 20181 2019 20181 3,157 – 44 1,638 – 1,984 91 61 5,853 – 262 – 136 3 – 284 – – – 831 – 1,255 43 381 1,745 683 9,690 5,091 33 1,886 – 1,751 170 – 165 4,982 83 – 632 – 35 – 71 – – – 758 – 390 59 – 427 332 187 1,600 – 1,602 – 345 – 3 54 23 – – – 930 – 3,600 – 3,589 – 222 – 193 – 11 – 18 – 59 118 9,352 – 5,345 1,641 – 308 – 299 – 1 34 33 – 1 24 – 1,732 – 5,726 130 – 39 60 109 – 7 – 1,198 – 6,790 Profit / loss from discontinued operations Net profit Current tax expense Income taxes paid Interest received 2 Depreciation and amortisation of tangible, intangible and investment assets Other interest and similar income / expenses 2 Other non-cash income and expense items Result from equity accounted investments Gain / loss on disposal of tangible and intangible assets and marketable securities Change in deferred taxes Change in leased products Change in receivables from sales financing Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in provisions Change in other operating assets and liabilities Cash inflow / outflow from operating activities – 6,902 – 7,777 – 6,734 – 7,618 – 19 – 13 Total investment in intangible assets and property, plant and equipment 50 31 – 1,557 – 1,087 – 507 465 – 7,165 18 105 – 145 – 209 1,210 – 3,692 3,562 – 6,769 33 25 – 2,366 – 2,630 877 – 197 173 – 605 – 2,099 – 136 – 2 – 2,085 – 1,053 – 22 28 446 8,631 9,077 – 31 – 25 1,474 7,157 8,631 2 1 – – 57 – 268 356 129 – – 5,491 – 1 3 2 – – 2 – 63 199 130 – – 5,097 – 491 5,300 6 – 90 1,985 2,075 827 6,793 – 4 – 129 1,856 1,985 1 132,408 12,940 – 410 – 133,089 – 12,071 Proceeds from subsidies for intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investment assets Acquisitions of subsidiaries and other business units Proceeds from the disposal of investment assets and other business units 3 Investments in marketable securities and investment funds Proceeds from the sale of marketable securities and investment funds Cash inflow / outflow from investing activities Payments into equity Payment of dividend for the previous year Intragroup financing and equity transactions Interest paid 2 Proceeds from non-current financial liabilities4 Repayment of non-current financial liabilities4 Change in other financial liabilities Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 With the exception of interest from lease liabilities, interest relating to financial services business is classified as revenues / cost of sales. 3 Includes dividends received from investment assets amounting to € 643 million (2018: € 384 million). 4 Gross cash flows presented, which were presented as net amounts in the prior year. The reconciliation of liabilities from financing activities is presented in note 35. 114 BMW Group Statement of Changes in Equity BMW GROUP STATEMENT OF CHANGES IN EQUITY in € million 31 December 2018 (as originally reported) Effects of accounting policy change* 31 December 2018 (as adjusted due to accounting policy change) Effects from the first-time application of IFRS 16 1 January 2019 (adjusted according to IFRS 16) Net profit Other comprehensive income for the period after tax Comprehensive income at 31 December 2019 Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2019 in € million 1 January 2018 (as originally reported) Effects of accounting policy change* 1 January 2018 (as adjusted due to accounting policy change) Net profit* Other comprehensive income for the period after tax Comprehensive income at 31 December 2018* Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2018 * Note 31 Subscribed capital Capital reserves Revenue reserves 658 – 658 – 658 – – – – 1 – – 2,118 56,121 – – 259 2,118 55,862 – – 32 2,118 55,830 – – – – – 43 – 4,915 – 867 4,048 – 2,303 – – 92 31 659 2,161 57,667 – 760 29 15 59,324 59,907 Note 31 Subscribed capital Capital reserves Revenue reserves 658 – 2,084 50,993 – – 116 Accumulated other equity Derivative financial Securities instruments Equity attributable to shareholders of BMW AG Costs of hedging 1,515 Translation differences – 1,494 – 658 2,084 50,877 – 1,494 1,515 53,656 436 54,092 – – – – – – – – – – – – 34 – 6,974 718 7,692 – 2,630 – – – 77 31 658 2,118 55,862 – 1,326 – 1 529 57,829 Accumulated other equity Derivative financial Securities instruments Equity attributable to shareholders of BMW AG Costs of hedging Minority interest Total Translation differences – 1,326 – 1,326 558 – 569 57,300 529 57,829 558 – 569 57,559 529 58,088 31 December 2018 (as originally reported) – 259 Effects of accounting policy change* 31 December 2018 (as adjusted due to accounting policy change) – 32 Effects from the first-time application of IFRS 16 – 1,326 558 – 569 57,268 529 57,797 1 January 2019 (adjusted according to IFRS 16) – 551 – 551 – 128 128 Other comprehensive income for the period after tax Comprehensive income at 31 December 2019 Net profit – 2,303 – 63 – 2,366 Dividend payments – – – – – – – 566 566 – 168 168 – – – – – 1 – – 1 – – 1 – 30 30 – – – – 11 – 11 – – 12 – 12 – – – – – – – – – – 8 – – – – – – 6 – 447 – – – – – 5 – 5 – – – – – 259 – 32 4,915 – 694 4,221 1 43 94 53,772 – 116 6,974 – 604 6,370 – 2,630 – 34 – 906 – 906 – 572 – 572 – 51 558 – 2 – 569 – 130 57,300 – – 107 – 107 – – 10 583 90 – 90 – – – 3 Minority interest 436 – 5,022 – 694 4,328 1 43 104 Total 54,208 – 116 7,064 – 604 6,460 – 2,630 – 34 – 127 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2019 1 January 2018 (as originally reported) Effects of accounting policy change* 1 January 2018 (as adjusted due to accounting policy change) Other comprehensive income for the period after tax Comprehensive income at 31 December 2018 * Net profit* Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2018 * * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. Group Financial Statements Accumulated other equity Translation differences Securities Derivative financial instruments – 1,326 – – 1,326 – – 1,326 – 566 566 – – – – – 1 – – 1 – – 1 – 30 30 – – – – 558 – 558 – 558 – – 551 – 551 – – – 8 31 659 2,161 57,667 – 760 29 15 115 Equity attributable to shareholders of BMW AG Costs of hedging – 569 57,559 – – 259 – 569 57,300 – – 32 Minority interest 529 – 529 – Total 58,088 – 259 57,829 31 December 2018 (as originally reported) Effects of accounting policy change* 31 December 2018 (as adjusted due to accounting policy change) – 32 Effects from the first-time application of IFRS 16 – 569 57,268 529 57,797 1 January 2019 (adjusted according to IFRS 16) – 128 128 – – – – 6 – 447 4,915 – 694 4,221 107 – 107 5,022 – 694 4,328 Other comprehensive income for the period after tax Comprehensive income at 31 December 2019 Net profit – 2,303 – 63 – 2,366 Dividend payments 1 43 94 59,324 – – 10 583 1 43 104 59,907 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2019 1 January 2019 (adjusted according to IFRS 16) 658 2,118 55,830 in € million 31 December 2018 (as originally reported) Effects of accounting policy change* 31 December 2018 (as adjusted due to accounting policy change) Effects from the first-time application of IFRS 16 Net profit Other comprehensive income for the period after tax Comprehensive income at 31 December 2019 Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2019 in € million 1 January 2018 (as originally reported) Effects of accounting policy change* 1 January 2018 (as adjusted due to accounting policy change) Net profit* Other comprehensive income for the period after tax Comprehensive income at 31 December 2018* Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2018 * Note 31 Subscribed capital Capital reserves Revenue reserves 658 2,118 56,121 658 2,118 55,862 – – – – – – 1 – – – – – – – – – 43 – – – – – – – – – – – – – – 34 – – 259 – 32 4,915 – 867 4,048 – 2,303 – – 92 6,974 718 7,692 – 2,630 – – – 77 Note 31 Subscribed capital Capital reserves Revenue reserves 658 – 2,084 50,993 – 116 658 2,084 50,877 – 1,494 – – 1,494 – 168 168 – – – – 11 – 11 – – 12 – 12 – – – – * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. 31 658 2,118 55,862 – 1,326 – 1 1,515 – 1,515 – – 906 – 906 – – – – 51 558 Accumulated other equity Translation differences Securities Derivative financial instruments Equity attributable to shareholders of BMW AG Costs of hedging Minority interest 436 – Total 54,208 – 116 1 January 2018 (as originally reported) Effects of accounting policy change* 53,656 436 54,092 1 January 2018 (as adjusted due to accounting policy change) 90 – 90 – – – 3 7,064 – 604 6,460 – 2,630 – 34 – 127 529 57,829 Other comprehensive income for the period after tax Comprehensive income at 31 December 2018 * Net profit* Dividend payments Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2018 * 5 – 5 – – 572 – 572 – – – 53,772 – 116 6,974 – 604 6,370 – 2,630 – 34 – 2 – 569 – 130 57,300 116 Notes to the Group Financial Statements Accounting Principles and Policies NOTES TO THE GROUP FINANCIAL STATEMENTS ACCOUNTING PRINCIPLES AND POLICIES 01 Basis of preparation The consolidated financial statements of Bayerische Motoren Werke Aktiengesellschaft (BMW Group Financial Statements or Group Financial Statements) at 31 December 2019 were drawn up in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU), and the supplementary requirements of § 315 e (1) of the German Commercial Code (HGB). The Group Finan- cial Statements and Combined Management Report will be submitted to the operator of the electronic version of the German Federal Gazette and can be obtained via the Company Register website. Bayerische Motoren Werke Aktiengesellschaft, which has its seat at Petuelring 130, Munich, is registered in the Commercial Register of the District Court of Munich under the number HRB 42243. The Group currency is the euro. All amounts are dis- closed in millions of euros (€ million) unless stated otherwise. Key figures presented in the report have been rounded in accordance with standard commercial practise. In certain cases, this may mean that values do not add up exactly to the stated total and that percentages cannot be derived from the values shown. The income statement for the BMW Group and seg- ments is presented using the cost of sales method. In order to provide a better insight into the results of operations, financial position and net assets of the BMW Group, and going beyond the requirements of IFRS 8 (Operating Segments), the Group Financial Statements also include an income statement and a balance sheet for the Automotive, Motorcycles, Finan- cial Services and Other Entities segments. The Group Cash Flow Statement is supplemented by a statement of cash flows for the Automotive and Financial Services segments. Inter-segment transactions relate primarily to internal sales of products, the provision of funds for Group companies and the related interest. A description of the nature of the business and the major operating activities of the BMW Group’s segments is provided in note 45 (“Explanatory notes to segment information”). On 10 March 2020, the Board of Management granted approval for publication of the Group Financial State- ments. Based on current developments regarding the see note 45 Group Financial Statements 117 spread of the coronavirus, the Board of Management on 16 March 2020 adjusted the original outlook for the BMW Group, the assumptions regarding the development of the global economy and the economic risks and opportunities for the financial year 2020 in the Combined Management Report, as well as the statement regarding the Events after the end of the reporting period and once again gave approval for the publication of the Group Financial Statements. The presentation of selected items (such as the reclas- sification of vehicles held for sale in the financial services business) has been changed in the financial year 2019. The items affected are not significant overall. The changes in presentation are explained in the notes relating to the relevant balance sheet and income statement line items. Prior year figures have been adjusted accordingly. 02 Group reporting entity and consolidation principles The BMW Group Financial Statements include BMW AG and all material subsidiaries over which BMW AG – either directly or indirectly – exercises control. This also includes 56 structured entities, consisting of asset- backed securities entities and special-purpose funds. In relation to fully consolidated companies, the follow- ing changes took place in the Group reporting entity in the financial year 2019: Included at 31 December 2018 Included for the first time in 2019 No longer included in 2019 Included at 31 December 2019 Germany Foreign Total 23 – 2 21 194 217 16 24 16 26 186 207 All consolidated subsidiaries have the same year-end as BMW AG with the exception of BMW India Private Ltd. and BMW India Financial Services Private Ltd., whose year-ends are 31 March in accordance with local legal requirements. When assessing whether an investment gives rise to a controlled entity, an associated company, a joint operation or a joint venture, the BMW Group con- siders contractual arrangements and other circum- stances, as well as the structure and legal form of the entity. Discretionary decisions may also be required. If indications exist of a change in the judgement of (joint) control, the BMW Group undertakes a new assessment. An entity is deemed to be controlled if BMW AG – either directly or indirectly – has power over it, is exposed or has rights to variable returns from it and has the ability to influence those returns. An entity is classified as an associated company if BMW AG – either directly or indirectly – has the abil- ity to exercise significant influence over the entity’s operating and financial policies. As a general rule, the Group is assumed to have significant influence if it holds 20 % or more of the entity’s voting power. Joint operations and joint ventures are forms of joint arrangements. Such an arrangement exists when a BMW Group entity jointly carries out activities with a third party on the basis of a contractual agreement. In the case of a joint operation, the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Assets, liabilities, revenues and expenses of a joint operation are recognised proportionately in the Group Financial Statements on the basis of the BMW Group entity’s rights and obligations (proportionate consolidation). The following three major arrangements are accounted for as joint operations: — The BMW Group is party to a cooperation with Toyota Motor Corporation, Toyota City, which developed a sports car. — The BMW Group and Daimler AG are working together on a long-term strategic cooperation in the field of highly automated driving systems. — The BMW Group has also signed an agreement with the Chinese automobile manufacturer Great Wall Motor Company Limited (Great Wall) for the joint development and production of electric vehicles in China. Vehicle development and production will be carried out by the jointly controlled company Spotlight Automotive Limited (Spotlight). Spotlight was founded on 27 December 2019 following approval by the Chinese authorities. The BMW Group and Great Wall each hold 50 % of the joint operation’s equity. In addition to electric MINI vehicles, Spotlight will also develop and produce electric vehicles for Great Wall. At 31 December 2019, the joint development and production arrange- ments with Spotlight are included in the Group Financial Statements on a proportionate basis. 118 Notes to the Group Financial Statements Accounting Principles and Policies In the case of a joint venture, the parties which have joint control only have rights to the net assets of the arrangement. Associated companies and joint ventures are accounted for using the equity method, with measurement on initial recognition based on acquisition cost. On 28 March 2018, the BMW Group signed an agree- ment with the Daimler Group regarding the merger of certain business units that provide mobility services. Following approval by the relevant antitrust author- ities, the transaction was closed on 31 January 2019. Existing on-demand mobility offerings in the areas of car sharing, ride-hailing, parking, charging and multi- modality have been combined with future strate gic expansion in mind. As a result of the business com- bination, following the final signing of contracts, the BMW Group and the Daimler Group each held equal shares in Car2Go Deutschland GmbH, Berlin (ShareNow), Blitz 18-353 GmbH, Munich (FreeNow), Parkmobile Group Holding B. V., Amsterdam (ParkNow), Digital Charging Solutions GmbH, Berlin (ChargeNow) and Moovel Group GmbH, Berlin (ReachNow). The joint ventures are combined under the name YOUR NOW. As a result of the merger, the investments in the com- panies previously held by the BMW Group were remea- sured to their fair value. DriveNow GmbH & Co. KG, Munich, including its subsidiaries and DriveNow Verwaltungs GmbH, Munich (DriveNow), are part of the agreement. These entities were contributed in kind to Car2Go Deutschland GmbH, Berlin, on a fully re alised profit basis, in return for shares in that company. Up to 31 January 2019, DriveNow was accounted for as a discontinued operation. Profit after tax amounted to € 44 million and resulted pri- marily from the contribution of DriveNow to Car2Go Deutschland GmbH. This amount is reported in the income statement as part of the result from discon- tinued operations. The remaining BMW companies included in the agreement were not previously fully consolidated on the grounds of immateriality. The transaction gave rise to a preliminary positive impact of € 329 million which is included in the result on investments. This amount comprises sale proceeds of € 232 million and revaluation gains of € 97 million arising on the remaining shares. The transaction resulted in a total cash outflow of € 890 million, com- prising an inflow of € 295 million and an outflow of € 1,185 million. The items described above relating to YOUR NOW also have an impact on the Group’s and Automotive segment’s cash flows from investing activities. Since 1 February 2019, the joint ventures are accounted for in the BMW Group Financial Statements using the equity method. The BMW Group’s share of the loss recorded for the YOUR NOW companies during the financial year 2019 amounted to € 662 million. This figure includes impairment losses totalling € 277 million. Revised business expectations gave rise to an indication of impairment, thereby triggering an impairment test. As part of this process, impairment losses totalling € 240 million were recognised in the BMW Group Finan- cial Statements on the carrying amount of individual YOUR NOW companies. These impairment losses are included in the line item “Result on investments”. The amounts recognised as impairment losses partly reflect decisions taken at the level of ShareNow and ReachNow not to serve certain markets in the future. In this context, the result from equity accounted investment also includes expenses arising from the recognition of provisions and impairment losses. The work on opening balance sheets at the merger date and the calculation of the final purchase prices have not yet been finalised. For this reason, the final purchase prices cannot yet be determined definitively. Similarly, purchase price allocations have not yet been finalised. The YOUR NOW companies were contributed into a holding company with effect from 31 December 2019. As a result of the contribution, the BMW Group and the Daimler Group each held equal shares in Blitz 18-353 GmbH (renamed YOUR NOW Holding GmbH in January 2020), Munich. The contribution was accounted for as an exchange transaction without economic substance and executed on the basis of carrying amounts. The other changes to the Group reporting entity do not have a material impact on the results of operations, financial position and net assets of the Group. 03 Foreign currency translation and measurement The financial statements of consolidated companies which are presented in a foreign currency are trans- lated using the modified closing rate method. Under this method, assets and liabilities are translated at the closing exchange rate, whilst income and expenses are translated at the average exchange rate. Differences arising on foreign currency translation are presented in “Accumulated other equity“. Group Financial Statements In the single entity accounts of BMW AG and its sub- sidiaries, foreign currency receivables and payables are measured on initial recognition using the exchange rate prevailing at the date of first-time recognition. At the end of the reporting period, foreign currency receivables and payables are measured using the clos- ing exchange rate. The resulting unrealised gains and losses, as well as realised gains and losses arising on settlement, are recognised in the income statement. Non-monetary balance sheet items denominated in foreign currencies are rolled forward on the basis of historical exchange rates. The exchange rates of currencies which have a material impact on the Group Financial Statements were as follows: 119 1 Euro = British Pound Chinese Renminbi Japanese Yen Korean Won Russian Rubel Thai Baht US-Dollar Argentina has fulfilled the definition of a hyperinfla- tionary economy since 1 July 2018. For this reason, IAS 29 (Financial Reporting in Hyperinflationary Economies) is being applied for the BMW subsidiary in Argentina. The price indices published by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE) are used to adjust non-monetary assets and liabilities and items in the income statement. The resulting effects are not material for the BMW Group. 04 Accounting policies, assumptions, judgements and estimations Revenues from contracts with customers include in particular revenues from the sale of products (primar- ily new and pre-owned vehicles and related products) as well as revenues from services. Revenue is recog- nised when control is transferred to the dealership or retail customer. In the case of sales of products, this is usually at the point in time when the risks and rewards of ownership are transferred. Revenues are stated net of settlement discount, bonuses and rebates as well as interest and residual value subsidies. The consideration arising from these sales usually falls due for payment immediately or within 30 days. In exceptional cases, a longer payment period may also be agreed. In the case of services, control is trans- ferred over time. Consideration for the rendering of services to customers usually falls due for payment at Closing rate Average rate 31. 12. 2019 31. 12. 2018 0.85 7.82 121.81 1,297.79 69.60 33.40 1.12 0.89 7.87 125.77 1,271.07 79.72 37.01 1.14 2019 0.88 7.73 122.06 1,304.68 72.43 34.76 1.12 2018 0.88 7.81 130.36 1,298.78 74.07 38.15 1.18 the beginning of a contract and is therefore deferred as a contract liability. The deferred amount is released over the service period and recognised as revenues in the income statement. As a rule, amounts are released on the basis of the expected expense trend, as this best reflects the performance of the service. If the sale of products includes a determinable amount for services (multiple-component contracts), the related revenues are deferred and recognised as income in the same way. Variable consideration components, such as bonuses, are measured at the expected value, and, in the case of multiple-component contracts allocated to all performance obligations unless directly attrib- utable to the sale of a vehicle. Revenues from the sale of products, for which repurchase arrangements or rights of return are in place, are not recognised immediately in full. Instead, revenues are either recognised proportionately, or the difference between the sales and repurchase price is recognised in instalments over the term of the contract depending on the nature of the agreement. In the case of vehicles sold to a dealership that are expected to be repurchased in a subsequent period as part of leasing operations, revenues are not recog- nised at Group level at the time of the sale of the vehicle. Instead, assets and liabilities relating to the right of return vehicles are recognised. 120 Notes to the Group Financial Statements Accounting Principles and Policies Revenues from leases of own-manufactured vehicles are recognised at Group level in accordance with the requirements for manufacturer or dealer lessors. In the case of operating leases, revenues from lease payments are recognised on a straight-line basis over the lease term. In the case of finance leases, revenues are recognised at the lease commencement date at the amount of the fair value of the leased asset and reduced by any unguaranteed residual value of vehicles that are expected to be returned to the Group at the end of the lease term. Similarly, cost of sales is reduced for unguaranteed residual values. In addition, initial direct costs are recognised as cost of sales at the lease commencement date. Revenues also include interest income from financial services. Interest income arising on finance leases as well as on retail customer and dealership financing is recognised using the effective interest method and reported as interest income on credit financing within revenues. Public sector grants are not recognised until there is reasonable assurance that the conditions attaching to them have been complied with and the grants will be received. The resulting income is recognised in cost of sales over the periods in which the costs occur that they are intended to compensate. Earnings per share are calculated as follows: Basic earnings per share are calculated for common and preferred stock by dividing the net profit for the year after minority interests and attributable to each cate- gory of stock, by the average number of outstanding shares. Net profit for the year is accordingly allocated to the different categories of stock. The portion of the net profit that is not being distributed is allocated to each category of stock based on the number of outstanding shares. Profits available for distribution are determined directly on the basis of the dividend resolutions passed for common and preferred stock. Diluted earnings per share are calculated and sepa- rately disclosed in accordance with IAS 33. Intangible assets are measured at acquisition or manu- facturing cost. Intangible assets with finite useful lives are amortised on a straight-line basis over their useful lives of between three and 20 years. Impairment losses are recognised where necessary. Intangible assets with indefinite useful lives are tested annually for impair- ment. Internally generated intangible assets mainly comprise development costs for vehicle, module and architecture projects. Development costs are capitalised if all of the criteria specified by IAS 38 are met. They are measured on the basis of direct costs and directly attributable overhead costs. Project-related capitalised development costs are amortised on a straight-line basis following the start of production over the estimated product life cycle (usually eight to twelve years). Goodwill arises on first-time consolidation of an ac- qui red business when the cost of acquisition exceeds the Group’s share of the net fair value of the assets, liabilities and contingent liabilities identified during the acquisition. If there is any indication of impairment of intangible assets, or if an annual impairment test is required (i. e. intangible assets with an indefinite useful life, intangible assets during the development phase and goodwill), an impairment test is performed. Each individual asset is tested separately unless the cash flows generated by the asset are not sufficiently inde- pendent from the cash flows generated by other assets or other groups of assets. In this case, impairment is tested at the level of a cash-generating unit. For the purpose of the impairment test, the carrying amount of an asset (or a cash-generating unit) is com- pared with the recoverable amount. The first step of the impairment test is to determine the value in use. If the value in use is lower than the carrying amount, the next step is to determine the fair value less costs to sell and compare the amount so determined with the asset’s carrying amount. If the fair value is lower than the carrying amount, an impairment loss is reco gnised, reducing the carrying amount to the higher of the asset’s value in use or fair value less costs to sell. If the reason for a previously recognised impairment loss no longer exists, the impairment loss is reversed up to the level of the recoverable amount, but no higher than the amortised acquisition or manu- facturing cost. Impairment losses on goodwill are not reversed. As part of the process of assessing recoverability, it is generally necessary to apply estimations and assump- tions – in particular regarding future cash inflows and outflows and the length of the forecast period – which could differ from actual amounts. Actual amounts may differ from the assumptions and estimations used if business conditions develop differently to expectations. Group Financial StatementsThe BMW Group determines the value in use on the basis of a present value computation. Cash flows used for this calculation are derived from long-term forecasts approved by management. These long-term forecasts are based on detailed forecasts drawn up at an operational level, covering a planning period of six years. For the purposes of calculating cash flows beyond the planning period, a residual value is assumed which does not take growth into account. Forecasting assumptions are continually adjusted to current information and regularly compared with external sources. The assumptions used take account in particular of expectations of the profitability of the product portfolio, future market share development, macroeconomic developments (such as currency, interest rate and raw materials prices) as well as the legal environment and past experience. Amounts are discounted on the basis of a market- re la ted cost of capital rate. Impairment tests are performed for accounting and financial reporting pur- poses for the Automotive and Motorcycles cash-gener- ating units using a risk-adjusted pre-tax cost of capital (WACC) that is updated annually. In the case of the Financial Services cash-generating unit, a pre-tax cost of equity capital is used, as is customary in the sector. The following discount factors were applied: in % 2019 2018 Automotive Motorcycles Financial Services 10.9 10.9 11.5 12.0 12.0 13.4 The risk-adjusted discount rate, calculated using a CAPM model, also takes into account specific peer- group information relating to beta-factors, capital structure data and borrowing costs. In conjunction with the impairment tests for cash-generating units, sensitivity analyses are performed for the main assumptions in order to rule out that possible changes to the assumptions used to determine the recoverable amount would result in the requirement to recognise an impairment loss. 121 In order to determine a target internal rate of return, risk-adjusted cost of capital rates are averaged for the recent past. For the purposes of long-term product and investment decisions, the following target internal rates of return are used: in % 2019 2018 Automotive Motorcycles Financial Services 12.0 12.0 13.4 12.0 12.0 13.4 All items of property, plant and equipment are measured at acquisition or manufacturing cost less accumulated depreciation and accumulated impairment losses. The cost of internally constructed plant and equipment comprises all costs which are directly attributable to the manufacturing process as well as an appro- priate proportion of production-related overheads. This includes production-related depreciation and amortisation as well as an appropriate proportion of administrative and social costs. Financing costs are not included in acquisition or manufacturing cost unless they are directly attributable to the asset. The carrying amount of items of depreciable property, plant and equipment is written down according to scheduled usage-based depreciation – as a general rule on a straight-line basis – over the useful lives of the assets. Depreciation is recorded as an expense in the income statement. The following useful lives are applied throughout the BMW Group: in years Factory and office buildings, residential buildings, fixed installations in buildings and outside facilities Plant and machinery Other equipment, factory and office equipment 8 to 50 3 to 21 2 to 25 For machinery used in multiple-shift operations, depreciation rates are increased to account for the additional utilisation. If there is any indication of impairment of property, plant and equipment, an impairment test is performed as described above for intangible assets. 122 Notes to the Group Financial Statements Accounting Principles and Policies In the case of leased items of property, plant and equip- ment, a right-of-use asset and a liability for the out- standing lease payments are recognised with effect from the date on which the leased asset becomes available for use by the BMW Group. The acquisition cost for the right-of-use asset is calculated as the sum of the present value of the future lease payments, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee and the estimated costs of dismantling, removing or restoring the leased asset. Lease incentives granted by the lessor are deducted. Right-of-use assets are depreciated on a straight-line basis over the shorter of the useful life of the leased asset and the expected lease term. If ownership of the leased asset is auto- matically transferred at the end of the lease term or the exercise of a purchase option is reflected in the lease payments, the right-of-use asset is amortised on a straight-line basis over the expected useful life of the leased asset. Right-of-use assets are reported in the balance sheet within the relevant line items for property, plant and equipment. The amortisation expense on right-of-use assets is reported in the income statement in cost of sales as well as in selling and administrative expenses. The lease liability is measured on initial recognition at the present value of the future lease payments. Sub- sequent to initial recognition, the carrying amount of the lease liability is increased to reflect interest on the lease liability and reduced, without income statement impact, by the lease payments made. Lease liabilities are reported within financial liabilities, while interest expense is reported as part of net interest result. In the cash flow statement, both the repayment portion and the interest portion of lease payments are shown as cash outflows from financing activities. The lease payments to be taken into account to measure the right-of-use asset and the lease liability comprise fixed payments, variable lease payments that depend on an index or an interest rate as well as amounts expected to be payable under residual value guarantees. If it is reasonably certain that a purchase or lease extension option will be exercised, the relevant payments are also included. Payments for periods for which the lessee has an option to terminate a lease unilaterally are only included in the lease payments if it is reasonably certain that the termination option will not be exercised. For the purposes of assessing options, the BMW Group takes account of all facts and circumstances that create an economic incentive to exercise or not to exercise the option. IFRS 16 requires that lease payments are discounted as a general rule using the interest rate implicit in the lease. However, since the interest rate in leases entered into by the BMW Group cannot readily be determined, amounts are discounted on the basis of the incremental borrowing rate, comprising the risk-free interest rate in the relevant currency for matching maturities plus a premium for the credit risk. Specific risks attached to an asset are generally not taken into account, given that collateral received in the context of alternative financing arrangements is not relevant within the BMW Group. Determining which items are to be counted as lease payments – including the issue of the lease term underlying those payments – and which discount rate to apply involves using estimates and assumptions that may differ from actual outcomes. As lessee, the BMW Group makes use of the applica- tion exemptions available for short-term leases and leases of low-value assets. Group products recognised by BMW Group entities as leased products under operating leases are measured at manufacturing cost, including any initial direct costs. All other leased products are measured at acquisition cost. All leased products are depreciated over the period of the lease using the straight-line method down to their expected residual value. Where the recoverable amount of a lease exceeds the asset’s car- rying amount, changes in residual value expectations are recognised by adjusting scheduled depreciation prospectively over the remaining term of the lease. If the recoverable amount is lower than the asset’s carrying amount, an impairment loss is recognised for the shortfall. A test is carried out at each balance sheet date to determine whether an impairment loss recog- nised in prior years no longer exists or has decreased. In such cases, the carrying amount of the asset is increased to the recoverable amount, at a maximum up to the amount of the asset’s amortised cost. Assumptions and estimations are required regard- ing future residual values, since these represent a significant part of future cash inflows. Relevant factors to be considered include the trend in market prices and demand on the pre-owned vehicle market. The assumptions are based on internally available historical data and current market data as well as on forecasts of external institutions. Furthermore, assumptions are regularly validated by comparison with external data. Group Financial StatementsInvestments accounted for using the equity method are measured – provided no impairment has been recog- nised – at cost of investment adjusted for the Group’s share of earnings and changes in equity capital. If there is any indication that an investment is impaired, an impairment test is performed on the basis of a discounted cash flow method. An indication exists, for example, in the event of a serious shortfall compared to budget, the loss of an active market or if funds are required to avoid insolvency. The Group’s financial assets include in particular other investments, receivables from sales financing, mar- ketable securities and investment funds, derivative financial assets, trade receivables and cash and cash equivalents. As a general rule, non-derivative finan- cial assets are accounted for on the settlement date. Depending on the business model and the structure of contractual cash flows, financial assets are classified as measured at amortised cost, at fair value through other comprehensive income or at fair value through profit or loss. The category “at fair value through other comprehensive income” at the BMW Group comprises mainly marketable securities and investment funds used for liquidity management purposes. Selected mar ketable securities and investment funds, money market funds within cash and cash equivalents as well as convertible bonds are recognised at fair value through profit or loss, as their contractual cash flows do not solely represent payments of principal and interest. The BMW Group does not make use of the option to measure equity instruments at fair value through other comprehensive income or debt instru- ments at fair value through profit or loss. The market values of financial instruments measured at fair value are determined on the basis of market information available at the balance sheet date, such as quoted prices or using appropriate measurement meth- ods, in particular the discounted cash flow method. Items reported under other investments within the scope of IFRS 9 are measured at fair value through profit or loss. Investments in subsidiaries, joint arrangements and associated companies that are not material to the BMW Group and which do not fall within the scope of IFRS 9 are also included in other investments. Receivables from sales financing are measured at amor- tised cost using the effective interest rate method. This also includes receivables from vehicle finance leases which are measured at an amount equal to the net investment in the lease. 123 With the exception of receivables from operating leases and trade receivables, the BMW Group applies the general approach described in IFRS 9 to deter- mine impairment of financial assets. Under the general approach, loss allowances are measured on initial recognition on the basis of the expected 12-month credit loss (stage 1). If the credit loss risk at the end of the reporting period has increased significantly since initial recognition, the impairment allowance is measured on the basis of lifetime expected credit losses (stage 2 – general approach). The BMW Group applies the simplified approach described in IFRS 9 to operating lease and trade receivables, whereby the amount of the loss allowance is measured subsequent to the initial recognition of the receivable on the basis of lifetime expected credit losses (stage 2 – simplified approach). For the purposes of allocating an item to stage 2, it is irrelevant whether the credit risk of the assets concerned has increased significantly since initial recognition. In the case of credit-impaired assets which had not been credit- impaired at the time they were acquired or originated, an impairment allowance is recognised at an amount equal to lifetime expected credit losses (stage 3). This is the case regardless of whether the general or simplified approach is applied. As a general rule, the BMW Group assumes that a receivable is in default if it is more than 90 days overdue or if there are objective indications of insol- vency. Credit-impaired assets are identified as such on the basis of this definition of default. In the case of stage 3 assets, interest income is calculated on the asset’s carrying amount less any impairment loss. Loss allowances on receivables from sales financing are determined primarily on the basis of past expe- rience with credit losses, current data on overdue receivables, rating classes and scoring information. Forward-looking information (for instance forecasts of key performance indicators) is also taken into account if, based on past experience, such indicators show a substantive correlation to actual credit losses. The measurement of the change in default risk is based on a comparison of the default risk at the date of initial recognition and at the end of the reporting period. The default risk at the end of each reporting period is determined on the basis of credit checks, current key performance indicators and any overdue payments. Loss allowances on trade receivables are determined primarily on the basis of information relating to over- due amounts. In the case of marketable securities and investment funds, the BMW Group usually applies the option not to allocate financial assets with a low default risk to different stages. Accordingly, assets with an investment grade rating are always allocated to stage 1. The loss allowance on these assets is calculated using the input factors available on the market, such as ratings and default probabilities. 124 Notes to the Group Financial Statements Accounting Principles and Policies The BMW Group writes off financial assets when it has no reasonable expectation of recovering the amounts concerned. This may be the case, for instance, if the debtor is deemed not to have sufficient assets or other sources of income to service the debt. Derivative financial instruments are used within the BMW Group for hedging purposes in order to reduce currency, interest rate, fair value and market price risks. Derivative financial instruments are recognised as of the trade date, measured at their fair value. Fair values are determined on the basis of valuation mo dels. Observable market price, tenor and currency basis spreads are taken into account in the measurement of derivative financial instruments. Furthermore, the Group’s own credit risk and that of counterparties is taken into account on the basis of credit default swap values for market contracts with matching terms. The BMW Group applies the option to recognise the credit risks arising from the fair values of a group of derivative financial assets and liabilities on the basis of their total net amount. Portfolio-based valuation adjustments (credit valuation adjustments and debit valuation adjustments) to the individual derivative financial assets and financial liabilities are allocated using the relative fair value approach (net method). Where hedge accounting is applied, changes in fair value of derivate financial instruments are presented as part of other financial result in the income state- ment or within other comprehensive income as a component of accumulated other equity, depending on whether the hedging relationship is classified as a fair value hedge or a cash flow hedge. Fair value hedges are mainly used to hedge interest rate risks relating to bonds, other financial liabilities and receiv- ables from sales financing. For selected fixed-interest assets, part of the interest rate risk is hedged on a portfolio basis in accordance with IAS 39. In this case, swaps are used as the hedging instrument. Hedge relationships are terminated and redesignated on a monthly basis at the end of each reporting period, thereby taking account of the constantly changing content of each portfolio. The currency basis is not designated as part of the hedging relationship in the case of interest rate hedges accounted for as fair value hedges. Accordingly, changes in the market value of such instruments are recorded as costs of hedging within accumulated other equity. Amounts accumu- lated in equity are reclassified to other financial result within income statement over the term of the hedging relationship. Ineffectiveness of hedging relationships is also recognised in other financial result. The time values of option transactions and the interest component – including the currency basis – of forward currency contracts are not designated as part of the hedging relationship in the case of currency hedges accounted for as cash flow hedges. Changes in the market value of such components are recorded as costs of hedging on a separate line within accumulated other equity. Amounts recorded in accumulated other equity from currency hedges are reclassified to cost of sales when the related hedged item is reco g nis ed in profit or loss. Ineffectiveness is recognised directly in cost of sales. In the case of raw materials hedges that are accounted for as cash flow hedges, the hedging instruments are designated in full as part of the hedging relationship. As an exception to this general rule, the interest component of raw materials derivative instruments redesignated in conjunction with the first-time application IFRS 9 was not designated as part of the hedging relationship. Changes in the fair value of this component are recorded as costs of hedging on a separate line within accumulated other equity. Amounts recorded in accumulated other equity are included in the carrying amount of inventories on initial recognition. Deferred income taxes are recognised for all temporary differences between the tax and accounting bases of assets and liabilities, including differences arising on consolidation procedures, as well as on unused tax losses and unused tax credits. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The recoverability of deferred tax assets is assessed at each balance sheet date on the basis of planned tax- able income in future financial years. If with a pro ba- bility of more than 50 percent future tax benefits will not be realised, either in part or in total, a valuation allowance is recognised on the deferred tax assets. The calculation of deferred tax assets requires assumptions to be made with regard to the level of future taxable income and the timing of recovery of deferred tax assets. These assumptions take account of forecast operating results and the impact on earnings of the reversal of taxable temporary differences. Since future business developments cannot be predicted with cer- tainty and to some extent cannot be influenced by the BMW Group, the measurement of deferred tax assets is subject to uncertainty. Group Financial Statements125 Deferred tax liabilities on taxable temporary dif fer ences arising from investments in subsidiaries, branches and associated companies and interests in joint arrange- ments are not recognised if the Group is able to control the timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future. This is particularly the case if it is intended that profits will not be distributed, but rather will be used to maintain the substance and expand the volume of business of the entities concerned. Current income taxes are calculated within the BMW Group on the basis of tax legislation app lica ble in the relevant countries. To the extent that judgement was necessary to determine the treatment and amount of tax items presented in the financial statements, there is in principle a possibility that local tax author- ities may take a different position. As a general rule, each income tax treatment is consid- ered independently when accounting for uncertainties in income taxes. If it is not considered probable that an income tax treatment will be accepted by the local tax authorities, the BMW Group uses the most likely amount of the tax treatment when determining tax- able profit and the tax base. Inventories of raw materials, supplies and goods for resale are stated at the lower of average acquisition cost and net realisable value. Work in progress and finished goods, as well as vehi- cles held for sale in the financial services business, are stated at the lower of manufacturing cost and net realisable value. Manufacturing cost comprises all costs which are directly attributable to the manufac- turing process as well as an appropriate proportion of production-related overheads. This includes production-related depreciation and amortisation and an appropriate proportion of administrative and social costs. Financing costs are not included in the acquisition or manufacturing cost of inventories. Cash and cash equivalents comprise mainly cash on hand and cash at bank with an original term of up to three months. With the exception of money market funds, cash and cash equivalents are measured at amortised cost. Financial liabilities, with the exception of lease liabil- ities, are measured on first-time recognition at their fair value. For these purposes, transaction costs are taken into account except in the case of financial liabilities allocated to the category “measured at fair value through profit or loss”. Subsequent to initial reco gnition, liabilities are – with the exception of derivative financial instruments – measured at amor- tised cost using the effective interest method. Provisions for pensions are measured using the pro- jected unit credit method. Under this method, not only obligations relating to known vested benefits at the reporting date are recognised, but also the effect of future ex pected increases in pensions and salaries. The calculation is based on independent actuarial valuations which take into account the relevant biometric factors. In the case of funded plans, the pension obligation is offset against plan assets measured at their fair value. If the plan assets exceed the pension obligation, the surplus is tested for recoverability. In the event that the BMW Group has a right of reimbursement or a right to reduce future contributions, it reports an asset (within Other financial assets), measured on the basis of the present value of the future economic benefits attached to the plan assets. For funded plans, in cases where the obligation exceeds plan assets, a liability is recognised under pension provisions. The calculation of the amount of the provision requires assumptions to be made with regard to discount rates, salary trends, employee fluctuation and the life ex- pectancy of employees. Discount rates are determined by reference to market yields at the end of the report- ing period on high quality fixed-interest corporate bonds. The salary trend relates to the expected future rate of salary increase which is estimated annually based on inflation and the career development of employees within the Group. Net interest expense on the net defined benefit lia- bility and net interest income on net defined benefit assets are presented separately within the financial result. All other costs relating to allocations to pension provisions are allocated to costs by function in the income statement. 126 Notes to the Group Financial Statements Accounting Principles and Policies Past service cost arises where a BMW Group com- pany introduces a defined benefit plan or changes the benefits payable under an existing plan. This cost is recognised immediately in the income statement. Similarly, gains and losses arising on the settlement of a defined benefit plan are recognised immediately in the income statement. Remeasurement of the net liability can result from changes in the present value of the defined benefit obligation, the fair value of the plan assets or the asset ceiling. Remeasurement can result, amongst others, from changes in financial and demographic parameters, as well as changes following the portfolio development. Remeasurements are recognised imme- diately in other comprehensive income and hence directly in equity (within revenue reserves). Other provisions are recognised when the BMW Group has a present legal or constructive obligation towards a third party arising from past events, the settlement of which is probable, and when the amount of the obligation can be reliably estimated. Provisions with a remaining period of more than one year are measured at their net present value. The measurement of provisions for statutory and non-statutory warranty obligations (statutory, contrac- tual and voluntary) involves estimations. In addition to manufacturer warranties prescribed by law, the BMW Group offers various further standard (assur- ance-type) warranties depending on the product and sales market. No provisions are recognised for additionally offered service packages that are treated as separate performance obligations. Provisions for statutory and non-statutory warranties are recognised at the point in time when control over the goods is transferred to the dealership or retail customer or when it is decided to introduce new warranty measures. With respect to the level of the provision, estimations are made in particular based on past experience of damage claims and processes. Future potential repair costs and price increases per product and market are also taken into account. Provisions for warranties for all companies of the BMW Group are adjusted regularly to take account of new information, with the impact of any changes recognised in the income statement. Further infor- mation is provided in note 33. Similar estimates are also made in conjunction with the measurement of expected reimbursement claims. The recognition and measurements of provisions for litigation and liability risks necessitates making assumptions in order to determine the probability of liability, the amount of claim and the duration of the legal dispute. The assumptions made, especially the assumption about the outcome of legal proceedings, are subject to a high degree of uncertainty. The appro- priateness of assumptions is regularly reviewed, based on assessments undertaken both by management and external experts, such as lawyers. If new devel- opments arise in the future that result in a different assessment, provisions are adjusted accordingly. If the recognition and measurement criteria relevant for provisions are not fulfilled and the outflow of resources on fulfilment is not unlikely, the potential obligation is disclosed as a contingent liability. Related party disclosures comprise information on associated companies, joint ventures and non-con- solidated subsidiaries as well as individuals which have the ability to exercise a controlling or significant influence over the financial and operating policies of the BMW Group. This includes all persons in key positions of the Company, as well as close members of their families or intermediary entities. In the case of the BMW Group, this also applies to members of the Board of Management and the Supervisory Board. Details relating to these individuals and entities are provided in note 40 and in the list of investments disclosed in note 46. Share-based remuneration programmes which are ex- pected to be settled in shares are measured at their fair value at grant date. The related expense is recognised as personnel expense in the income statement over the vesting period and offset against capital reserves. Share-based remuneration programmes expected to be settled in cash are revalued to their fair value at each balance sheet date between the grant date and the settlement date and on the settlement date itself. The expense is recognised as personnel expense in the income statement over the vesting period and presented in the balance sheet as a provision. The share-based remuneration programme for Board of Management members and senior heads of depart- ment entitles BMW AG to elect whether to settle its commitments in cash or with shares of BMW AG common stock. Based on the decision to settle in cash, the share-based remuneration programmes for Board of Management members and senior heads of depart- ment are accounted for as cash-settled, share-based remuneration programmes. Further information on share-based remuneration programmes is provided in note 41. see notes 40 and 46 see note 33 see note 41 Group Financial Statements127 05 Financial reporting rules Standards and Revised Standards significant for the BMW Group applied for the first time in the finan- cial year 2019: Standard / Interpretation IFRS 16 Leases IFRS 9, IAS 39, IFRS 7 Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7) IFRIC 23 Uncertainty Over Income Tax Treatments Changes due to the new accounting standard IFRS 16 are described in note 6. see note 6 The amendments to IFRS 9, IAS 39 and IFRS 7 pro- vide relief with regard to the expected impact of the interest rate benchmark reform on hedge accounting and are being applied early by the BMW Group. The amendments provide temporary relief from applying specific hedge accounting requirements in the case of hedging relationships directly affected by the interest rate benchmark reform. Accordingly, hedge account- ing requirements must be applied as if the benchmark interest rate, on which the hedged cash flows and cash flows from the hedging instrument are based, were not changed by the benchmark interest rate reform. Consequently, the amendments to IFRS 9 and IAS 39 ensure that hedge accounting is not required to be discontinued specifically as a result of the bench- mark interest rate reform. The relief is applied to all BMW Group hedging relationships affected by the uncertainties arising from the benchmark interest rate reform. Date of issue by IASB 13. 1. 2016 26. 9. 2019 Date of mandatory application IASB 1. 1. 2019 1. 1. 2020 Date of mandatory application EU 1. 1. 2019 1. 1. 2020 7. 6. 2017 1. 1. 2019 1. 1. 2019 IFRIC 23 clarifies the accounting for uncertainties regarding income tax issues and transactions. Due to accounting practises previously followed, based on the consistent application of IAS 12, the BMW Group is not affected by IFRIC 23. Other accounting rules required to be applied for the first time in the financial year 2019 did not have any significant impact on the BMW Group Financial Statements. Other financial reporting standards issued by the IASB and not yet applied are not expected to have any significant impact on the BMW Group Financial Statements. With the exception of the benchmark interest rate reform, the BMW Group has not applied any other new accounting rules before their manda- tory date. 128 Notes to the Group Financial Statements Accounting Principles and Policies 06 Changes in accounting policy for leases (a) First-time application of IFRS 16 – Accounting for leases as lessee Up to 31 December 2018, the accounting treatment of a lease was determined in accordance with IAS 17 on the basis of the extent to which the risks and rewards attached to the leased item were transferred to the lessee. Leased items of property, plant and equip- ment whose economic ownership was attributed to the BMW Group (finance leases) were measured on initial recognition at their fair value or, if lower, at the net present value of minimum lease payments. The assets were depreciated using the straight-line method over their estimated useful lives or, if shorter, over the contractual lease period. Obligations for future lease payments were recognised at their net present value in other financial liabilities. In the case of leases that did not transfer substantially all the risks and rewards incidental to ownership from the Group to the lessee (operating leases), lease payments were previously recognised in the income statement on a straight-line basis over the lease term. The new Standard IFRS 16 (Leases) requires a new approach to accounting for leases by lessees. In prin- ciple, every lease is now required to be accounted for at the level of the lessee as a financing transaction, reflecting the fact that the distinction between ope- r ating and finance leases has been eliminated. The new Standard has been applied with effect from 1 January 2019 using the modified retrospective method. On transition to the new Standard, the BMW Group applied the following practical expe- dients permitted for lessees by IFRS 16: — no reassessment was made at the date of initial application as to whether or not existing con- tracts constituted a lease based on IFRS 16. Instead, the previous assessment made under IAS 17 and IFRIC 4 was retained. — An impairment review of individual right-of- use assets was not performed. Instead, the as sessment of the existence of onerous leases in accordance with IAS 37 (Provisions, Contin- gent Liabilities and Contingent Assets) is used as a practical expedient. No provisions for onerous leases were recognised at 31 Decem- ber 2018. — Leases expiring no later than 31 December 2019 are accounted for as short-term leases regardless of the original lease term. — Initial direct costs were not taken into account when measuring right-of-use assets at the time of initial application. — Current information is taken into account when determining the lease term if the contract con- tains options to extend or terminate the lease. At the date of initial application, the balance sheet total increased by € 2,407 million as a result of leases previously classified as operating leases. The reclas- sification resulted in a slight decline in the equity ratio. For a small number of real estate contracts, the carrying amount of right-of-use assets has been determined as if IFRS 16 had been applied from the commencement of the lease. After offsetting deferred tax effects amounting to € 13 million, this resulted in a reduction of approximately € 32 million in Group revenue reserves at 1 January 2019. The BMW Group’s profit before financial result for the financial year 2019 benefited from a positive effect of € 27 million. Furthermore, cash flows from operating activities increased and cash flows from financing activities decreased by € 494 million. Group Financial Statements Starting with financial obligations for operating leases at 31 December 2018, lease liabilities can be reconciled to the opening balance at 1 January 2019 as follows: Reconciliation of opening balance • 65 in € million Financial obligations for operating leases at 31 December 2018 Application of practical expedients for leases of low-value assets and short-term leases Change in assessment of leases Other Gross lease liabilities for former operating leases at 1 January 2019 Discounting impact Lease liabilities for former operating leases at 1 January 2019 Present value of finance lease liabilities at 31 December 2018 Total lease liabilities at 1 January 2019 Lease liabilities were discounted using a weighted average incremental interest rate of 1.94 % at 1 Jan- uary 2019. (b) Changes in methods used to account for leases as lessor In conjunction with the adoption of IFRS 16, the meth- ods used to account for leases as a lessor have also been reviewed, resulting in a change of accounting policy as described below with effect from the finan- cial year 2019. The change in accounting policy has been applied retrospectively in accordance with IAS 8, with comparative figures adjusted. In this context, the opening balance sheet at 1 January 2018 and figures for the financial year 2018 have been adjusted. As a result of the revised definition of initial direct costs contained in IFRS 16, the BMW Group has changed the timing of income statement recognition for volume-dependent bonuses relating to Financial Services segment sales promotions. Rather than being spread over the term of the underlying lease, these costs are now recognised as an expense in full in the period in which the entitlement to the bonus arises. This resulted in a retrospective decrease in Group revenue reserves at 1 January 2018 of € 101 million, after offset of deferred tax amounting to € 44 million (31 December 2018: reduction of revenue reserves of € 113 million, after offset of deferred tax amounting to € 49 million). 129 2,694 – 102 69 4 2,665 – 258 2,407 105 2,512 The BMW Group is also required to account for finance leases concluded with retail customers via the Financial Services segment in accordance with the requirements applicable to manufacturers or dealers. For this reason, revenues and cost of sales arising on the sale of vehicles which will subsequently be leased to customers under finance lease arrangements are now recognised at a later date. Revenues and cost of sales relating to vehicle sales are no longer recognised at the time of sale, but rather at the commencement of the lease. Revenues are recognised on the basis of the leased asset’s fair value, reduced by any ungua r - anteed residual value of vehicles that are expected to be returned to the Group. Similarly, cost of sales is reduced for unguaranteed residual values. In addi- tion, initial direct costs incurred by the Financial Services segment are recognised at Group level as cost of sales. Overall, this resulted in a retrospective decrease in Group revenue reserves at 1 January 2018 of € 15 million, after offset of deferred tax amounting to € 4 million (31 December 2018: decrease of revenue reserves of € 146 million, after offset of deferred tax amounting to € 44 million). The adoption of these requirements did not have any significant impact on the accounting in the Automotive and Financial Services segments. 130 Notes to the Group Financial Statements Accounting Principles and Policies The tables below show the impact of accounting pol- i cy changes on the balance sheets at 1 January 2018 and 31 December 2018, as well as on the income statement, statement of comprehensive income and cash flow statement for the financial year 2018. bMW Group change in presentation of balance sheet at 1 January 2018 • 66 in € million ASSetS Total non-current assets thereof receivables from sales financing thereof deferred tax thereof other assets Total current assets thereof current tax thereof other assets Total assets equIty A nd lIAbIlItI eS Total equity thereof equity attributable to shareholders of BMW AG thereof revenue reserves Total non-current provisions and liabilities thereof other provisions thereof deferred tax thereof other liabilities Total current provisions and liabilities thereof other provisions thereof other liabilities Total equity and liabilities As originally reported Impact of accounting policy changes As amended 122,090 – 105 121,985 48,475 1,965 1,630 73,496 1,566 7,485 – 18 6 – 93 – 34 11 – 45 48,457 1,971 1,537 73,462 1,577 7,440 195,586 – 139 195,447 54,208 53,772 50,993 69,616 5,632 2,166 5,045 71,762 6,367 13,443 – 116 – 116 – 116 – 31 – – 31 – 8 – 8 54,092 53,656 50,877 69,585 5,632 2,135 5,045 71,770 6,367 13,451 195,586 – 139 195,447 Group Financial Statements bMW Group change in presentation of balance sheet at 31 december 2018 • 67 131 in € million ASSetS Total non-current assets thereof receivables from sales financing thereof deferred tax thereof other assets Total current assets thereof current tax thereof other assets Total assets equIty A nd lIAbIlItI eS Total equity thereof equity attributable to shareholders of BMW AG thereof revenue reserves Total non-current provisions and liabilities thereof other provisions thereof deferred tax thereof other liabilities Total current provisions and liabilities thereof other provisions thereof other liabilities Total equity and liabilities bMW Group change in presentation of income statement for the period from 1 January to 31 december 2018 • 68 in € million Revenues Cost of sales Gross profit Selling and administrative expenses Profit / loss before financial result Profit / loss before tax Income taxes Net profit / loss Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € As originally reported Impact of accounting policy changes As amended 125,442 48,109 1,590 2,026 83,538 1,366 9,790 – 80 – 20 48 – 108 479 12 467 125,362 48,089 1,638 1,918 84,017 1,378 10,257 208,980 399 209,379 58,088 57,559 56,121 79,983 5,776 1,806 5,299 70,909 6,078 15,117 – 259 – 259 – 259 – 48 – 9 – 33 – 6 706 – 3 709 57,829 57,300 55,862 79,935 5,767 1,773 5,293 71,615 6,075 15,826 208,980 399 209,379 As originally reported Impact of accounting policy changes As amended 97,480 – 78,924 18,556 – 9,558 9,121 9,815 – 2,575 7,207 7,117 10.82 10.84 10.82 10.84 – 165 – 13 – 178 – 10 – 188 – 188 45 – 143 – 143 – 0.22 – 0.22 – 0.22 – 0.22 97,315 – 78,937 18,378 – 9,568 8,933 9,627 – 2,530 7,064 6,974 10.60 10.62 10.60 10.62 132 Notes to the Group Financial Statements Accounting Principles and Policies Notes to the Income Statement bMW Group change in presentation of statement of comprehensive income for the period from 1 January to 31 december 2018 • 69 in € million Net profit Total comprehensive income Total comprehensive income attributable to shareholders of BMW AG BMW Group change in presentation of cash flow statement for the period from 1 January to 31 december 2018 • 70 in € million Cash inflow / outflow from operating activities thereof net profit thereof change in deferred taxes thereof change in receivables from sales financing thereof change in provisions thereof change in other operating assets and liabilities As originally reported Impact of accounting policy changes As amended 7,207 6,603 6,513 – 143 – 143 – 143 7,064 6,460 6,370 As originally reported Impact of accounting policy changes As amended 5,051 7,207 355 – 5,670 – 82 697 – – 143 – 45 20 – 12 180 5,051 7,064 310 – 5,650 – 94 877 Group Financial Statements133 NOTES TO THE INCOME STATEMENT 07 Revenues Revenues by activity comprise the following: in € million 2019 2018* Sales of products and related goods 73,433 68,029 Sales of products previously leased to customers Income from lease instalments Interest income on loan financing and finance leases Revenues from service contracts, telematics and roadside assistance Other income Revenues * Prior year’s figures adjusted. 11,020 10,746 10,163 9,995 3,996 3,728 2,820 2,195 2,784 2,156 104,210 96,855 Revenues recognised from contracts with customers in accordance with IFRS 15 totalled € 89,610 million (2018: € 81,871 million). An analysis of revenues by segment is shown in the explanatory comments on segment information provided in note 45. Revenues from the sale of products and related goods are generated primarily in the Automotive segment and, to a lesser extent, in the Motorcycles segment. Revenues from sales of products previously leased to customers, income from lease instalments and interest income on loan financing and finance leases are allocated to the Financial Services segment. Other income relates mainly to the Auto- motive segment and the Financial Services segment. The major part of revenues expected to arise from the Group’s order book at the end of the reporting period relates to the sale of vehicles. Revenues resulting from those sales will be recognised in the short term. The services included in vehicle sale contracts that will be recognised as revenues in subsequent years represent only an insignificant portion of expected revenues. Accordingly, use has been made of the practical expedient contained in IFRS 15, permitting an entity not to disclose information on a quantitative basis due to the short-term nature of items and the lack of informational value of such disclosures. Interest income on loan financing and finance leases includes interest calculated on the basis of the effec- tive interest method totalling € 3,687 million (2018: € 3,423 million). This interest income is not reported separately in the income statement as it is not signif- icant compared to total Group revenues. see note 6 Comparative figures for the previous financial year have been adjusted to reflect the change in accounting policy for manufacturer lessors (see note 6) and the change in the presentation of amortisation of initial direct costs for finance leases and receivables originated. These were previously recorded as cost of sales and are now reported as reductions of rev- enues (amount adjusted for the financial year 2018: € 460 million). 08 Cost of sales Cost of sales comprises: in € million 2019 2018* Manufacturing costs 48,690 44,558 Cost of sales relating to financial services business 23,623 22,042 thereof: interest expense relating to financial services business Research and development expenses Expenses for service contracts, telematics and roadside assistance see note 45 Warranty expenditure Other cost of sales Cost of sales * Prior year’s figures adjusted. 2,288 5,952 1,641 2,566 3,675 2,035 5,320 1,844 1,717 2,996 86,147 78,477 Cost of sales is reduced by public-sector subsidies in the form of reduced taxes on assets and reduced consumption-based taxes amounting to € 105 million (2018: € 88 million). Expenses for impairment losses on receivables from sales financing recognised in the income statement for the financial year 2019 amounted to € 219 million (2018: € 142 million). Because the impairments are of minor importance compared to total Group cost of sales, a separate disclosure has not been provided in the income statement. 134 Notes to the Group Financial Statements Accounting Principles and Policies Notes to the Income Statement Comparative figures for the previous financial year have been adjusted to reflect the change in accounting policy for volume-dependent bonuses and for manu- note 6) as well as the change in facturer lessors (see the presentation of amortisation of initial direct costs for finance leases and receivables originated. These were previously recorded as cost of sales and are now reported as reductions of revenues (amount adjusted for the financial year 2018: € 460 million). see note 6 Research and development expenditure was as follows: in € million 2019 2018 Research and development expenses Amortisation New expenditure for capitalised development costs Total research and development expenditure 5,952 – 1,667 5,320 – 1,414 2,134 2,984 6,419 6,890 09 Selling and administrative expenses Selling and administrative expenses relate mainly to expenses for marketing, personnel and IT. in € million 2019 2018* Selling expenses Administrative expenses Total selling and administrative expenses * Prior year’s figures adjusted. 5,656 3,711 5,848 3,720 9,367 9,568 The previous year’s figure has been adjusted due to the change in accounting policy for volume-dependent bonuses (see note 6). see note 6 10 Other operating income and expenses Other operating income and expenses comprise the following items: in € million 2019 2018 Exchange gains Income from the reversal of provisions Income from the reversal of impairment losses and write-downs Gains on the disposal of assets Sundry operating income Other operating income Exchange losses Expense for additions to provisions Expense for impairment losses and write-downs Sundry operating expenses Other operating expenses 148 433 8 41 401 1,031 – 181 – 1,732 – 173 – 230 – 2,316 185 216 15 96 262 774 – 135 – 193 – 48 – 275 – 651 Other operating income and expenses – 1,285 123 Income from the reversal of and expenses for the recog nition of impairment allowances and write- downs relate mainly to impairment allowances on receivables. Impairment losses recognised on receivables from contracts with customers amounted to € 48 million (2018: € 47 million). The expense for additions to provisions includes litigation and other legal risks. Income from the reversal of provisions includes income arising on the reassessment of risks from legal disputes. In an ad hoc announcement dated 5 April 2019, the BMW Group reported that the EU Commission had informed it of a “Statement of Objections” in conjunction with ongoing antitrust proceedings. The EU Commission alleges that the manufacturers col lu ded with the aim of restricting innovation and competition with regard to certain exhaust treat- ment systems for diesel- and petrol-driven passenger vehicles. The allegation concerns selective catalytic reduction (SCR) systems and the use of petrol par- ticulate filters (OPF). The Commission’s preliminary view is that the conduct objected to may be in breach of EU competition rules. The Statement of Objections leads the BMW Group to conclude that it is probable (“more likely than not”) that the EU Commission will issue a significant fine. The resulting requirement to recognise a provision increased other operating expenses by approximately € 1.4 billion in 2019. Group Financial Statements The BMW Group has examined the objections and gained access to the documents in the EU Commission’s investigation file. In December 2019, the BMW Group submitted a detailed response to the EU Commission, which the latter will now examine before determining the next steps in the proceedings. Consequently, it is not yet possible to assess the ultimate financial impact definitively. 11 Net interest result in € million 2019 2018 Other interest and similar income thereof from subsidiaries: Interest and similar income Expense relating to interest impact on other long-term provisions Net interest expense on the net defined benefit liability for pension plans Other interest and similar expenses thereof subsidiaries: Interest and similar expenses Net interest result 179 9 179 – 226 – 41 – 232 – 4 – 499 – 320 397 8 397 – 91 – 62 – 233 – 2 – 386 11 135 12 Other financial result in € million 2019 2018 Income from investments in subsidiaries and participations thereof from subsidiaries: Expenses from investments in subsidiaries and participations Result on investments Income (+) and expenses (–) from financial instruments Sundry other financial result Other financial result 387 13 – 307 80 – 189 – 189 – 109 278 9 – 122 156 – 105 – 105 51 see note 2 The result on investments includes revaluation effects relating to YOUR NOW. Further information is pro- vi ded in note 2 to the Group Financial Statements. The figure reported for the previous year included a positive valuation effect relating to the DriveNow companies amounting to € 209 million. Sundry other financial result comprises mainly in- come and expenses arising on the measurement of stand-alone derivatives and fair value hedge rela- tionships, as well as income and expenses from the measurement and sale of marketable securities and shares in investment funds. 13 Income taxes Taxes on income of the BMW Group comprise the following: in € million 2019 2018* Current tax expense Deferred tax expense (+) / deferred tax income (–) thereof relating to temporary differences thereof relating to tax loss carryforwards and tax credits Income taxes * Prior year’s figures adjusted. 3,316 2,218 – 1,176 – 1,439 263 2,140 312 596 – 284 2,530 The previous year’s figures have been adjusted due to the change in accounting policy for volume-dependent note 6). bonuses and for manufacturer lessors (see see note 6 136 Notes to the Group Financial Statements Notes to the Income Statement The tax expense was reduced by € 30 million (2018: € 41 million) as a result of utilising tax loss carry- forwards, for which deferred tax assets had not previously been recognised and in conjunction with previously unrecognised tax credits and temporary differences. The tax expense resulting from the change in the valuation allowance on deferred tax assets relating to tax losses available for carryforward and temporary differences amounted to € 7 million (2018: € 24 million). Deferred taxes are determined on the basis of tax rates which are currently applicable or expected to apply in the relevant national jurisdictions when the amounts are recovered. After taking account of an average municipal trade tax multiplier rate (Hebesatz) of 428.0 (2018: 428.0), the underlying income tax rate for Germany was as follows: in % 2019 2018 Corporate tax rate Solidarity surcharge Corporate tax rate including solidarity surcharge Municipal trade tax rate German income tax rate 15.0 5.5 15.8 15.0 30.8 15.0 5.5 15.8 15.0 30.8 Deferred taxes for non-German entities are calculated on the basis of the relevant country-specific tax rates. These ranged in the financial year 2019 between 9.0 % and 40.0 % (2018: between 9.0 % and 45.0 %). The difference between the expected tax expense based on the underlying tax rate for Germany and actual tax expense is explained in the following reconciliation: in € million 2019 2018* Profit before tax Tax rate applicable in Germany Expected tax expense 7,118 30.8 % 2,192 9,627 30.8 % 2,965 Variances due to different tax rates – 373 – 436 Tax increases (+) / tax reductions (–) due to: Tax-exempt income Non-deductible expenses Equity accounted Tax expense (+) / benefits (–) for prior years Effects from tax rate changes Other variances Actual tax expense Effective tax rate * Prior year’s figures adjusted. – 314 909 5 – 162 – 17 – 100 2,140 30.1 % – 173 314 – 158 – 16 90 – 56 2,530 26.3 % Tax increases as a result of non-deductible expenses and tax reductions due to tax-exempt income increased compared to one year earlier. The tax increases were due to provisions and impairment losses on invest- ments that are non-deductible for tax purposes as well as to non-deductible withholding tax. Tax income relating to prior years resulted primarily from adjustments to income tax receivables and pro- visions for prior years, which were largely attributable to the successful conclusion of intergovernmental tax treaties covering the topic of transfer pricing. Other variances include various reconciling items. Group Financial StatementsThe allocation of deferred tax assets and liabilities to balance sheet line items at 31 December is shown in the following table: 137 in € million Intangible assets Property, plant and equipment Leased products Other investments Sundry other assets Tax loss carryforwards Capital Losses Provisions Liabilities Eliminations Valuation allowances on tax loss carryforwards Valuation allowances on capital losses Netting Deferred taxes Net * Prior year’s figures adjusted. Deferred tax assets Deferred tax liabilities 2019 2018* 2019 2018* 17 53 324 3 1,125 306 329 6,239 3,544 3,883 22 171 489 3 1,185 578 313 5,323 2,570 3,226 15,823 13,880 – 177 – 329 – 13,123 2,194 1,562 – 185 – 313 – 11,744 1,638 – 3,186 780 4,085 22 3,454 – – 42 647 1,539 13,755 – – 3,077 359 5,175 20 3,254 – – 29 620 983 13,517 – – – 13,123 – 11,744 632 – 1,773 135 Tax loss carryforwards – all relating to foreign opera- tions – amounted to € 954 million (2018: € 2,045 mil- lion). This includes one tax loss carryforward amounting to € 519 million (2018: € 542 million), on which a valuation allowance of € 177 million (2018: € 185 million) was recognised on the related deferred tax asset. The decrease in tax losses available for carryforward was mainly attributable to tax reform in the USA. For entities with tax losses available for carryforward, a net surplus of deferred tax assets over deferred tax liabilities is reported amounting to € 292 million (2018: € 234 million). Deferred tax assets are recognised on the basis of management’s assessment that there is material evidence that the entities will generate future taxable profits, against which deductible temporary differences can be offset. It is expected for instance that tax-allowable start-up losses incurred for the plant opened in 2019 in San Luis Potosí, Mexico, can be utilised against future planned income. Tax loss carryforwards amounting to € 553 million (2018: € 1,551 million) can be used indefinitely, while € 401 million (2018: € 494 million) expire after more than 3 years. Capital losses available for carryforward in the United Kingdom which do not relate to ongoing operations increased to € 1,938 million (2018: € 1,841 million) due to currency factors. As in previous years, deferred tax assets recognised on these tax losses – amounting to € 329 million (2018: € 313 million) – were fully written down since they can only be utilised against future capital gains. The deferred tax amount reported in the position eliminations relates mostly to the balance sheet line item Leased products. Deferred tax assets and deferred tax liabilities are netted for each relevant tax entity if they relate to the same tax authorities. 138 Deferred taxes recognised directly in equity amounted to € 2,015 million (2018: € 1,457 million). Notes to the Group Financial Statements Notes to the Income Statement in € million Deferred taxes at 1 January (assets (–) / liabilities (+)) 2 Deferred tax expense (+) / income (–) recognised through income statement Change in deferred taxes recognised directly in equity thereof relating to fair value gains and losses on financial instruments and marketable securities recognised directly in equity thereof relating to the remeasurements of net liabilities for defined benefit pension plans thereof from currency translation Exchange rate impact and other changes Deferred taxes at 31 December (assets (–) / liabilities (+)) 1 Prior year’s figures adjusted. 2 The figures to 1 January 2019 have been adjusted, based on the first-time application of IFRS 16, see note 6. 2019 20181 122 – 1,176 – 558 – 170 – 376 – 12 50 – 1,562 164 312 – 457 – 677 222 – 2 116 135 Taxable temporary differences relating to invest- ments in subsidiaries, associated companies and joint ventures amount to € 21,215 million (2018: € 17,051 million). No deferred taxes are recognised on these taxable temporary differences because the BMW Group is able to determine the timing of the reversal of the temporary differences and it is prob- able that the temporary differences will not reverse in the foreseeable future, in particular in view of the fact that there is no intention to distribute the profits, but rather to use them to maintain their substance and reinvest in the companies concerned. No computation was made of the potential impact of income taxes on the grounds of proportionality. Deferred tax liabilities on expected dividends amount to € 64 million and relate primarily to dividends from foreign subsidiaries and joint ventures. The tax returns of BMW Group entities are checked regularly by German and foreign tax authorities. Taking account of numerous factors – including interpretations, commentaries and legal decisions relating to the various tax jurisdictions as well as past experience – adequate provision has been made, to the extent identifiable and probable, for potential future tax obligations. 14 Earnings per share Net profit attributable to the shareholders of BMW AG € million 4,914.5 6,974.4 2019 20181 Profit attributable to common stock Profit attributable to preferred stock Average number of common stock shares in circulation Average number of preferred stock shares in circulation Basic / diluted earnings per share of common stock Basic / diluted earnings per share of preferred stock Dividend per share of common stock Dividend per share of preferred stock 1 Prior year’s figures adjusted. 2 Proposal by management. € million € million 4,494.4 420.1 6,383.6 590.8 number 601,995,196 601,995,196 number 56,122,857 55,605,380 € € € € 7.47 7.49 2.50 2 2.52 2 10.60 10.62 3.50 3.52 Group Financial Statements 139 Earnings per share of preferred stock are computed on the basis of the number of preferred stock shares entitled to receive a dividend in each of the relevant financial years. As in the previous year, diluted earn- ings per share correspond to basic earnings per share. 16 Leases (a) As lessee In terms of accounting for leases as a lessee, the fol- lowing amounts are included in the income statement for the financial year 2019: Basic / diluted earnings per share from continuing operations amounted to € 7.40 per share of common stock and € 7.42 per share of preferred stock. in € million The previous year’s figures have been adjusted due to the change in accounting policy for volume-dependent note 6). bonuses and for manufacturer lessors (see see note 6 Expenses for leases of low-value assets and short-term leases Expenses relating to variable lease payments not included in the measurement of lease liabilities Interest expenses arising on the measurement of lease liabilities 2019 – 94 – 3 – 54 15 Personnel expenses The income statement includes personnel expenses as follows: in € million 2019 2018 Wages and salaries Pension and welfare expenses Social insurance expenses Personnel expenses 10,370 10,249 1,133 948 1,387 843 12,451 12,479 Personnel expenses include € 72 million (2018: € 45 million) of costs relating to workforce measures. The total pension expense for defined contribution plans of the BMW Group amounted to € 148 million (2018: € 122 million). Employer contributions paid to state pension insurance schemes totalled € 667 mil- lion (2018: € 645 million). The average number of employees during the year was: 2019 2018 Employees 125,893 123,337 Apprentices and students gaining work experience 7,389 8,228 Average number of employees 133,282 131,565 The number of employees at the end of the reporting period is disclosed in the Combined Management Report. see notes 4, 6, 20, 22 and 35 Most of the expenses for leases for low-value assets and short-term leases relate to low-value assets. The BMW Group is party to leases at the end of the reporting period which have not yet commenced. These leases could give rise to future cash outflows amounting to € 42 million. Total cash outflows for leases in 2019 amount to € 591 million. Information on right-of-use assets and lease liabilities and further explanatory comments are pro vided in note 4 (Accounting policies, assumptions, judgments and estimates), note 6 (Changes in accounting policy for leases), note 20 (Analysis of changes in Group tangible, intangible and investment assets in 2019), note 22 (Property, plant and equipment (including right-of-use assets arising from leases) and note 35 (Financial liabilities). (b) As lessor in € million Income from variable lease payments for operating leases Income from variable lease payments for finance leases Financial income on the net investment in finance leases Selling profit or loss on the sale of vehicles previously leased to retail customers under finance leases 2019 171 19 885 1,389 Variable lease payments are based on distance driven. The agreements have, in part, extension and pur chase options. 140 Notes to the Group Financial Statements Notes to the Income Statement Notes to the Statement of Comprehensive Income 17 Fee expense for the Group auditor The fee expense pursuant to § 314 (1) no. 9 HGB recog- nised in the financial year 2019 for the Group auditor and the PwC network of audit firms amounted to € 19 million (2018: € 24 million, KPMG International) and consists of the following: PwC International (2018: KPMG International) thereof: PwC GmbH (2018: KPMG AG) 2019 2018 2019 2018 14 1 1 3 19 17 3 2 2 24 4 1 – 2 7 5 2 – – 7 18 Government grants and government assistance Income from asset-related and performance-related grants, amounting to € 41 million (2018: € 29 million) and € 199 million (2018: € 83 million) respectively, was recognised in the income statement in 2019. These amounts relate mainly to public sector grants aimed at the promotion of regional structures as well as to subsidies received for plant expansions. in € million Audit of financial statements Other attestation services Tax advisory services Other services Fee expense Services provided during the financial year 2019 by the Group auditor PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, Munich branch, on behalf of BMW AG and sub- sidiaries under its control relate to the audit of the financial statements, other attestation services, tax advisory services and other services. The audit of financial statements comprises mainly the audit of the Group Financial Statements and the separate financial statements of BMW AG and its subsidiaries, and, in accordance with current require- ments, all work related thereto, including the review of the Interim Group Financial Statements. Other attestation services include mainly project- related audits, comfort letters and statutorily prescribed, contractually agreed or voluntarily com- missioned attestation work. Other services mainly include consulting services relating to production processes. Group Financial Statements 141 NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME 19 Disclosures relating to the statement of comprehensive income Other comprehensive income for the period after tax comprises the following: in € million 2019 2018 Remeasurement of the net defined benefit liability for pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Marketable securities (at fair value through other comprehensive income) thereof gains / losses arising in the period under report thereof reclassifications to the income statement Derivative financial instruments thereof gains / losses arising in the period under report thereof reclassifications to the income statement Costs of hedging thereof gains / losses arising in the period under report thereof reclassifications to the income statement Other comprehensive income from equity accounted investments Deferred taxes Currency translation foreign operations Items that can be reclassified to the income statement in the future – 1,254 387 – 867 42 59 – 17 – 706 – 229 – 477 125 – 611 736 – 3 171 544 173 935 – 217 718 – 30 – 1 – 29 – 1,381 – 333 – 1,048 – 620 – 973 353 – 157 674 192 – 1,322 Other comprehensive income for the period after tax – 694 – 604 Deferred taxes on components of other comprehen- sive income are as follows: in € million 2019 2018 Before tax Deferred taxes After tax Before tax Deferred taxes After tax Remeasurement of the net defined benefit liability for pension plans Marketable securities (at fair value through other comprehensive income) Derivative financial instruments Costs of hedging Other comprehensive income from equity accounted investments Currency translation foreign operations Other comprehensive income – 1,254 42 – 706 125 – 3 544 – 1,252 387 – 12 211 – 34 6 – 558 – 867 30 – 495 91 3 544 – 694 935 – 30 – 1,381 – 620 – 157 192 – 1,061 – 217 18 436 187 33 – 457 718 – 12 – 945 – 433 – 124 192 – 604 Other comprehensive income relating to equity ac- counted investments is reported in the Group Statement of Changes in Equity within currency trans- lation differences with a positive amount of € 22 mil- lion (2018: negative amount of € 24 million), within derivative financial instruments with a negative amount of € 56 million (2018: positive amount of € 39 million) and costs of hedging with a positive amount of € 37 mil- lion (2018: negative amount of € 139 million). NOTES TO THE BALANCE SHEET 142 Notes to the Group Financial Statements Notes to the Balance Sheet 20 Analysis of changes in Group tangible, intangible and investment assets 2019 in € million Development costs Goodwill Other intangible assets Intangible assets Land, titles to land, buildings, including buildings on third party land thereof right-of-use assets from leases Plant and machinery thereof right-of-use assets from leases Other facilities, factory and office equipment thereof right-of-use assets from leases Advance payments made and construction in progress Property, plant and equipment Leased products 45,851 619 20,513 Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 1 Including € 71 million recognised through the income statement. 2 Carrying amounts at 1.1.2019 (from the first-time application of IFRS 16). 3 Including assets under construction of € 1,555 million. 2,624 444 938 28 1,410 – 2 4 – 6 2,876 139 86 – 225 Acquisition and manufacturing cost Depreciation and amortisation Carrying amount 1. 1. 2019 Translation differences Additions Reclassi- fications Disposals 31. 12. 2019 1. 1. 2019 Current year adjustments1 Disposals 31. 12. 2019 31. 12. 2019 31. 12. 2018 Translation differences Reclas si- fications Value 14,990 385 1,798 17,173 14,023 2,387 38,190 1 3,061 71 2,392 57,666 – – 11 11 115 22 224 – 23 1 18 380 751 2,581 75 311 33 1,297 5,202 2,134 – 448 2,582 – – – – 1,733 15,391 – 182 385 2,075 1,915 17,851 1,013 397 5,014 5 1,183 6,202 5,310 28,111 2,082 – – – – – 191 480 – 671 – – 4 4 44 1 158 – 14 – – – – 1 – – – 1 1,667 – 148 1,815 794 430 3,086 6 322 31 – – – – – – 1,733 4,948 10,443 9,976 – 166 1,899 5 1,169 6,122 380 906 380 615 11,729 10,971 Development costs Goodwill Other intangible assets Intangible assets 46 6,104 9,345 6,420 buildings on third party land Land, titles to land, buildings, including 426 2,681 2,387 2 thereof right-of-use assets from leases 275 2,147 1,025 908 Other facilities, factory and office equipment 6 31 – 76 73 1 2 71 2 1,991 3 2,395 thereof right-of-use assets from leases thereof right-of-use assets from leases Advance payments made and construction in progress 5 – – – – 6 2,172 29,177 10,884 10,078 Plant and machinery – – – – – – – – – – – – – 240 – 240 3,199 2,624 – 322 11 – – 219 – 11 – – 311 – 230 88 501 – 589 204 499 – 703 253 458 28 739 Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments – – – – 2 – – 4 – – – – – – – – – 99 45 15,449 3,107 2,187 40,061 – 286 2 3 82 3,172 104 1,991 2,575 60,673 35,503 216 4,202 2,493 37,428 23,245 19,801 Property, plant and equipment 17,041 49,942 7,592 95 4,732 5,086 7,333 42,609 38,259 Leased products 2,061 3,439 293 28 28 349 292 1,000 – 1,292 – 8 1,253 6 63 1 – 1,713 – – – – – – – Group Financial Statements 143 Development costs Goodwill Other intangible assets Intangible assets Acquisition and manufacturing cost Depreciation and amortisation Carrying amount 1. 1. 2019 Additions Disposals 31. 12. 2019 Translation differences Reclassi- fications 1. 1. 2019 Translation differences Current year Reclas si- fications Value adjustments1 Disposals 31. 12. 2019 31. 12. 2019 31. 12. 2018 5,014 5 1,183 6,202 5,310 – 28,111 – 2,082 – – – – 4 4 44 1 158 – 14 – – 1,667 – 148 1,815 794 430 3,086 6 322 31 – Leased products 45,851 619 20,513 17,041 49,942 7,592 95 4,732 2,575 60,673 35,503 216 4,202 – 191 480 – 671 – – – 1 – – 1 – – – – – – – – – 2 – – 6 – 4 – – – – – – – – – in € million Development costs Goodwill Other intangible assets Intangible assets Land, titles to land, buildings, including buildings on third party land thereof right-of-use assets from leases Plant and machinery thereof right-of-use assets from leases thereof right-of-use assets from leases Advance payments made and construction in progress Property, plant and equipment Other facilities, factory and office equipment Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 1 Including € 71 million recognised through the income statement. 2 Carrying amounts at 1.1.2019 (from the first-time application of IFRS 16). 3 Including assets under construction of € 1,555 million. 14,990 385 1,798 17,173 14,023 2,387 38,190 1 3,061 71 2,392 57,666 2,624 444 938 28 1,410 – – 11 11 115 22 224 – 23 1 18 380 – 2 4 – 6 1,013 397 2,134 – 448 2,582 751 2,581 75 311 33 1,297 5,202 139 86 – 225 – 8 1,253 6 63 – 1,713 – – – – 1 – – – – – – – 1,733 15,391 – 182 385 2,075 1,915 17,851 2,187 40,061 286 3,172 15,449 3,107 82 104 1,991 99 45 – 2 3 293 28 28 349 292 1,000 – 1,292 2,876 2,061 3,439 – – – – – – – – – – – – – 1,733 4,948 10,443 9,976 5 1,169 6,122 380 906 380 615 11,729 10,971 – 166 1,899 46 5 6,104 9,345 6,420 Land, titles to land, buildings, including buildings on third party land 426 2,681 2,387 2 thereof right-of-use assets from leases 2,172 29,177 10,884 10,078 Plant and machinery – 275 – – 6 76 1 2 thereof right-of-use assets from leases 2,147 1,025 908 Other facilities, factory and office equipment 31 – 73 71 2 1,991 3 2,395 thereof right-of-use assets from leases Advance payments made and construction in progress 2,493 37,428 23,245 19,801 Property, plant and equipment 5,086 7,333 42,609 38,259 Leased products 240 – 240 3,199 2,624 – 322 11 – – 219 – 11 – – 311 – 230 88 501 – 589 204 499 – 703 253 458 28 739 Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 144 Analysis of changes in Group tangible, intangible and investment assets 2018 Notes to the Group Financial Statements Notes to the Balance Sheet in € million Acquisition and manufacturing cost Depreciation and amortisation Carrying amount 1. 1. 2018 Translation differences Additions Reclassi- fications Disposals 31. 12. 2018 1. 1. 2018 Current year adjustments1 Disposals 31. 12. 2018 31. 12. 2018 31. 12. 2017 Translation differences Reclas si- fications Value Development costs Goodwill Other intangible assets Intangible assets Land, titles to land, buildings, including buildings on third party land Plant and machinery Other facilities, factory and office equipment Advance payments made and construction in progress Property, plant and equipment 12,965 385 1,750 15,100 11,088 36,833 2,799 2,525 53,245 – – 12 12 75 201 20 18 314 2,984 – 161 3,145 277 2,888 294 1,409 4,868 Leased products 2 43,634 735 18,580 Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 2,769 438 820 28 – 3 9 – 1,286 12 547 8 115 – 123 1 Including € 74 million recognised through the income statement. 2 Prior year’s figures adjusted due to the change in the presentation of vehicles coming out of leases, as well as initial direct costs. 3 Including assets under construction of € 2,017 million. – – – – 959 – 125 14,990 385 1,798 1,084 17,173 372 1,119 60 82 2,852 183 11,730 38,189 2,990 – 1,551 6 2,395 – – – – – – – 3,123 55,304 2,975 35,503 19,801 18,471 Property, plant and equipment 17,098 45,851 7,697 114 3,488 3,707 7,592 38,259 36,257 Leased products2 692 2,624 5 6 – 444 938 28 11 1,410 4,556 5 1,075 5,636 4,966 27,838 1,970 34,774 – – 189 408 – 1 596 – – 5 5 29 154 17 – 200 – 2 – 1 – 1 1,414 – 195 1,609 348 2,886 270 – 3,504 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 73 – 1 74 956 – 92 1,048 33 2,767 175 – – – – – – 5,014 9,976 8,409 Development costs 5 1,183 6,202 380 615 380 675 10,971 9,464 Goodwill Other intangible assets Intangible assets 5,310 6,420 28,111 10,078 6,122 8,995 Land, titles to land, buildings, including buildings on third party land Plant and machinery 2,082 908 829 Other facilities, factory and office equipment – 2,395 3 2,525 Advance payments made and construction in progress – 2,624 2,769 Investments accounted for using the equity method 191 480 – 671 253 458 28 739 249 412 29 690 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments Group Financial StatementsAcquisition and manufacturing cost Depreciation and amortisation Carrying amount 1. 1. 2018 Additions Disposals 31. 12. 2018 Translation differences Reclassi- fications 1. 1. 2018 Translation differences Current year Reclas si- fications Value adjustments1 Disposals 31. 12. 2018 31. 12. 2018 31. 12. 2017 145 4,556 5 1,075 5,636 4,966 27,838 1,970 – 34,774 – – 5 5 29 154 17 – 200 1,414 – 195 1,609 348 2,886 270 – 3,504 Leased products 2 43,634 735 18,580 17,098 45,851 7,697 114 3,488 – 189 408 – 1 596 – 2 – 1 – 1 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 73 1 74 956 – 92 1,048 33 2,767 175 5,014 9,976 8,409 Development costs 5 1,183 6,202 380 615 380 675 10,971 9,464 Goodwill Other intangible assets Intangible assets 5,310 6,420 28,111 10,078 6,122 8,995 Land, titles to land, buildings, including buildings on third party land Plant and machinery 2,082 908 829 Other facilities, factory and office equipment – – 2,395 3 2,525 Advance payments made and construction in progress 2,975 35,503 19,801 18,471 Property, plant and equipment 3,707 7,592 38,259 36,257 Leased products2 – – – – – – 2,624 2,769 Investments accounted for using the equity method 191 480 – 671 253 458 28 739 249 412 29 690 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments in € million Development costs Goodwill Other intangible assets Intangible assets Land, titles to land, buildings, including buildings on third party land Plant and machinery Other facilities, factory and office equipment Advance payments made and construction in progress Property, plant and equipment Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 12,965 385 1,750 15,100 11,088 36,833 2,799 2,525 53,245 2,769 438 820 28 – – 12 12 75 201 20 18 314 – 3 9 – 2,984 – 161 3,145 277 2,888 294 1,409 4,868 547 115 8 – 123 959 – 125 14,990 385 1,798 1,084 17,173 372 1,119 60 82 2,852 183 11,730 38,189 2,990 – 1,551 6 2,395 3,123 55,304 692 2,624 5 6 – 444 938 28 – – – – – – – – – – – 1,286 12 11 1,410 1 Including € 74 million recognised through the income statement. 2 Prior year’s figures adjusted due to the change in the presentation of vehicles coming out of leases, as well as initial direct costs. 3 Including assets under construction of € 2,017 million. 23 Leased products Minimum lease payments of non-cancellable oper- a t ing leases amounting to € 20,894 million (2018: € 18,880 million) fall due as follows: in € million 31. 12. 2019 31. 12. 2018 within one year between one and two years between two and three years between three and four years between four and five years between one and five years later than five years 9,804 6,489 3,278 1,073 225 – 25 8,980 – – – – 9,863 37 Minimum lease payments 20,894 18,880 Impairment losses amounting to € 198 million (2018: € 235 million) were recognised on leased products in 2019 as a consequence of changes in residual value expectations. Income from the reversal of impairment losses amounted to € 74 million (2018: € 92 million). The carrying amount of leased products was adjusted due to changes in presentation of initial direct costs (previously reported as other assets) and vehicles com- ing out of leases (now reported as part of inventories) (adjustment effect at 31 December 2018: decrease of € 313 million). 146 Notes to the Group Financial Statements Notes to the Balance Sheet 21 Intangible assets Intangible assets mainly comprise capitalised devel- opment costs on vehicle, module and architecture projects as well as subsidies for tool costs, licences, purchased development projects, software and pur- chased customer lists. Other intangible assets include a brand-name right amounting to € 43 million (2018: € 41 million) which is allocated to the Automotive segment and is not subject to scheduled amortisation since its useful life is deemed to be indefinite. The asset is subject to a limited right of ownership. The € 2 million increase in the carrying amount is entirely due to currency factors. Intangible assets also include goodwill of € 33 million (2018: € 33 million) allocated to the Auto- motive cash-generating unit (CGU) and goodwill of € 347 million (2018: € 347 million) allocated to the Financial Services CGU. As in the previous year, there was no requirement to recognise impairment losses or reversals of impair- ment losses on intangible assets in 2019. As in the previous year, no financing costs were reco g- nised as a cost component of intangible assets in 2019. 22 Property, plant and equipment (including right-of-use assets arising from leases) No impairment losses were recognised in 2019, as in the previous year. As in the previous year, no financing costs were reco g nised as a cost component of property, plant and equipment in 2019. Right-of-use assets arising from leases of land and buildings relate primarily to logistics and office pre mises and, to a lesser extent, to selling and pro- duction premises. In order to secure these premises and, in the interests of flexibility, the property rental agreements concerned often contain extension and termination options. Group Financial Statements 147 24 Investments accounted for using the equity method Investments accounted for using the equity method comprise the joint venture BMW Brilliance Automotive Ltd. (BMW Brilliance), the YOUR NOW companies, the joint venture IONITY Holding GmbH & Co. KG (IONITY) and the interest in the associated company THERE Holding B. V. (THERE). Together with Audi AG, Daimler AG and other com- panies, the BMW Group holds shares in THERE. HERE International B. V. (HERE) is an associated company of THERE. HERE’s digital maps are laying the foundations for the next generation of mobility and location-based services, providing the basis for new assistance systems and, ultimately, fully auto- mated driving. BMW Brilliance produces BMW brand models for the Chinese market and also has engine manufacturing facilities, which supply the joint venture’s two plants with petrol engines. Capital increases were made at the level of THERE in January 2019, with BMW AG participating with an amount of € 69 million. Since then, BMW AG’s stake in THERE amounts to 29.7 %. In December 2019, it was announced that Mitsubishi Corporation (MC) and Nippon Telegraph and Tele- phone Corporation (NTT) will jointly acquire a 30 % stake in HERE. The transaction is subject to the approval of the antitrust authorities and is expected to be closed during the first half of 2020. The BMW Group intends to increase its stake in the BMW Brilliance joint venture from 50 % to 75 %. On 11 October 2018, the BMW Group signed an agreement with its joint venture partner, a wholly owned subsidiary of Brilliance China Automotive Holdings Ltd. (CBA), to acquire an additional 25 % shareholding in BMW Brilliance. The two partners agreed on a purchase price of an equivalent of € 3.6 bil- lion. The contractual term of the joint venture, which would currently expire in 2028, is to be ex tended to 2040 as part of the agreement. The prerequisite for the extension is the acquisition of the additional shares as agreed. The agreement was approved at the CBA shareholders’ meeting on 18 January 2019 and remains subject to the approval of the relevant authorities. The transaction is scheduled to be closed in 2022. The closing will result in BMW Brilliance being fully consolidated in the BMW Group Financial Statements and is expected to result in the recognition of a significant valuation gain in the financial year in which the transaction closes. With effect from 31 January 2019, the BMW Group completed the merger of several mobility services companies under the name YOUR NOW. Further information is provided in note 2 to the Group Financial Statements. see note 2 Together with Daimler AG, Stuttgart (Daimler AG), the Ford Motor Company and the Volkswagen Group, the BMW Group operates the joint venture IONITY Holding GmbH & Co. KG, whereby each of the par- ties has an equal shareholding. IONITY’s business model envisages the construction and operation of high-performance charging stations for battery electric vehicles in Europe. 148 Notes to the Group Financial Statements Notes to the Balance Sheet Financial information relating to equity accounted investments is summarised in the following tables: in € million 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 BMW Brilliance THERE YOUR NOW DriveNow IONITY dISCloSuReS RelAtInG to the bAlAnCe Sheet Non-current assets Current assets thereof cash and cash equivalents Equity Non-current financial liabilities Non-current provisions and liabilities Current provisions and liabilities thereof current financial liabilities ReConCIlIAtIon oF AGGReGAted FInAnCIAl InFoRMAtIon Assets Provisions and liabilities Net assets Group’s interest in net assets Eliminations Carrying amount 7,248 7,381 2,937 5,293 87 1,271 7,978 887 6,714 6,570 2,937 5,926 71 1,193 6,094 81 1,131 1,763 467 1 2 2 1,643 1,116 818 1,597 1,764 2,106 – – 1 – – – 1 – 112 184 469 39 14,629 13,284 1,598 1,765 2,759 9,337 5,292 2,646 – 960 1,686 7,358 5,926 2,963 – 898 2,065 1 1 653 1,597 1,764 2,106 475 – 475 522 – 522 987 – 987 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 175 70 50 205 – 5 30 – 245 40 205 51 – 51 48 110 102 149 – 3 6 – 158 9 149 37 – 37 in € million 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 BMW Brilliance THERE YOUR NOW DriveNow IONITY dISCloSuReS RelAtInG to the InCoMe S tAteMent Revenues Scheduled depreciation Profit / loss before financial result Interest income Interest expense Income taxes Profit / loss after tax thereof from continuing operations Other comprehensive income Total comprehensive income Group dividend income * 21,910 17,766 651 2,374 84 5 654 1,947 1,947 – 14 1,933 1,284 636 1,922 62 – 535 1,561 1,561 – 250 1,311 384 – – – 1 – – – – – 424 150 – 1 – 1,349 – – – – 23 28 – 383 – 383 1 – 337 – 337 – 7 – 1,805 – 1,805 – – 382 – 344 – 1,805 – – – – – – – – – – – – – – – – – – – – – – – – – 14 – – 6 – – – – 6 – – – 6 – 1 – – 1 – 29 – 18 – 1 5 – 24 – 24 – – 24 – – – 3 – 15 – – – 15 – * Including dividends received in the amount of € 643 million (2018: € 384 million). Group Financial Statements149 25 Receivables from sales financing Receivables from sales financing comprise the fol- lowing: see note 6 in € million 31. 12. 2019 31. 12. 2018* Credit financing for retail customers and dealerships Finance lease receivables Receivables from sales financing * Prior year’s figures adjusted. 71,104 21,333 66,959 20,054 92,437 87,013 The figures for the previous financial year have been restated for the change in accounting policy for ma nu facturer lessors (see note 6), as well as for the change in the presentation of initial direct costs previously reported within other assets (adjustment effect at December 31, 2018: increase of € 700 mil- lion) and of residual value risk provisions, previously reported within other provisions (adjustment effect at 31 December 2018: decrease of € 441 million). Impairment allowances on receivables from sales financing in accordance with IFRS 9, which only arise within the Financial Services segment, developed as follows: in € million General Simplified Stage 1 Stage 2 Stage 3 Impairment allowances at 1 January 2019 Reclassification to Stage 1 Reclassification to Stage 2 Reclassification to Stage 3 Derecognition and origination of receivables Write-off of receivables Changes in risk parameters Other changes Impairment allowances at 31 December 2019 363 2 – 17 – 6 17 – 2 – 40 44 361 175 – 13 107 – 24 – 26 – 17 31 – 24 209 12 – – – 1 1 – – – 12 482 – 1 – 16 175 – 15 – 133 1 24 517 in € million General Simplified Stage 1 Stage 2 Stage 3 Impairment allowances at 1 January 2018 Reclassification to Stage 1 Reclassification to Stage 2 Reclassification to Stage 3 Derecognition and origination of receivables Write-off of receivables Changes in risk parameters Other changes Impairment allowances at 31 December 2018 365 3 – 7 – 4 59 – 3 4 – 54 363 192 – 20 79 – 23 – 10 – 20 1 – 24 175 12 – – – 1 1 – 1 – 1 2 12 450 – 4 – 21 138 – 17 – 105 26 15 482 Total 1,032 – 12 74 144 – 23 – 152 – 8 44 1,099 Total 1,019 – 21 51 110 33 – 129 30 – 61 1,032 Impairment allowances include € 74 million (2018: € 113 million) on credit-impaired receivables relating to finance leases. The estimated fair value of vehicles held as collateral for credit-impaired receivables at the end of the report- ing period totalled € 541 million (2018: € 506 million). The carrying amount of assets held as collateral and reclaimed as a result of payment default amounted to € 39 million (2018: € 42 million). 150 Notes to the Group Financial Statements Notes to the Balance Sheet Finance leases are analysed as follows: in € million 31. 12. 2019 31. 12. 2018 Gross investment in finance leases due within one year due between one and two years due between two and three years due between three and four years due between four and five years due between one and five years due later than five years Net investment in finance leases due within one year due between one and two years due between two and three years due between three and four years due between four and five years due between one and five years due later than five years 6,991 6,811 5,462 3,775 529 – 32 6,811 – – – – 15,480 24 23,600 22,315 6,256 6,225 4,968 3,421 433 – 30 6,123 see note 6 – – – – 13,908 23 21,333 20,054 Unrealised interest income 2,267 2,261 The carrying amount of the net investment in finance leases remained largely unchanged over the reporting period. 26 Financial assets Financial assets comprise: in € million 31. 12. 2019 31. 12. 2018 Marketable securities and investment funds Derivative instruments Loans to third parties Credit card receivables Other Financial assets thereof non-current thereof current 5,391 1,620 54 – 260 7,325 1,370 5,955 5,316 1,977 20 244 128 7,685 1,010 6,675 In June 2019, the Financial Services segment sold a credit card portfolio based in the USA and amounting to € 216 million for strategic reasons. Allowances for impairment and credit risk The carrying amounts of receivables relating to the credit card business comprises the following: in € million 31. 12. 2019 31. 12. 2018 Gross carrying amount Allowance for impairment Net carrying amount – – – 262 – 18 244 27 Income tax assets Income tax assets totalling € 1,209 million (2018: € 1,378 million, adjusted see note 6) include claims amounting to € 186 million (2018: € 222 million), which are expected to be settled after more than one year. Claims may be settled earlier than this depend- ing on the timing of the underlying proceedings. 28 Other assets Other assets comprise: in € million 31. 12. 2019 31. 12. 2018* Return right assets for future leased products Receivables from companies in which an investment is held Other taxes Expected reimbursement claims Collateral assets Prepaid expenses Receivables from subsidiaries Sundry other assets Other assets thereof non-current thereof current * Prior year’s figures adjusted. 4,807 3,779 2,641 1,935 1,086 413 396 308 1,353 12,939 1,325 11,614 1,916 1,747 933 293 460 295 1,173 10,596 847 9,749 From the financial year 2019 onward, certain advance payments to suppliers for raw materials, supplies and finished goods amounting to € 536 million, which were previously reported within other assets (line item Prepaid expenses) have now been reclassified to inven- tories. The previous year’s figures have been adjusted accordingly (adjustment effect at 31 December 2018: decrease of € 609 million). Furthermore, the compar- ative figures for the previous financial year have been Group Financial Statements 151 In addition, the previous year’s figures have been adjusted due to the change in the presentation of vehicles coming out of leases that were previously reported within leased products (adjustment effect at 31 December 2018: increase of € 592 million). 30 Trade receivables Trade receivables comprise the following: in € million 31. 12. 2019 31. 12. 2018 Gross carrying amount 2,590 2,600 Allowances for impairment of stage 2 – simplified procedure Allowances for impairment of stage 3 – 26 – 46 – 20 – 34 Net carrying amount 2,518 2,546 Impairment allowances on trade receivables in accor- dance with IFRS 9 developed as follows: in € million 2019 2018 Allocated (+) Reversed (–) Utilised Exchange rate impact and other changes Balance at 31 December 54 30 – 7 – 7 2 72 60 21 – 26 – 1 – 54 In the case of trade receivables, collateral is generally held in the form of vehicle documents and bank gua r- antees so that the risk of bad debt loss is very limited. Expenses for impairment losses and income from the reversal of impairment losses is not significant and is therefore not reported separately in the income statement. adjusted to reflect the change in accounting policy for volume-dependent bonuses and for manufacturer lessors (see note 6) as well as the change in the pre- sentation of deferred initial direct costs for operating and finance leases and receivables originated. These items are now reported within leased products and receivables from sales financing (adjustment effect at 31 December 2018: decrease of € 939 million). see note 6 Collateral assets comprise mainly customary collat- eral (banking deposits) in connection with the sale of receivables. 29 Inventories Inventories comprise the following: in € million 31. 12. 2019 31. 12. 2018* Finished goods and goods for resale 11,491 10,548 Work in progress, unbilled contracts Raw materials and supplies Vehicles held for sale in the financial services business Advance payments to suppliers Inventories * Prior year’s figures adjusted. 1,286 1,674 808 632 1,208 1,247 609 636 Out of the total amount of recognised for inventories at 31 December 2019, inventories measured at net realisable value amounted to € 973 million (2018: € 680 million). Write-downs to net realisable value in the financial year 2019 amounted to € 126 million (2018: € 54 million), while reversals of write-downs amounted to € 22 million (2018: € 22 million). The expense recorded in conjunction with inven- tories during the financial year 2019 amounted to € 62,633 million (2018: € 58,079 million). At 31 Decem- ber 2019, the carrying amounts of inventories expected to be realised after more than twelve months amount to € 445 million (2018: € 452 million). From the financial year 2019 onward, certain advance payments to suppliers for raw materials, supplies and finished goods amounting to € 536 million, which were previously reported within other assets, have been reclassified to inventories. The previous year’s figures have been adjusted accordingly (adjustment effect at 31 December 2018: increase of € 609 million). 15,891 14,248 Balance at 1 January 152 Notes to the Group Financial Statements Notes to the Balance Sheet 31 Equity number of shares issued Preferred stock Common stock 2019 2018 2019 2018 Shares issued / in circulation at 1 January 56,126,904 55,605,404 601,995,196 601,995,196 Shares issued in conjunction with Employee Share Programme Less: shares repurchased and re-issued Shares issued / in circulation at 31 December 744,447 4,047 521,524 24 – – – – 56,867,304 56,126,904 601,995,196 601,995,196 All Company stock is issued to bearer and each share has a par value of € 1.00. Preferred stock, to which no voting rights are attached, bear an additional dividend of € 0.02 per share. In 2019, a total of 744,447 shares of preferred stock was sold to employees at a reduced price of € 46.10 per share in conjunction with the Company’s Employee Share Programme. These shares are entitled to receive dividends for the first time with effect from the finan- cial year 2020. Issued share capital increased by € 0.7 million as a result of the issue to employees of 740,400 new shares of non-voting preferred stock. BMW AG is authorised up to 15 May 2024 to issue 5 million shares of non- voting preferred stock amounting to nominal € 5.0 mil- lion. At the end of the reporting period, 4.3 million of these amounting to nominal € 4.3 million remained available for issue. In addition, 4,047 previously issued shares of pre- ferred stock were acquired and re-issued to employees in conjunction with the Employee Share Programme. Capital reserves Capital reserves include premiums arising from the issue of shares and totalled € 2,161 million (2018: € 2,118 million). The change amounting to € 43 million related to the share capital increase in conjunction with the issue of shares of preferred stock to employees. Revenue reserves Revenue reserves comprise the non-distributed earn- ings of companies consolidated in the Group Financial Statements. In addition, remeasurements of the net defined benefit obligation for pension plans are also presented in revenue reserves. It is proposed that the unappropriated profit of BMW AG for the financial year 2019 amounting to € 1,646 million be utilised as follows: — Distribution of a dividend of € 2.52 per share of preferred stock (€ 141 million) — Distribution of a dividend of € 2.50 per share of common stock (€ 1,505 million) The proposed distribution was not recognised as a liability in the Group Financial Statements. Group Financial Statements 153 The capital structure at the end of the reporting period was as follows: in € million 31. 12. 2019 31. 12. 2018* Equity attributable to shareholders of BMW AG Proportion of total capital Non-current financial liabilities Current financial liabilities Total financial liabilities Proportion of total capital Total capital * Prior year’s figures adjusted. 59,324 33.7 % 70,647 46,093 57,300 35.6 % 64,772 38,825 116,740 103,597 66.3 % 64.4 % 176,064 160,897 Equity attributable to shareholders of BMW AG in- creased during the financial year by 3.5 % primarily reflecting the increase in revenue reserves. The previous year’s figures have been adjusted due to the change in accounting policy for volume-dependent note 6). bonuses and for manufacturer lessors (see see note 6 Accumulated other equity Accumulated other equity comprises amounts reco g- nised directly in equity resulting from the translation of the financial statements of foreign subsidiaries, changes in the fair value of derivative financial instru- ments and marketable securities, costs of hedging recognised directly in equity as well the related deferred taxes. Further information regarding the transition effects recognised directly in equity on the initial application of IFRS 16 is provided in note 6. see note 6 Capital management disclosures The BMW Group’s objectives with regard to capital management are to safeguard over the long-term the Group’s ability to continue as a going concern and to provide an adequate return to shareholders. The capital structure is managed in order to meet needs arising from changes in economic conditions and the risks of the underlying assets. The BMW Group is not subject to any unified external minimum equity capital requirements. Within the Financial Services segment, however, there are a number of individual entities which are subject to equity capital requirements of relevant regulatory banking authorities. In order to manage its capital structure, the BMW Group uses various instruments, including the amount of dividends paid to shareholders and share buybacks. Moreover, the BMW Group actively manages debt capital, carrying out funding activities with a target debt structure in mind. A key aspect in the selection of financial instruments is the objective to achieve matching maturities for the Group’s financing require- ments. In order to reduce non-systematic risk, the BMW Group uses a variety of financial instruments available on the world’s capital markets to achieve diversification. 154 Notes to the Group Financial Statements Notes to the Balance Sheet 32 Pension provisions In the case of defined benefit plans, the BMW Group is required to pay the benefits it has granted to present and past employees. Defined benefit plans may be covered by provisions or pension assets. In Germany, pension entitlements are mostly covered by assets transferred to BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA). Funded plans also exist in the UK, the USA, Switzerland, Belgium and Japan. In the meantime, most of the defined benefit plans have been closed to new entrants. The assumptions stated below, which depend on the economic situation in the relevant country, are used to measure the defined benefit obligation of each pension plan. In Germany, the so-called “pension entitlement trend” (Festbetragstrend) remained at 2.0 %. The following weighted average values have been used for Germany, the UK and other countries: in % Discount rate Pension level trend Weighted duration of all pension obligations in years Germany United Kingdom Other 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 1.00 1.38 21.3 1.91 1.62 20.2 1.92 2.15 19.2 2.69 2.25 19.0 2.42 – 16.0 3.66 – 17.2 The following mortality tables are applied in countries, in which the BMW Group has significant defined benefit plans: Germany United Kingdom Mortality Table 2018 G issued by Prof. K. Heubeck (with invalidity rates reduced by 70 %) S2PA tables and S2PA light tables with weightings Based on the measurement principles contained in IAS 19, the following balance sheet carrying amounts apply to the Group’s pension plans: in € million 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 Germany United Kingdom Other Total Present value of defined benefit obligations Fair value of plan assets Effect of limiting net defined benefit asset to asset ceiling 14,022 11,320 11,542 9,721 9,503 9,137 – – Carrying amounts at 31 December 2,702 1,821 thereof pension provision thereof assets 2,702 – 1,823 – 2 8,277 8,167 – 110 125 – 15 1,127 883 1,428 1,049 24,652 21,340 21,247 18,937 2 246 262 – 16 3 382 382 – 2 3 3,314 2,313 3,335 – 21 2,330 – 17 – 366 371 – 5 Group Financial Statements 155 united Kingdom Defined benefit plans exist in the United Kingdom which are closed for all plan participants. Vested benefits remain in place. New benefits are covered by contributions made to a defined contribution plan. The defined benefit pension plans are administered by BMW Pension Trustees Limited, Farnborough, and BMW (UK) Trustees Limited, Farnborough, both trustee companies which act independently of the BMW Group. BMW (UK) Trustees Limited, Farnborough, is represented by ten trustees and BMW Pension Trustees Limited, Farnborough, by five trustees. A minimum of one third of the trustees must be elected by plan participants. The trustees represent the interests of plan participants and decide on invest- ment strategies. Funding contributions to the funds are determined in agreement with the BMW Group. The most significant of the BMW Group’s pension plans are described below. Germany Both employer- and employee-funded benefit plans exist in Germany. Benefits paid in conjunction with these plans comprise old-age retirement pensions as well as invalidity and surviving dependents’ benefits. The increase to current pension payments for inflation is carried out in accordance with § 16 of the Company Pensions Act (Betriebsrentengesetz). The defined benefit plans have been closed to new entrants since 2014. Defined contribution plans with a minimum rate of return, comprising employer- and employee-funded components, continue to exist. The fact that the plan involves a minimum rate of return means that the defined contribution entitlements are classified in accordance with IAS 19 as defined benefit plans. In the case of defined benefit plans involving the payment of a pension, the amount of benefits to be paid is determined by multiplying a fixed amount by the number of years of service. The assets of the German pension plans are invested by BMW Trust e. V., Munich, in accordance with a CTA. The representative bodies of this entity are the Board of Directors and the Members’ General Meeting. BMW Trust e. V., Munich, currently has seven members and three members of the Board of Directors elected by the Members’ General Meeting. The Board of Directors is responsible for investments, drawing up and deciding on investment guidelines as well as monitoring compliance with those guidelines. The members of the association can be employees, employee representatives, senior executives and members of the Board of Management of BMW AG. An ordinary Members’ General Meeting takes place once every calendar year, and deals with a range of matters, including receiving and approving the association’s annual report, ratifying the activities of the Board of Directors and adopting changes to the association’s statutes. 156 Notes to the Group Financial Statements Notes to the Balance Sheet The change in the net defined benefit liability for pension plans can be derived as follows: in € million 1 January 2019 ExpEnSE / incoME Current service cost Interest expense (+) / income (–) Past service cost Gains (–) or losses (+) arising from settlements ReMeASuReMentS Gains (–) or losses (+) on plan assets, excluding amounts included in interest income Gains (–) or losses (+) arising from changes in financial assumptions Gains (–) or losses (+) arising from changes in demographic assumptions Gains (–) or losses (+) arising from experience adjustments Changes in the limitation of the net defined benefit asset to the asset ceiling Transfers to fund Employee contributions Pensions and other benefits paid Translation differences and other changes 31 December 2019 thereof pension provision thereof assets in € million 1 January 2018 ExpEnSE / incoME Current service cost Interest expense (+) / income (–) Past service cost Gains (–) or losses (+) arising from settlements ReMeASuReMentS Gains (–) or losses (+) on plan assets, excluding amounts included in interest income Gains (–) or losses (+) arising from changes in financial assumptions Gains (–) or losses (+) arising from changes in demographic assumptions Gains (–) or losses (+) arising from experience adjustments Changes in the limitation of the net defined benefit asset to the asset ceiling Transfers to fund Employee contributions Pensions and other benefits paid Translation differences and other changes 31 December 2018 thereof pension provision thereof assets Defined benefit obligation Plan assets Total Effect of limitation of the net defined benefit asset to the asset ceiling Net defined benefit liability 21,247 – 18,937 2,310 473 485 – 191 – 3 – 3,201 – 3 – 4 – – 78 – 1,104 473 24,652 – – 444 – – – 2,002 – – – – – 527 – 78 1,103 – 455 473 41 – 191 – 3 – 2,002 3,201 – 3 – 4 – – 527 – – 1 18 – 21,340 3,312 3 – – – – – – – – – 1 – – – – 2 Defined benefit obligation Plan assets Total Effect of limitation of the net defined benefit asset to the asset ceiling 22,710 – 19,477 3,233 508 475 59 – – – 1,274 – 416 – 264 – – 73 – 632 8 – – 413 – – 10 999 – – – – – 658 – 73 689 6 508 62 59 – 10 999 – 1,274 – 416 – 264 – – 658 – 57 14 21,247 – 18,937 2,310 3 – – – – – – – – – – – – – 3 2,313 473 41 – 191 – 3 – 2,002 3,201 – 3 – 4 – 1 – 527 – – 1 18 3,314 3,335 – 21 Net defined benefit liability 3,236 508 62 59 – 10 999 – 1,274 – 416 – 264 – – 658 – 57 14 2,313 2,330 – 17 Group Financial StatementsSince 1 July 2019, future entitlements relating to former members of two defined benefit plans in the USA are being accounted for via a defined contribu- tion plan. Past service cost resulted mainly from the complete closure of the defined benefit plans. Depending on the cash flow profile and risk struc- ture of the pension obligations involved, plan assets relating to defined benefit plans are invested in a diversified portfolio. Plan assets in Germany, the UK and other countries comprised the following: in € million 2019 2018 2019 2018 2019 2018 2019 2018 Germany United Kingdom Other Total 157 CoMponentS oF plAn ASSetS Equity instruments Debt instruments thereof investment grade thereof mixed funds (funds without a rating) thereof non-investment grade Real estate funds Money market funds Absolute return funds Other Total with quoted market price Debt instruments thereof investment grade thereof mixed funds (funds without a rating) thereof non-investment grade Real estate Cash and cash equivalents Absolute return funds Other 2,031 6,513 4,275 – 2,238 – – – 109 8,653 911 316 595 – 394 20 632 710 1,565 5,604 3,402 – 2,202 – – – – 584 6,648 5,891 – 757 – 74 – – 407 5,774 5,224 – 550 – 221 – – 91 592 585 – 7 19 29 – 15 172 552 518 – 34 93 47 – 15 2,705 13,754 10,752 – 3,002 19 103 – 124 2,144 11,930 9,144 – 2,786 93 268 – 15 7,169 7,306 6,402 746 879 16,705 14,450 1,009 307 702 – 325 12 669 537 256 – 256 – 716 – 640 219 270 – 216 54 678 – 605 212 1 – – 1 – 1 31 104 137 883 1 – – 1 36 1 65 67 170 1,168 316 851 1 1,110 21 1,303 1,033 4,635 1,280 307 918 55 1,039 13 1,339 816 4,487 1,049 21,340 18,937 Total without quoted market price 2,667 2,552 1,831 1,765 31 December 11,320 9,721 9,137 8,167 The expected change arising from benefit payments out of plan assets – which does not have an income statement impact – is predicted to exceed employer contributions to plan assets in the coming year by € 65 million. Plan assets of the BMW Group include own transferable financial instruments amounting to € 8 million (2018: € 5 million). The BMW Group is exposed to risks arising both from defined benefit plans and defined contribution plans with a minimum return guarantee. The discount rates used to calculate pension obligations are subject to market fluctuation and therefore influence the level of the obligations. Furthermore, changes in other actuar- ial parameters, such as expected rates of inflation, also have an impact on pension obligations. In order to reduce currency exposures, a substantial portion of plan assets is either invested in the same currency as the underlying plan or hedged by means of currency derivatives. As part of the internal reporting proce- dures and for internal management purposes, finan- cial risks relating to the pension plans are reported using a value-at-risk approach by reference to the pension deficit. The investment strategy is also subject to regular review together with external consultants, with the aim of ensuring that investments are struc- tured to match the timing of pension payments and the expected development of pension obligations. In this way, fluctuations in pension funding shortfalls are reduced. 158 Notes to the Group Financial Statements Notes to the Balance Sheet The defined benefit obligation relates to current employees, pensioners and former employees with vested benefits as follows: in % Current employees Pensioners Former employees with vested benefits Defined benefit obligation Germany United Kingdom Other 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 67.6 27.4 5.0 65.9 29.3 4.8 – 45.5 54.5 – 48.5 51.5 64.3 29.0 6.8 77.3 18.8 3.9 100.0 100.0 100.0 100.0 100.0 100.0 The sensitivity analysis provided below shows the extent to which changes in individual factors – inde- pendently of each other – could influence the defined benefit obligation at the end of the reporting period. It is only possible to aggregate sensitivities to a limi- ted extent. Since the change in obligation follows a non-linear pattern, estimates made on the basis of the specified sensitivities are only possible with this restriction. The calculation of sensitivities using ranges other than those specified could result in a dis- proportional change in the defined benefit obligation. Discount rate Pension level trend Average life expectancy Pension entitlement trend Change in defined benefit obligation 31. 12. 2019 31. 12. 2018 in € million in % in € million in % increase of 0.75 % – 3,352 – 13.6 – 2,652 – 12.5 decrease of 0.75 % increase of 0.25 % decrease of 0.25 % increase of 1 year 4,290 905 – 810 1,155 decrease of 1 year – 1,097 increase of 0.25 % decrease of 0.25 % 200 – 192 17.4 3.7 – 3.3 4.7 – 4.4 0.8 – 0.8 3,334 597 – 567 770 – 779 156 – 147 15.7 2.8 – 2.7 3.6 – 3.7 0.7 – 0.7 In the UK, the sensitivity analysis for the pension level trend also takes account of restrictions due to caps and floors. Group Financial Statements159 33 Other provisions Other provisions changed during the year as follows: in € million 1. 1. 2019* Translation differences Additions Reversal of discounting Utilised Reversed 31. 12. 2019 thereof due within one year Statutory and non-statutory warranty obligations, product guarantees Obligations for personnel and social expenses Other obligations Other obligations for ongoing operational expenses Other provisions * Prior year’s figures adjusted. 5,147 2,819 2,087 1,348 11,401 69 6 – 7 25 93 2,831 1,448 2,341 912 7,532 168 – 2,561 – 104 5,550 1,617 3 10 – 181 – 1,713 – 440 – 377 – 5,091 – 67 – 698 – 38 – 907 2,496 3,293 1,870 13,209 1,495 2,489 1,820 7,421 Depending on when claims occur, it is possible that the BMW Group may be called upon to fulfil the warranty or guarantee obligations over the whole period of the warranty or guarantee. Expected reim- bursement claims at 31 December 2019 amounted to € 1,086 million (2018: € 933 million) and are disclosed within other assets (see note 28). Provisions for obligations for personnel and social expenses comprise mainly performance-related remu- neration components, early retirement part-time work- ing arrangements and employee long-service awards. see note 6 see note 28 The figures for the previous financial year have been restated for the change in accounting policy for manufacturer lessors (see note 6), as well as for the chan ges in the presentation of residual value risk pro- visions for finance leases and vehicle financing, which were previously reported in other provisions and have now been reclassified to receivables from sales financing (adjustment effect at 31 December 2018: decrease of € 441 million). The provisions for other obligations cover numerous identifiable specific risks and uncertain obligations, in particular for litigation and liability risks, including the provision recognised for the ongoing EU Commission’s antitrust proceedings. Further information is provided in note 10. see note 10 Other obligations for ongoing operational expenses include in particular expected payments for bonuses and other price deductions. 34 Income tax liabilities Current income tax liabilities totalling € 963 million (2018: € 1,158 million) include € 89 million (2018: € 96 million) which are expected to be settled after more than twelve months. Liabilities may be settled earlier than this depending on the timing of the underlying proceedings. 160 Notes to the Group Financial Statements Notes to the Balance Sheet 35 Financial liabilities Financial liabilities of the BMW Group comprise the following: in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Commercial paper Derivative instruments Other Financial liabilities in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Commercial paper Derivative instruments Other Financial liabilities Planned future cash outflows from variable lease payments, which are not taken into account in the measurement of lease liabilities, are expected to amount to € 56 million. Similarly, potential future cash outflows amounting to € 1,393 million (undiscounted) have not been taken into account in the measurement of lease liabilities as it is not reasonably certain that the leases will be renewed (or not terminated). These cash outflows relate to periods of up to 59 years. 31. 12. 2019 Maturity within one year Maturity between one and five years Maturity later than five years 14,077 7,952 11,216 7,903 544 2,615 1,149 637 35,801 11,597 3,414 2,204 1,363 – 886 271 12,287 – 27 1,329 988 – 61 419 Total 62,165 19,549 14,657 11,436 2,895 2,615 2,096 1,327 46,093 55,536 15,111 116,740 31. 12. 2018 Maturity within one year Maturity between one and five years Maturity later than five years 9,762 5,732 10,961 8,678 9 2,480 646 557 32,592 11,603 3,289 3,293 49 – 915 110 10,992 – 109 1,225 47 – 114 434 Total 53,346 17,335 14,359 13,196 105 2,480 1,675 1,101 38,825 51,851 12,921 103,597 Group Financial Statements Liabilities related to financing activities can be recon- ciled as follows: 161 in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Commercial paper Financial liabilities towards companies in which an investment is held Other (excluding interest payable) Liabilities relating to financing activities in € million Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks Lease liabilities Commercial paper Financial liabilities towards companies in which an investment is held Other (excluding interest payable) Liabilities relating to financing activities 1. 1. 2019 Cash inflows / outflows Changes due to the acquisition or disposal of companies Changes due to exchange rate factors Changes in fair values Other changes 31. 12. 2019 53,346 17,335 14,359 13,196 105 2,480 529 626 101,976 7,342 1,869 202 – 1,754 – 440 134 – 233 202 7,322 – – – – – – – – – 618 345 96 – 43 6 1 – 36 1,059 859 – – 44 – – – – – – – – 7 3,224 – – – 62,165 19,549 14,657 11,436 2,895 2,615 296 864 903 3,217 114,477 1. 1. 2018 Cash inflows / outflows Changes due to the acquisition or disposal of companies Changes due to exchange rate factors 44,880 16,855 13,572 12,658 114 4,461 739 604 93,883 7,784 288 557 679 – 9 – 2,021 – 210 – 31 7,037 – – – – – – – – – Changes in fair values – 33 – – – – – – – Other changes 31. 12. 2018 8 – 3 – – – – 15 26 53,346 17,335 14,359 13,196 105 2,480 529 626 101,976 707 192 227 – 141 – 40 – 38 1,063 – 33 Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average nominal interest rate (in %) 162 Bonds comprise: Notes to the Group Financial Statements Notes to the Balance Sheet Issuer BMW Finance N. V. Interest variable variable variable variable fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed EUR 5,000 million SEK 1,500 million USD 700 million NOK 500 million EUR 25,900 million JPY 19,100 million CNY 11,500 million HKD 2,166 million USD 2,050 million SEK 1,750 million NOK 1,500 million GBP 1,150 million AUD 290 million RON 240 million BMW US Capital, LLC variable USD 3,658 million BMW Canada Inc. Other fixed fixed fixed variable fixed variable variable fixed fixed fixed fixed fixed fixed USD 13,655 million EUR 2,500 million AUD 30 million CAD 200 million CAD 2,400 million GBP 940 million SEK 500 million KRW 120,000 million CNY 6,000 million INR 4,000 million GBP 1,450 million NOK 1,000 million CHF 600 million 1.9 4.0 2.4 3.0 6.3 5.8 2.3 4.8 5.3 5.0 3.8 5.8 6.9 1.0 2.7 6.2 7.6 5.0 2.0 3.4 1.4 3.0 3.0 3.0 3.0 4.3 10.0 6.8 0.0 0.7 2.5 2.4 0.8 0.4 3.8 2.3 2.5 1.8 1.9 1.5 3.3 4.0 2.0 3.0 1.0 3.0 2.0 2.2 1.0 0.8 2.6 4.8 8.1 1.5 3.3 0.5 The following details apply to commercial paper: Issuer BMW US Capital, LLC BMW Finance N.V. BMW India Financial Services Private Ltd. Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in days) Weighted average nominal interest rate (in %) USD 2,587 million EUR 300 million INR 1,100 million 22 31 297 1.7 – 0.4 6.8 Group Financial Statements 36 Other liabilities Other liabilities comprise the following items: in Mio. € 31. 12. 2019 31. 12. 2018* 163 6,103 5,038 3,635 2,971 1,265 815 585 519 192 109 5,021 4,976 3,112 2,940 945 850 297 781 92 102 1,834 23,066 2,003 21,119 37 Trade payables As in the previous year, trade payables are due within one year. Refund liabilities for future leased products Contract liabilities Deferred income Bonuses and sales aides Other taxes Deposits received Other advanced payments received for orders Payables to other companies in which an investment is held Payables to subsidiaries Social security Sundry Other liabilities * Prior year’s figures adjusted. Contract liabilities relate to obligations for service and repair work as well as telematics services and roadside assistance agreed to be part of the sale of a vehicle (in some cases multi-component arrangements). An amount of € 2,255 million (2018: € 2,134 million) was released from contract liabilities in the financial year and recognised as revenues from contracts with customers. Deferred income includes down payments received on leases with customers as well as deferred grants. Grants comprise mainly public sector funds to promote regional structures and which have been invested in the production plants in Brazil, Mexico, Leipzig and Berlin. The grants are partly subject to holding periods for the assets concerned of up to five years and / or minimum employment figures. Grant income is recognised in the income statement over the useful lives of the assets to which it relates. The previous year’s figures have been adjusted for the change in accounting policy for manufacturer lessors (see note 6). see note 6 OTHER DISCLOSURES 164 Notes to the Group Financial Statements Other Disclosures 38 Contingent liabilities and other financial commitments Contingent liabilities The following contingent liabilities existed at the balance sheet date: see note 10 in € million 31. 12. 2019 31. 12. 2018 Investment subsidies Litigation Guarantees Other Contingent liabilities 284 139 46 618 1,087 275 125 14 351 765 Other contingent liabilities comprise mainly risks relating to taxes and customs duties. The BMW Group determines its best estimate of contingent liabilities on the basis of the information available at the date of preparation of the Group Financial Statements. This assessment may change over time and is adjusted regularly on the basis of new information and circumstances. A part of the risks is covered by insurance. The European Commission is currently conducting an investigation in connection with antitrust allega- tions against five German car manufacturers. The BMW Group has provided for the potential outcome of the investigation in the form of a provision mea- sured on the basis of the Statement of Objections, at the best possible estimate (see also note 10). In con- nection with these allegations, numerous class action lawsuits have been brought in the USA and Canada as well as several private lawsuits in South Korea. The class action lawsuits in the USA were initially dismissed on the basis of the lack of conclusiveness. The applicants resubmitted their claims in mid-2019 in an amended form. A decision on the five manufac- turers’ renewed claims for the dismissal of the class action lawsuits is still pending. Class action lawsuits in Canada and private lawsuits in South Korea are at an early stage. Further civil lawsuits based on the allegations are possible. In addition, the Chinese State Administration for Market Regulation (SAMR) opened antitrust proceedings against BMW AG in March 2019. These proceedings are still at an early stage. Possible risks for the BMW Group can neither be foreseen in detail nor quantified at present. Further disclosures pursuant to IAS 37.86 cannot be provided at present. Group Financial Statements 165 other financial obligations In addition to liabilities, provisions and contingent liabilities, the following commitments exist for the BMW Group at the end of the reporting period: in € million 31. 12. 2019 31. 12. 2018 Purchase commitments for property, plant and equipment Purchase commitments for intangible assets 3,128 3,486 2,146 1,554 Regulatory authorities have ordered the BMW Group to recall various vehicle models in conjunction with airbags supplied by the Takata group of companies. Provision for the costs involved has been recognised within warranty provisions. In addition to the risks already covered by warranty provisions, it cannot be ruled out that further BMW Group vehicles will be affected by future recall actions. Further disclosures pursuant to IAS 37.86 cannot be provided at present. In September 2019, the Japan Fair Trade Commission conducted a search at BMW Japan Corp. in connection with its market practises in relation to distributors. These investigations are ongoing. Possible risks for the BMW Group can neither be foreseen in detail nor quantified at present. Further disclosures pursuant to IAS 37.86 cannot be provided at present. BMW Group has been notified that the U. S. Securities and Exchange Commission (“SEC”) is conducting an investigation related to vehicle sales practices and reporting of delivery figures. The potential risks for BMW Group related to the SEC’s investigation cannot be quantified at the present time. Further disclosures pursuant to IAS 37.86 cannot be provided at present. 166 Notes to the Group Financial Statements Other Disclosures 39 Financial instruments The carrying amounts of financial instruments are assigned to IFRS 9 categories in the following table. in € million ASSetS Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other Cash and cash equivalents Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral assets Remaining other assets Total lIAbIlItIeS Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset-backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Lease liabilities Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Remaining other liabilities Total 31. 12. 2019 At amortised cost At fair value through other com- prehensive income At fair value through profit or loss Not assigned to an IFRS 9 category – 70,625 – – – 444 40 – 260 11,574 2,518 308 2,641 413 1,519 – – – – – 3,889 – – – – – – – – – 461 – – – 50 1,058 14 – – 462 – – – – – 242 21,812 326 1,244 – – – – – – – – – – 8,058 90,342 3,889 2,045 31,682 62,165 11,436 14,657 2,615 19,549 – – – – 1,327 10,182 192 519 4,749 127,391 – – – – – – – – – – – – – – – – – – – – – – 1,020 – – – – – – – – – – – 805 271 – 2,895 – – – – 17,606 1,020 21,577 Group Financial Statements 167 31. 12. 2018 * At amortised cost At fair value through other com- prehensive income At fair value through profit or loss – 87,013 – – – 675 17 244 128 10,094 2,546 295 1,916 293 1,444 – – – – – 3,671 – – – – – – – – – 429 – 840 654 483 970 3 – – 885 – – – – – 104,665 3,671 4,264 53,346 13,196 14,359 2,480 17,335 – – – 105 1,101 9,669 92 781 5,665 118,129 – – – – – – – – – – – – – – – – – – – – 697 556 422 – – – – – – 1,675 in € million ASSetS Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other Cash and cash equivalents Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral assets Remaining other assets Total lIAbIlItIeS Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset-backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Lease liabilities Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Remaining other liabilities Total * Prior year’s figures adjusted – see note 25. The carrying amounts of cash flow hedges and fair value hedges are categorised as at fair value through profit or loss for the sake of clarity. Receivables from sales financing are shown including finance and operating leases. 168 Notes to the Group Financial Statements Other Disclosures The following table shows the fair values and carrying amounts of financial assets and liabilities that are measured at cost or amortised cost and whose carry- ing amounts differ from their fair value. Due to their predominantly short-term nature, the fair value of other financial assets and liabilities measured at amor- tised cost corresponds to the carrying amount. For this reason, these items are not disclosed separately. in € million Fair value Carrying amount Fair value Carrying amount* 31. 12. 2019 31. 12. 2018 Receivables from sales financing Marketable securities and investment funds Bonds Asset-backed financing transactions Liabilities from customer deposits (banking) Liabilities to banks * Prior year’s figures adjusted – see note 25. 73,699 446 62,757 19,659 14,739 12,071 70,625 444 62,165 19,549 14,657 11,436 90,445 680 53,831 17,443 14,374 13,277 87,013 675 53,346 17,335 14,359 13,196 With effect from the financial year 2019, the fair value and carrying amounts of receivables from sales financing do not include receivables relating to finance and operating leases. The fair value of these receivables amounts to € 22,741 million (carrying amount: € 21,812 million) at the balance sheet date. At 31 December 2019, financial assets and liabilities measured at fair value in accordance with IFRS 9 are classified in the following table on the basis of their measurement levels in accordance with IFRS 13. Where the fair value was required for a financial instrument for disclosure purposes, the discounted cash flow method was used, taking account of the BMW Group’s own default risk. The fair values of these items are allocated to Level 2 in accordance with IFRS 13. in € million Marketable securities, investment funds and collateral assets Other investments Cash equivalents Loans to third parties Derivative instruments (assets) Interest rate risks Currency risks Raw material market price risks Other risks Derivative instruments (liabilities) Interest rate risks Currency risks Raw material market price risks 31. 12. 2019 Level hierarchy in accordance with IFRS 13 Level 1 Level 2 Level 3 4,582 106 – – – – – – – – – 365 – 462 – 1,274 74 267 – 1,155 723 218 – 355 – 14 – – – 5 – – – Group Financial Statementsin € million Marketable securities, investment funds and collateral assets Other investments Cash equivalents Loans to third parties Derivative instruments (assets) Interest rate risks Currency risks Raw material market price risks Other risks Derivative instruments (liabilities) Interest rate risks Currency risks Raw material market price risks 169 31. 12. 2018 Level hierarchy in accordance with IFRS 13 Level 1 Level 2 Level 3 4,641 164 – – – – – – – – – – – 885 – 1,069 713 191 – 923 409 343 – 265 – 3 – – – 4 – – – Any transfers between fair value hierarchy levels are made at the end of the relevant reporting period. With effect from 30 June 2019, marketable securities amounting to € 187 million were transferred from Level 1 to Level 2 in view of the fact that their fair value is determined on the basis of observable market data. Financial instruments recognised at fair value for which no market price is available are allocated to Level 3. Fair values are determined in accordance with the following table: in € million 31. 12. 2019 Fair value Valuation method Input Parameter Unquoted equity instruments 355 Market-based approach Convertible bonds Options on unquoted equity instruments Milestone analysis (quantitative and qualitative factors) Market-based approach Milestone analysis (quantitative and qualitative factors) Market-based approach Milestone analysis (quantitative and qualitative factors) 14 5 Financial ratios Technical company-specific ratios Liquidity-specific ratios Financial ratios Technical company-specific ratios Liquidity-specific ratios Financial ratios Technical company-specific ratios Liquidity-specific ratios Exercise price 170 Notes to the Group Financial Statements Other Disclosures Financial instruments allocated to Level 3 relate mainly to investments in a private equity fund. For valuation purposes, the investment advisor provides the external fund manager with relevant, invest- ment-specific information on an ongoing basis (at least quarterly). The latter subsequently assesses the underlying individual companies in accordance with the guidelines for international private equity and venture capital valuations (IPEV). As part of the process of analysing valuations, the external fund manager reviews the investment- specific milestones, including an analysis of key financial, technical and liquidity-specific performance indica- tors. Based on this analysis, it is considered whether the price set at the most recent financing round is acceptable as a reasonable market valuation, in par- ticular for early-stage or growth-phase investments. Key performance indicators used for the purpose of milestone analysis are highly dependent on the business model underlying the investment; typical technical key performance indicators relate to licenses in € million 1 January 2019 Additions Disposals Gains (+) / losses (–) recognised in accumulated other equity Gains (+) / losses (–) recognised in the income statement Currency translation differences 31 December 2019 Gains and losses recognised in the income state- ment in the financial year 2019 included unrealised gains and losses totalling a net positive amount of € 32 million. in € million 1 January 2018 Additions Disposals Gains (+) / losses (–) recognised in accumulated other equity Gains (+) / losses (–) recognised in the income statement Currency translation differences 31 December 2018 and patents held, the stage of technology development such as evidence of feasibility and prototypes, market entries, customer and user growth and appointments to key management positions. Key financial perfor- mance indicators used are revenues, EBITDA and the corresponding growth rate and / or development of specific contribution margins. Key liquidity-specific performance indicators are cash on hand, cash burn rates and prospects for future financing rounds. A detailed listing and quantification of potential sen- sitivities is not considered meaningful in view of the valuation methodology applied. A change of + / – 10 % in the relevant input parameter (price of the last financing round) would normally also give rise to a similar change of + / – 10 % in the valuation. Similarly, a significant reduction in growth rates or margins could result in impairment and therefore to a lower valuation of an investment. The balance sheet carrying amount of Level 3 financial instruments developed as follows: Unquoted equity instruments Convertible bonds Options on unquoted equity instruments Financial Instru- ments Level 3 265 90 – 38 – 33 5 355 3 14 – 3 – – – 14 4 – – – 1 – 5 272 104 – 41 – 34 5 374 Unquoted equity instruments Convertible bonds Options on unquoted equity instruments Financial Instru- ments Level 3 111 103 – 4 – 45 10 265 2 3 – 2 – – – 3 2 – – – 2 – 4 115 106 – 6 – 47 10 272 Group Financial Statements 171 offsetting of financial instruments Derivative financial instruments of the BMW Group are subject to legally enforceable master netting agree- ments or similar contracts. However, receivables and payables relating to derivative financial instruments are not netted due to non-fulfilment of the stipulated criteria. Offsetting would have the following impact on the carrying amounts of derivatives: in € million 31. 12. 2019 31. 12. 2018 Reported on assets side Reported on equity and liabilities side Reported on assets side Reported on equity and liabilities side Balance sheet amounts as reported Gross amount of derivatives which can be offset in case of insolvency Net amount after offsetting 1,620 – 833 787 2,096 – 833 1,263 1,977 – 913 1,064 1,675 – 913 762 Gains and losses on financial instruments The following table shows the net gains and losses arising on financial instruments in accordance with IFRS 9: 2019 2018 – 1,012 160 296 – 150 203 155 see note 19 Net gains and losses arising on financial instruments measured at fair value through other comprehensive income relate to marketable securities and shares in investment funds and are disclosed in note 19. Interest income arising on financial assets measured at fair value through other comprehensive income amounted to € 49 million (2018: € 58 million) and interest expense to € 41 million (2018: € 47 million). Non-derivative financial assets and liabilities are only offset if a legally enforceable right currently exists and it is actually intended to offset the relevant amounts. No financial assets and liabilities have been netted in the BMW Group due to the fact that the necessary requirements for netting have not been met. in € million Financial instruments measured at fair value through profit or loss Financial assets measured at amortised cost Financial liabilities measured at amortised cost Net gains and losses of financial instruments measured at fair value through profit or loss mainly include gains and losses arising on the fair value measurement of stand-alone derivatives, on marketable securities and shares in investment funds, and on other investments. Net gains and losses arising on financial assets mea- sured at amortised cost mainly include exchange rate gains and losses as well as expenses and income relating to impairment losses. Net gains and losses arising on financial liabilities measured at amortised cost mainly include exchange rate gains and losses. Interest income arising on financial assets measured at amortised cost mainly relates to the interest income earned on credit financing and reported within revenues. Interest expense for financial liabilities measured at amortised cost amounted to € 1.9 billion (2018: € 1.8 billion). 172 Notes to the Group Financial Statements Other Disclosures credit risk The BMW Group is exposed to counterparty credit risks if contractual partners, for example a retail cus- t omer or a dealership, are unable or only partially able to meet their contractual obligations. Information on the management of credit risk for receivables from financial services is provided in the Combined Man- agement Report (see section Report on Outlook, Risks and Opportunities). Notwithstanding the existence of collateral accepted, the carrying amount of financial assets (with the exception of derivative financial instruments) gener- ally represents the maximum credit risk. In addition, the credit risk is increased by additional unutilised loan commitments in the dealership financing line of business. Total credit risk at the end of the reporting period amounted to € 31,943 million (2018: € 29,403 million). In the case of all relationships underlying non-deriva- tive financial instruments, in order to minimise the credit risk and depending on the nature and amount of exposure, collateral is required, credit information and references obtained or historical data based on the existing business relationship, in particular payment behaviour, reviewed. In the case of trade receivables, customers are regu larly assessed with regard to their credit risk. Depending on contractual status, necessary measures, such as dunning procedures, are initiated in good time. The credit risk relating to cash deposits and derivative financial instruments is minimised by the fact that the Group only enters into such contracts with parties of first-class credit standing. Within the financial services business, items financed for retail customers and dealerships (such as vehi- cles, facilities and property) serve as first-ranking collateral with a recoverable value. Security is also put up by customers in the form of collateral asset pledges, asset assignment and first-ranking mortgages, supplemented where appropriate by warranties and guarantees. Items previously held as collateral that are subsequently acquired relate mainly to vehicles. As a rule, these assets can be converted into cash at short notice through the dealership organisation. Creditworthiness testing is an important aspect of the BMW Group’s credit risk management. Every borrower’s creditworthiness is tested for all credit financing and lease contracts entered into by the BMW Group. In the case of retail customer financing, creditworthiness is assessed using validated scoring systems integrated into the acquisition process. In the area of dealership financing, creditworthiness is assessed by means of ongoing credit monitoring and an internal rating system that takes account not only of the material credit standing of the borrower, but also of qualitative factors such as past reliability in business relations. The credit risk on trade receivables is assessed mainly on the basis of information relating to over- due amounts. The gross carrying amounts of these receivables are allocated in accordance with IFRS 9 to overdue ranges used for management purposes as follows: in € million 31. 12. 2019 31. 12. 2018 Not overdue 1 – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue More than 90 days overdue Total 1,947 369 89 40 145 2,066 375 34 29 96 2,590 2,600 Group Financial Statements173 Receivables from sales financing are allocated to inter- nally defined rating categories based on credit risk. The classification into creditworthiness levels is based on default probabilities. The related gross carrying amounts in accordance with IFRS 9 are allocated as follows: in € million General Simplified Total Expected credit loss Stage 1 Stage 2 Stage 3 31. 12. 2019 Gross carrying amount of financial assets with good credit ratings Gross carrying amount of financial assets with medium credit ratings Gross carrying amount of financial assets with poor credit ratings Total 85,399 4,102 38 89,539 696 1,167 704 2,567 – – 1,014 1,014 86,473 5,291 1,772 93,536 272 199 628 1,099 378 22 16 416 31. 12. 2018 in € million General Simplified Total* Expected credit loss Stage 1 Stage 2 Stage 3 Gross carrying amount of financial assets with good credit ratings Gross carrying amount of financial assets with medium credit ratings Gross carrying amount of financial assets with poor credit ratings Total * Prior year’s figures adjusted. 79,805 4,393 187 84,385 753 1,062 607 2,422 421 52 37 510 – – 990 990 80,979 5,507 1,821 88,307 269 189 592 1,050 Further disclosures relating to credit risk – in particu- lar with regard to the amounts of impairment losses recognised – are provided in the explanatory notes to the relevant categories of receivables in notes 25, 26 and 30. see notes 25, 26 and 30 174 Notes to the Group Financial Statements Other Disclosures Liquidity risk The following table shows the maturity structure of expected contractual cash flows (undiscounted) for financial liabilities: in € million non-deRIvAtIve FInAnCIAl lIAbIlItIeS Bonds Asset-backed financing transactions Liabilities to banks Liabilities from customer deposits (banking) Trade payables Commercial paper Other financial liabilities deRIvAtIve FInAnCIAl lIAbIlItIeS With gross settlement Cash outflows Cash inflows With net settlement Cash outflows 31. 12. 2019 Maturity within one year Maturity between one and five years Maturity later than five years Total 14,977 8,255 8,751 11,277 10,182 2,618 750 1,524 33,826 – 32,302 374 374 37,477 12,090 2,317 3,505 – – 12,595 – 1,378 27 – – 1,958 1,686 758 18,485 – 17,727 338 338 – 26 598 – 624 23 23 65,049 20,345 12,446 14,809 10,182 2,618 4,394 2,256 52,909 – 50,653 735 735 Total financial liabilities 58,708 58,443 15,683 132,834 in € million non-deRIvAtIve FInAnCIAl lIAbIlItIeS Bonds Asset-backed financing transactions Liabilities to banks Liabilities from customer deposits (banking) Trade payables Commercial paper Other financial liabilities deRIvAtIve FInAnCIAl lIAbIlItIeS With gross settlement Cash outflows Cash inflows With net settlement Cash outflows 31. 12. 2018 Maturity within one year Maturity between one and five years Maturity later than five years Total 10,789 6,942 9,848 11,010 9,669 2,478 20 731 19,218 – 18,487 245 245 34,196 11,710 3,804 3,368 – – 318 665 11,639 – 10,974 515 515 11,546 – 900 107 – – 454 – 213 – 213 81 81 56,531 18,652 14,552 14,485 9,669 2,478 792 1,396 31,070 – 29,674 841 841 Total financial liabilities 51,732 54,576 13,088 119,396 The cash flows from non-derivative liabilities com- prise principal repayments and the related interest. The amounts disclosed for derivative instruments comprise only cash flows relating to derivatives that have a negative fair value at the balance sheet date. In the case of derivatives with a negative fair value, an overall positive cash flow can arise due to the various yield curves used. At 31 December 2019 credit commitments available at short notice to dealerships which had not been called upon at the end of the reporting period amounted to € 10,776 million (2018: € 9,010 million). Group Financial Statements 175 The BMW Group measures currency risk using a cash- flow-at-risk model. The analysis of currency risk is based on forecast foreign currency transactions which could result in exposures to surpluses of foreign cur- rency cash inflows and cash outflows. At the end of the reporting period, the overall currency exposure – in each case for the following year and determined by aggregating the individual currency exposures based on their absolute amount – was as follows: in € million 31. 12. 2019 31. 12. 2018 Currency exposure 33,950 28,407 This exposure is compared to all hedges that are in place. The net cash flow surplus represents an uncov- e red risk position. The cash-flow-at-risk approach involves showing the impact of potential exchange rate fluctuations on operating cash flows on the basis of probability distributions. Volatilities and correla- tions serve as the main input factors to determine the relevant probability distributions. The potential negative impact on earnings is calcu- lated at the reporting date for each currency for the following financial year on the basis of current market prices and exposures with a confidence level of 95 %. The risk mitigating effect of correlations between the various currencies is taken into account when the risks are aggregated. The following table shows the potential negative impact for the BMW Group for the following year resulting from unfavourable changes in exchange rates, mea- sured on the basis of the cash-flow-at-risk approach. in € million 31. 12. 2019 31. 12. 2018 Cash flow at risk 487 431 Solvency is assured at all times by managing and monitoring the liquidity situation on the basis of a rolling cash flow forecast. The resulting funding requirements are covered by a variety of instruments placed on the world’s financial markets, with the aim to minimise risk by matching maturities with financ- ing requirements and in alignment with a dynamic target debt structure. As a further reduction of risk, a syndicated credit line totalling € 8 billion (2018: € 8 billion) from a consortium of international banks is available to the BMW Group. Intragroup cash flow fluctuations are balanced out by the use of daily cash pooling arrangements. Further information is provided in the Combined Management Report. Market risks The principal market risks to which the BMW Group is exposed are currency risk, interest rate risk and raw materials market price risk. Protection against such risks is provided in the first instance though natural hedging which arises when the values of non-derivative financial instruments have matching maturities and amounts (netting). Derivative financial instruments are used to reduce the risk remaining after netting. Currency, interest rate and raw materials market price risks of the BMW Group are managed at a corporate level. Further information is provided in the “Report on Outlook, Risks and Opportunities” section of the Combined Management Report. currency risk As an enterprise with worldwide operations, the BMW Group conducts business in a variety of cur- rencies, from which currency risks arise. In order to hedge currency risks, the BMW Group holds, as at 31 December 2019, derivative financial instruments mostly in the form of forward currency contracts and currency swaps. As part of the implementation of the risk management strategy, the extent to which risk exposures should be hedged is decided at regular intervals. The economic relationship between the hedged item and the hedging instrument is based essentially on the fact that they are denominated in the same currency and have the same maturities. 176 Notes to the Group Financial Statements Other Disclosures interest rate risk Interest rate risks arise when funds are borrowed and invested with differing fixed-rate periods or differing terms. At the BMW Group, all items subject to, or bearing, interest are exposed to interest rate risk and can therefore affect both the assets and liabilities side of the balance sheet. The fair value of the Group’s interest rate portfolios was as follows at the end of the reporting period: in € million 31. 12. 2019 31. 12. 2018 Fair values of interest rate portfolios 55,697 60,356 Interest rate risk is managed through the use of in- te r est rate derivatives. As part of the implementation of the risk management strategy, interest rate risks are monitored and managed at regular intervals. The interest rate contracts used for hedging purposes comprise mainly swaps, which, if hedge accounting is applied, are accounted for as fair value hedges. The economic relationship between the hedged item and the hedging instrument is based on the fact that the main parameters of the hedged item and the related hedging instrument, such as start date, term and currency, are the same. For selected fixed-interest assets, part of the interest rate risk is hedged on a portfolio basis. In this case, swaps are used as the hedging instrument. Hedge relationships are terminated and redesignated on a monthly basis at the end of each reporting period, thereby taking account of the constantly changing content of each portfolio. As a result of the ongoing reform and replacement of specific benchmark interest rates, uncertainty arises regarding the timing and exact nature of those changes. Overall, a considerable number of contracts within the BMW Group are directly affected by the reform of benchmark interest rates. Hedging rela- tionships within the BMW Group are based primarily on USD LIBOR and GBP LIBOR reference interest rates, whereby those rates are designated as the hedged risk in fair value hedges. In the case of these hedging relationships, uncertainty arises with respect to the identifiability of the designated benchmark interest rates. The transition to the newly created and / or revised benchmark interest rates is being managed and moni- tored within the framework of a multidisciplinary project, the scope of which is likely to cover changes to systems, processes, risk and valuation models, as well as dealing with the related impact at an accounting and financial reporting level. The uncertainty arising from interest rate benchmark reform is expected to persist most likely until the end of 2021. The BMW Group applies a value-at-risk approach throughout the Group for internal reporting purposes and to manage interest rate risk. This approach is based on a historical simulation in which the potential future fair value losses of the interest rate portfo- lios are compared across the Group with expected amounts on the basis of a holding period of 250 days and a confidence level of 99.98 %. The risk mitigating effect of correlations between the various portfolios is taken into account when the risks are aggregated. The following table shows for interest-rate-sensitive exposures of the BMW Group the potential fair value fluctuation compared with the expected value, mea- sured on the basis of the value-at-risk approach: in € million Value at risk 31. 12. 2019 31. 12. 2018 1,094 1,123 Raw materials price risk The BMW Group is exposed to market price risks on raw materials. In order to hedge these risks, the Group mainly used forward commodity contracts. As part of the implementation of the risk management strategy, the extent to which risk exposures should be hedged is decided at regular intervals and the corresponding hedging ratio defined. The economic relationship between the hedged item and the hedging instrument is based essentially on the fact that they have the same basis and term. The BMW Group designates only the commodity price index-linked raw material surcharge as a hedged item. Other price components contained in the contract are not designated as being part of the hedge relationship as no effective hedging instruments exist for these components. Group Financial StatementsThe starting point for analysing raw materials price risk is to identify planned purchases of raw materials or components containing raw materials, the so-called “exposure”. At each reporting date, the exposure for the following financial year amounted to: in € million 31. 12. 2019 31. 12. 2018 Raw material price exposures 4,382 4,174 This exposure is compared to all hedges that are in place. The net cash flow surplus represents an uncov- ered risk position. The cash-flow-at-risk approach involves showing the impact of potential raw materials market price fluctuations on operating cash flows on the basis of probability distributions. Volatilities and correlations serve as input factors to assess the relevant probability distributions. The potential negative impact on earnings is calculated at the reporting date for each raw materials category for the following financial year on the basis of current market prices and exposure with a confidence level of 95 %. The risk mitigating effect of correlations between the various categories of raw materials is taken into account when the risks are aggregated. The following table shows the potential negative impact for the BMW Group resulting from fluctuations in prices across all categories of raw materials, measured on the basis of the cash-flow-at-risk approach. The risk at each reporting date for the following financial year was as follows: in € million 31. 12. 2019 31. 12. 2018 Cash flow at risk 419 327 disclosures on hedging measures The following disclosures on hedging measures include derivatives of fully consolidated companies that have been designated as a hedging instrument. The amounts shown in the table are stated before deferred taxes and take account of additional effects arising from the application of the modified closing rate method. 177 The nominal amounts of hedging instruments were as follows: in € million Maturity within one year 31. 12. 2019 Maturity between one and five years Maturity later than five years Currency risks Interest rate risks Raw material price risks Nominal amounts of hedging intruments 14,823 6,672 1,651 9,020 29,691 1,920 – 12,938 – 23,146 40,631 12,938 in € million Maturity within one year 31. 12. 2018 Maturity between one and five years Maturity later than five years Currency risks Interest rate risks Raw material price risks Nominal amounts of hedging intruments 17,159 4,619 1,526 9,097 24,295 2,109 – 12,027 32 23,304 35,501 12,059 The following table shows the average hedging rates of hedging transactions used by the BMW Group. Currency risks 31. 12. 2019 31. 12. 2018 Average hedging rates EUR / CNY EUR / USD EUR / GBP EUR / KRW EUR / JPY 8.26 1.16 0.87 8.26 1.17 0.79 1,328.59 1,288.91 124.92 125.29 Average hedging rates Raw material price risks 31. 12. 2019 31. 12. 2018 Aluminium (EUR / t) Lead (EUR / t) Copper (EUR / t) Palladium (EUR / oz) Platinum (EUR / oz) 1,833 1,815 5,173 1,022 916 1,797 1,784 5,279 745 945 Information on average interest hedge rates is not provided, since interest rate derivatives designated as hedging instruments are used exclusively to hedge items in fair value hedges. The hedge rates therefore correspond in each case to current market interest rate level. Most of the hedges used in this context relate to variable yield curves relating to the euro, US dollar and British pound currency areas. 178 Notes to the Group Financial Statements Other Disclosures The following tables provides information on the nomi- nal amounts, carrying amounts and fair value changes of contracts designated as hedging instruments: 31. 12. 2019 Carrying Amounts in € million Nominal amounts Assets Liabilities Change in fair value of designated components Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks 23,843 3,571 60 266 59,999 1,244 590 215 271 – 479 250 758 31. 12. 2018 Carrying Amounts in € million Nominal amounts Assets Liabilities Change in fair value of designated components Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks 26,256 3,667 52,580 651 189 654 363 334 556 121 – 453 27 The following tables show key information on hedged items for each risk category as well as the balances of designated components within accumulated other equity: in € million Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks in € million Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks 31. 12. 2019 Carrying Amounts Balances in accumulated other equity Assets Liabilities Change in value of hedged items Continuing hedge relationships Terminated hedge relationships – – – – 479 – 250 8,631 58,723 – 759 – 23 1 – – – – 31. 12. 2018 Carrying Amounts Balances in accumulated other equity Assets Liabilities Change in value of hedged items Continuing hedge relationships Terminated hedge relationships – – – – – 119 453 941 – 262 8,930 49,846 – 33 – – 1 – – Group Financial StatementsThe accumulated amount of hedge-related fair value adjustments is € 8 million for assets (2018: € 15 million) and € 1,012 million (2018: € 243 million) for liabilities. Hedge relationships give rise to the following effects: 179 in € million Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks in € million Cash Flow Hedges Currency risks Raw material price risks Fair Value Hedges Interest rate risks 2019 Change of designated com- ponents in other comprehensive income Change in costs of hedging in other comprehensive income Hedge ineffectiveness recognised in income statement – 961 264 – 117 – 7 9 2018 – – – 1 Change of designated com- ponents in other comprehensive income Change in costs of hedging in other comprehensive income Hedge ineffectiveness recognised in income statement – 931 – 497 – 614 12 – – 19 – – – 6 Designated components and costs of hedging within accumulated other equity changed as follows: in € million Opening balance at 1 January 2019 Change in fair value during the reporting period Reclassification to profit or loss for continuing hedge relationships for terminated hedge relationships Reclassification to acquisition costs for inventories Closing balance at 31 December 2019 in € million Opening balance at 1 January 2018 Change in fair value during the reporting period Reclassification to profit or loss for continuing hedge relationships for terminated hedge relationships Reclassification to acquisition costs for inventories Closing balance at 31 December 2018 Currency risks Interest rate risk Raw material price risk Designated component Costs of hedging Costs of hedging Designated component Costs of hedging 940 – 480 – 491 9 – – 22 – 614 – 622 716 23 – – 497 – 13 13 – 4 – – – 4 – 262 250 – 5 8 1 12 – 1 – – – 6 5 Currency risks Interest rate risk Raw material price risk Designated component Costs of hedging Costs of hedging Designated component Costs of hedging 1,875 120 – 987 – 68 – 940 – – 966 319 33 – – 614 6 – 20 1 – – – 13 235 – 453 – 7 – 51 – 262 – 14 – – – 2 12 180 Notes to the Group Financial Statements Other Disclosures The nominal amount of hedging instruments directly affected by the reform of benchmark interest rates is € 11,269 million (of which USD LIBOR € 8,949 million, GBP LIBOR € 1,907 million). 40 Related party relationships Transactions of Group entities with related parties were carried out without exception in the normal course of business with each of the parties concerned and at market conditions. A significant proportion of the BMW Group’s transac- tions with related parties relates to the joint venture BMW Brilliance Automotive Ltd. in € million 2019 2018 2019 2018 2019 2018 2019 2018 Supplies and services performed Supplies and services received Receivables at 31 December Payables at 31 December BMW Brilliance Automotive Ltd. 9,227 7,691 107 99 2,639 1,829 496 772 Susanne Klatten, Germany, is also the sole share- holder and Chairwoman of the Supervisory Board of UnternehmerTUM GmbH, Garching. In 2019, the BMW Group bought in services from Unterne- hmerTUM GmbH, Garching, mainly in the form of consultancy and workshop services. In addition, Susanne Klatten, Germany, and Stefan Quandt, Germany, are indirectly sole shareholders of Entrust Datacard Corp., Shakopee, Minnesota. Stefan Quandt is also a member of the supervisory board of this entity. In 2019, Entrust Datacard Corp., Shakopee, Minnesota, acquired vehicles from the BMW Group by way of leasing. Business relationships of the BMW Group with other associated companies and joint ventures as well as with non-consolidated subsidiaries are small in scale. Stefan Quandt, Germany, is a shareholder and Deputy Chairman of the Supervisory Board of BMW AG. He is also the sole shareholder and Chairman of the Supervisory Boards of DELTON Health AG, Bad Homburg v. d. H., and DELTON Technology SE, Bad Homburg v. d. H., as well as the sole shareholder of DELTON Logistics S.à r. l., Grevenmacher, which via its subsidiaries, performed logistic-related services for the BMW Group during the financial year 2019. In addition, the Delton companies held by Stefan Quandt acquired vehicles from the BMW Group by way of leasing. Stefan Quandt, Germany, is also the indirect ma jor- ity shareholder of SOLARWATT GmbH, Dresden. Cooperation arrangements are in place between the BMW Group and SOLARWATT GmbH, Dresden, within the field of electric mobility. The focus of this cooperation is on the provision of complete photo- voltaic solutions for rooftop systems and carports to BMW i customers. In 2019 SOLARWATT GmbH, Dresden, acquired vehicles from the BMW Group by way of leasing. Susanne Klatten, Germany, is a shareholder and member of the Supervisory Board of BMW AG and also a shareholder and Deputy Chairwoman of the Supervisory Board of ALTANA AG, Wesel. In 2019, ALTANA AG, Wesel, acquired vehicles from the BMW Group, mainly by way of leasing. Group Financial Statements 181 Seen from the perspective of BMW Group entities, the volume of transactions with the above-mentioned entities was as follows: in € thousand 2019 2018 2019 2018 2019 2018 2019 2018 Supplies and services performed Supplies and services received Receivables at 31 December Payables at 31 December DELTON Health AG (formerly DELTON AG) DELTON Logistics S. à r. l. DELTON Technology SE SOLARWATT GmbH ALTANA AG UnternehmerTUM GmbH EnviroChemie GmbH Entrust Datacard Corp. 2,065 1,473 6 453 2,529 104 28 153 3,536 – 23,386 – – 358 2,322 58 – 103 21,596 – – 462 2,651 107 – – – 1 401 1,527 – – 20 14 – 8 355 27 – 10 34 – – 4 341 – – 2 – 1,871 – – 65 693 – – – 2,235 – – 5 367 – – Apart from vehicle sales, service loaners, leasing and financing contracts at customary conditions, compa- nies of the BMW Group concluded no further trans- actions with members of the Board of Management or Supervisory Board of BMW AG. This also applies to close members of the families of those persons. BMW Trust e. V., Munich, administers assets on a trustee basis to secure obligations relating to pensions in Germany and is therefore a related party of the BMW Group in accordance with IAS 24. This entity has no assets of its own. It had no income or expenses during the period under report. BMW AG bears ex- penses on an immaterial scale and performs services for BMW Trust e. V., Munich. For disclosures relating to the compensation of key management personnel, please see note 43 and the Compensation Report. see note 43 41 Share-based remuneration The BMW Group provides three share-based pro- grammes: one for eligible employees, one for senior heads of department and one for members of the Board of Management. employee Share programme In connection with the Employee Share Programme, non-voting shares of preferred stock in BMW AG were granted in 2019 to qualifying employees at favourable note 31 for the number and price conditions (see see note 31 of issued shares). Participants in the programme were entitled in 2019 to acquire packages of 10, 17 or 25 shares of preferred stock (2018: 7, 12 or 17) with a discount in each case of € 13.00 (2018: € 20.00) per share compared to the market price (average closing price in Xetra trading in the period from 5 November to 8 November 2019: € 59.10). The programme was open to employees who have been in an employment relationship with BMW AG or by a wholly-owned BMW AG subsidiary in Germany, provided that the management of the subsidiary concerned has decid- ed to participate in the programme. At the date of the announcement of the programme, there was a requirement for the employment relationship to have existed without interruption for at least one year and for it to continue until the transfer of the shares of preferred stock. Shares of preferred stock acquired in conjunction with the Employee Share Programme are subject to a vesting period of four years, starting from 1 January of the year in which the shares were acquired. In the financial year under report, 744,447 (2018: 521,524) shares of preferred stock were acquired by employees. This figure includes 740,400 (2018: 521,500) shares out of Authorised Capital 2019, with the remainder bought back via the stock exchange. Every year the Board of Management of BMW AG decides whether the programme is to be continued. In the financial year 2019, the BMW Group recorded a personnel expense of € 10 million (2018: € 10 million) for the Employee Share Programme, corresponding to the difference between the market price and the reduced price of the shares of preferred stock pur- cha sed by employees. 182 Notes to the Group Financial Statements Other Disclosures programme for senior heads of department and members of the board of Management The share-based remuneration programme for qualify- ing senior heads of department, introduced with effect for financial years beginning after 1 January 2012, is closely based on the programme for Board of Manage- ment members and is aimed at rewarding a long-term, entrepreneurial approach to running the business on a sustainable basis. Under the terms of the programme, participants give a commitment to invest an amount equivalent to 20 % of their earnings-related bonus in shares of BMW common stock and to hold the shares so acquired for a minimum of four years. With effect from 1 July 2019, the share-based compensation pro- gramme was revised and the investment requirement increased to 26 % of the earnings-related bonus. In return for the investment requirement, BMW AG pays 100 % of the investment amount as a net subsidy. Once the four-year holding period requirement has been fulfilled, the participants receive – for each three common stock shares held and at the Company’s option – one additional share of common stock or the cash equivalent, to be decided at BMW AG’s discretion. For financial years beginning after 1 January 2011, BMW AG has added a share-based remuneration component to the existing compensation system for Board of Management members. Members of the Board receive a cash compensation (investment component) for the specific purpose of investment – after tax and deductions – in shares of common stock of BMW AG. For financial years from 2018 onwards, the investment component cor- responds to 45 % of the gross bonus. The investment component is paid after the end of the Annual General Meeting, at which the separate financial statements of BMW AG for the relevant financial year are pre- sented. The shares of common stock are purchased immediately after the investment component has been paid out. Shares of common stock purchased in this way by Board members are required to be held for a period of four years. At the end of the holding period, Board members receive from BMW AG, for every three shares of common stock held, either one additional share of common stock or the cash equivalent, to be decided at BMW AG’s discretion. In the event of death or invalidity, special rules apply for early payment of share-based remuneration components based on the target amounts. Insofar the service contract is prematurely terminated and the Company has an extraordinary right of termination, or if the Board member resigns without the Company’s agreement, entitlements to amounts as yet unpaid relating to share-based remuneration are forfeited. The members of the Board of Management in office at the end of the reporting period hold 36,921 shares of BMW common stock based on holding requirements arising from share-based remuneration for the finan- cial years 2015 to 2018 (2018: 65,960). The share-based remuneration component is measured at its fair value at each balance sheet date between grant and settlement date, and on the settlement date. The amounts are recognised as personnel expense on a straight-line basis over the vesting period and reported in the balance sheet as a provision. The cash-settlement obligation for the share-based remuneration component is measured at its fair value at the balance sheet date (based on the closing price of BMW AG common stock in Xetra trading at 31 December 2019). The total carrying amount of the provision for the share-based remuneration component of current and former Board of Management members and senior heads of department at 31 December 2019 was € 5,851,703 million (2018: € 4,745,518 million). The total expense recognised in 2019 for the share- based remuneration component of current and former Board of Management members and senior heads of department was € 1,979,477 million (2018: € 609,890 million). The fair value of the programmes for Board of Manage- ment members and senior heads of department at the date of grant of the share-based remuneration com- ponents was € 1,374,798 (2018: € 1,919,680 million), based on a total of 19,983 shares (2018: 22,245 shares) of BMW AG common stock or a corresponding cash- based settlement measured at the relevant market share price prevailing on the grant date. Further details on the remuneration of the Manage- ment Board are provided in the Compensation Report, which is part of the Combined Management Report. 42 Declaration with respect to the Corporate Governance Code The Board of Management and the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft have issued the prescribed Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act. It is included in the Corporate Governance State- ment, which is available on the BMW Group website at www.bmwgroup.com / ir. Group Financial Statements 43 Compensation of members of the Board of Management and Supervisory Board The total compensation of the current members of the Board of Management and the Supervisory Board of BMW AG expensed for the financial year 2019 in accordance with IFRS comprised the following: in € million 2019 2018 Compensation to members of the Board of Management Fixed remuneration Variable remuneration thereof Performance Cash Plan Share-based remuneration component Allocation to pension provisions Benefits in conjunction with the termination of board activity Compensation to members of the Supervisory Board Fixed compensation and attendance fees Variable compensation Total expense thereof due within one year 30.0 8.1 20.9 8.3 1.0 2.9 7.1 5.6 2.0 3.6 45.6 28.6 28.8 8.2 20.3 5.3 0.3 3.4 3.9 5.6 2.0 3.6 41.7 30.7 Since the financial year 2018, variable cash com- pensation has been supplemented by a multi-year and future-oriented Performance Cash Plan (PCP). The PCP evaluation period comprises three years, the grant year and the two subsequent years. The PCP bonus is paid out after the end of the three-year evaluation period. The total remuneration of former members of the Board of Management and their dependants amounted to € 16.0 million (2018: € 9.2 million). Pension obligations to current members of the Board of Management are covered by provisions amounting to € 14.6 million (2018: € 19.7 million), determined in accordance with IAS 19. Pension obligations to former members of the Board of Management and their surviving dependants, also determined in accordance with IAS 19, amounted to € 113.1 million (2018: € 91.0 million). 183 The compensation arrangements applicable for members of the Supervisory Board for the financial year 2019 do not include any stock options, value appreciation rights comparable to stock options or any other stock-based compensation components. Apart from vehicle sales, service loaners, vehicle lease and financing contracts at customary conditions, no advances or loans were granted to members of the Board of Management and the Supervisory Board of BMW AG or its subsidiaries, nor were any contingent liabilities entered into on their behalf. Further details about the remuneration of current members of the Board of Management and the Supervisory Board can be found in the Compensa- tion Report, which is part of the Combined Manage- ment Report. 44 Events after the end of the reporting period On 30 January 2020, the World Health Organisation (WHO) declared an international health emergency due to the outbreak of coronavirus. Since 11 March the WHO has characterised the spread of the corona- virus as a pandemic. The continuing spread of the coronavirus and the impact on the business development of the BMW Group is being continually monitored. Based on current developments, the BMW Group expects that the increasing spread of the coronavirus and the necessary containment measures will have a nega- tive impact on BMW Group vehicle deliveries in all key sales markets. Risks also exist for upstream and downstream processes, for example, through possible bottlenecks due to supply shortages. For the Financial Services segment, risk provisioning expense is expected to increase. Current assessments and assumptions for the finan- cial year 2020, to the extent already known to the BMW Group, have been taken into account and described in the outlook report. Apart from these assessments, no further significant negative effects are known or can be estimated at the present time. However, further negative effects could arise in the course of the year. No other events have occurred since the end of the financial year that could have a major impact on the results of operations, financial position and net assets of BMW AG and the BMW Group. SEGMENT INFORMATION 184 Notes to the Group Financial Statements Segment Information 45 Explanatory notes to segment information Information on reportable segments For the purposes of presenting segment information, the activities of the BMW Group are divided into operating segments in accordance with IFRS 8. The segmentation follows the internal management and reporting system and takes account of the or gan- isa tio nal structure of the BMW Group based on the va rious products and services of the reportable segments. The activities of the BMW Group are broken down into the operating segments Automotive, Motorcycles, Financial Services and Other Entities. Within the Automotive segment the BMW Group devel- ops, manufactures, assembles and sells automobiles and off-road vehicles, under the brands BMW, MINI and Rolls-Royce as well as spare parts, accessories and mobility services. BMW and MINI brand products are sold in Germany through branches of BMW AG and by independent, authorised dealerships. Sales outside Germany are handled primarily by subsidiary companies and by independent import companies in some markets. Rolls-Royce brand vehicles are sold in the USA as well as in China, Korea, Italy, Russia and Thailand via subsidiary companies and elsewhere by independent, authorised dealerships. Activities relating to the development, manufacture, assembly and sale of motorcycles as well as spare parts and accessories are reported in the Motorcycles segment. Automobile leasing, fleet business, multi-brand business, retail and dealership financing, customer deposit business and insurance activities are the main activities allocated to the Financial Services segment. Holding and Group financing companies are re- ported in the Other Entities segment. This segment also includes the operating companies BMW (UK) Investments Ltd. and Bavaria Lloyd Reisebüro GmbH, which are not allocated to one of the other segments. Internal management and reporting Segment information is prepared as a general rule in conformity with the accounting policies adopted for preparing and presenting the Group Financial Statements. Exceptions to this general principle include the treatment of inter-segment warranties, the earnings impact of which is allocated to the Automotive and Financial Services segments on the basis used internally to manage the business. In addition, intragroup repurchase agreements between the Automotive and Financial Services segments pursuant to IFRS 15, impairment allowances on intragroup receivables and changes in the value of consolidated other investments pursuant to IFRS 9 are also excluded. Intragroup leasing arrangements are not reflected in the internal management and reporting system on a IFRS 16 basis and therefore, in accordance with IFRS 8, do not give rise to any changes in the presentation of segment information. Inter-segment receivables and payables, provisions, income, expenses and profits are eliminated upon consolidation. Inter-segment revenues are based on market prices. Centralised functions are included in the segments concerned. Expenses for centralised administrative functions allocated to the Financial Services segment are not settled in cash. Group Financial Statements 185 The role of “chief operating decision maker” with respect to resource allocation and performance assessment of the reportable segment is embodied in the full Board of Management. For this purpose, different measures of segment performance as well as segment assets are taken into account in the operating segments. The Automotive and Motorcycles segments are managed on the basis of return on capital employed (RoCE). The relevant measure of segment results used is therefore profit before financial result. Capital employed is the corresponding measure of segment assets used to determine how to allocate resources and comprises all current and non- current operational assets after deduction of liabilities used operationally which are generally not subject to interest (e. g. trade payables). The success of the Financial Services segment is mea- sured on the basis of return on equity (RoE). Profit before tax therefore represents the relevant measure of segment earnings. The measure of segment assets in the Financial Services segment corresponds to net assets, defined as total assets less total liabilities. The success of the Other Entities segment is assessed on the basis of profit or loss before tax. The corre- sponding measure of segment assets used to manage the Other Entities segment is total assets less asset- side income tax items and intragroup investments. 186 Notes to the Group Financial Statements Segment Information Segment information by operating segment is as follows: in € million 2019 2018* 2019 2018 2019 2018* 2019 2018 2019 2018* 2019 2018* Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group SeGMent InFoRMAtIon by opeRAtInG SeGMent External revenues Inter-segment revenues Total revenues Segment result Result from equity accounted investments Capital expenditure on non-current assets Depreciation and amortisation on non-current assets in € million Segment assets Investments accounted for using the equity method 73,624 18,058 91,682 4,499 136 7,607 5,853 68,252 17,594 85,846 6,182 632 7,853 4,982 2,374 – 6 2,368 194 – 149 110 2,176 – 3 2,173 175 – 147 97 28,210 1,388 29,598 2,272 – 27,544 11,142 26,425 1,280 27,705 2,143 – 24,767 10,122 Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018* 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018* 31. 12. 2019 31. 12. 2018* 16,193 3,199 13,836 2,624 712 – 618 – 15,545 14,806 – – 106,038 84,512 89,546 95,166 228,034 208,938 Segment assets – – 3,199 2,624 Investments accounted for using the equity method SeGMent InFoRMAtIon by opeRAtInG SeGMent External revenues Inter-segment revenues Total revenues Segment result Result from equity accounted investments Capital expenditure on non-current assets Depreciation and amortisation on non-current assets – 96 – 45 – – 104,210 96,855 – 19,443 – 18,875 – – – 19,443 – 18,875 104,210 96,855 249 – – 7,003 – 6,356 1,172 – – 6,174 – 6,600 7,118 136 28,297 10,749 9,627 632 26,593 8,601 2 3 5 – – – – 2 4 6 – – – – * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Group Financial Statements187 in € million 2019 2018* 2019 2018 2019 2018* 2019 2018 2019 2018* 2019 2018* Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group 73,624 18,058 91,682 4,499 136 7,607 5,853 68,252 17,594 85,846 6,182 632 7,853 4,982 2,374 – 6 2,368 194 – 149 110 2,176 – 3 2,173 175 – 147 97 28,210 1,388 29,598 2,272 – 27,544 11,142 26,425 1,280 27,705 2,143 – 24,767 10,122 2 3 5 2 4 6 – – 104,210 96,855 – 19,443 – 18,875 – – – 19,443 – 18,875 104,210 96,855 SeGMent InFoRMAtIon by opeRAtInG SeGMent External revenues Inter-segment revenues Total revenues – 96 – 45 – – – – – – 249 – – 7,003 – 6,356 1,172 – – 6,174 – 6,600 7,118 136 28,297 10,749 9,627 632 26,593 8,601 Segment result Result from equity accounted investments Capital expenditure on non-current assets Depreciation and amortisation on non-current assets Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018* 31. 12. 2019 31. 12. 2018 31. 12. 2019 31. 12. 2018* 31. 12. 2019 31. 12. 2018* Investments accounted for using the equity method 16,193 3,199 13,836 2,624 712 – 618 – 15,545 14,806 – – 106,038 84,512 89,546 95,166 228,034 208,938 Segment assets – – – – 3,199 2,624 Investments accounted for using the equity method * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. SeGMent InFoRMAtIon by opeRAtInG SeGMent External revenues Inter-segment revenues Total revenues Segment result Result from equity accounted investments Capital expenditure on non-current assets Depreciation and amortisation on non-current assets in € million Segment assets 188 Notes to the Group Financial Statements Segment Information Write-downs on inventories to their net realisable value amounting to € 126 million (2018: € 54 million) were recognised by the Automotive segment in the financial year 2019. The reversal of impairment losses increased the segment result of the Automotive seg- ment by € 22 million (2018: € 22 million). The result of the Financial Services segment was negatively impacted by impairment losses totalling € 254 million (2018: € 302 million) recognised on leased products. Income from the reversal of impairment losses on leased products amounted to € 95 million (2018: € 118 million). The Other Entities’ segment result includes interest and similar income amounting to € 1,515 million (2018: € 1,178 million) and interest and similar expenses amounting to € 1,419 million (2018: € 1,145 million). The information disclosed for capital expenditure and depreciation and amortisation relates to non-current property, plant and equipment, intangible assets and leased products. The total of the segment figures can be reconciled to the corresponding Group figures as follows: in € million 2019 2018* Reconciliation of segment result Total for reportable segments 6,869 8,455 Financial result of Automotive segment Financial result of Motorcycles segment Elimination of inter-segment items – 32 – 7 288 795 – 6 383 Group profit before tax from continuing operations 7,118 9,627 Reconciliation of capital expenditure on non-current assets Total for reportable segments Elimination of inter-segment items 35,300 – 7,003 32,767 – 6,174 Total Group capital expenditure on non-current assets 28,297 26,593 Reconciliation of depreciation and amortisation on non-current assets Total for reportable segments Elimination of inter-segment items 17,105 – 6,356 15,201 – 6,600 Total Group depreciation and amortisation on non-current assets 10,749 8,601 in € million 31. 12. 2019 31. 12. 2018* Reconciliation of segment assets Total for reportable segments 138,488 113,772 Non-operating assets – Automotive 58,612 48,639 Liabilities of Automotive segment not subject to interest Non-operating assets – Motorcycles Liabilities of Motorcycles segment not subject to interest Total liabilities – Financial Services segment Non-operating assets – Other Entities segment 38,257 34,643 47 688 45 613 140,955 131,415 6,859 7,084 Elimination of inter-segment items – 155,872 – 127,273 Total Group assets 228,034 208,938 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. Group Financial StatementsThe reconciliation of segment figures to the corre- sponding total Group figures shows the elimination of inter-segment items. Revenues with other segments result mainly from the sale of vehicles, for which the Financial Services segment has concluded a financing or lease contract. Eliminations of inter-segment items in the reconciliation to the Group profit before tax, capital expenditure and depreciation and amortisation mainly result from the sale of vehicles in the Automo- tive segment, which are subsequently accounted for as leased vehicles in the Financial Services segment. In the reconciliation of segment assets to Group assets, eliminations relate mainly to intragroup financing balances. In the information by region, external sales are based on the location of the customer. The information dis- closed for non-current assets relates to property, plant and equipment, intangible assets and leased products. Eliminations disclosed for non-current assets relate to leased products. 189 Information by region in € million Germany China USA Rest of Europe Rest of Asia Rest of the Americas Other regions Eliminations Group External revenues Non-current assets 2019 2018* 2019 2018* 13,428 20,564 19,720 32,805 11,344 3,904 2,445 – 13,556 18,959 15,979 31,154 10,975 3,591 2,641 – 104,210 96,855 39,237 199 22,470 17,373 1,756 3,834 453 – 7,739 77,583 34,856 90 21,297 15,284 1,565 3,406 388 – 7,855 69,031 * Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 190 Notes to the Group Financial Statements List of Investments at 31 December 2019 LIST OF INVESTMENTS AT 31 DECEMBER 2019 46 List of investments at 31 December 2019 The List of investments of BMW AG pursuant to § 285 and § 313 HGB is presented below. Disclosures for equity and earnings and for investments are not made if they are of “minor significance” for the results of operations, financial position and net assets of BMW AG pursuant to § 286 (3) sentence 1 no. 1 HGB and § 313 (3) sentence 4 HGB. It is also shown in the list which subsidiaries apply the exemptions available in § 264 (3) and § 264 b HGB with regard to the publica- tion of annual financial statements and the drawing up of a management report and / or notes to the financial statements (footnotes 5 and 6). The Group Financial Statements of BMW AG serve as exempting consoli- dated financial statements for these companies. Affiliated companies (subsidiaries) of BMW AG at 31 December 2019 • 71 Companies DoMESTic 1, 12 BMW Beteiligungs GmbH & Co. KG, Munich 6 BMW INTEC Beteiligungs GmbH, Munich 3, 6 BMW Bank GmbH, Munich 3 BMW Finanz Verwaltungs GmbH, Munich BMW Verwaltungs GmbH, Munich 3, 6 Parkhaus Oberwiesenfeld GmbH, Munich BMW High Power Charging Beteiligungs GmbH, Munich 4, 6 Alphabet Fuhrparkmanagement GmbH, Munich 4 Alphabet International GmbH, Munich 4, 5, 6 BMW Hams Hall Motoren GmbH, Munich 4, 5, 6 BMW Vertriebszentren Verwaltungs GmbH, Munich BMW Fahrzeugtechnik GmbH, Eisenach 3, 5, 6 BMW Anlagen Verwaltungs GmbH, Munich 3, 6 Bavaria Wirtschaftsagentur GmbH, Munich 3, 5, 6 Rolls-Royce Motor Cars GmbH, Munich 4, 5, 6 BAVARIA-LLOYD Reisebüro GmbH, Munich BMW M GmbH Gesellschaft für individuelle Automobile, Munich 3, 5, 6 BMW Vermögensverwaltungs GmbH, Munich Bürohaus Petuelring GmbH, Munich LARGUS Grundstücks-Verwaltungsgesellschaft mbH, Munich FoREiGn 2 Europe 12 BMW Holding B. V., The Hague BMW International Holding B. V., Rijswijk 10 BMW Österreich Holding GmbH, Steyr BMW (UK) Holdings Ltd., Farnborough BMW International Investment B. V., The Hague BMW España Finance S. L., Madrid BMW Financial Services (GB) Ltd., Farnborough BMW (Schweiz) AG, Dielsdorf BMW Motoren GmbH, Steyr BMW (UK) Manufacturing Ltd., Farnborough BMW Finance S. N. C., Guyancourt BMW Italia S. p. A., San Donato Milanese Equity in € million Profit / loss in € million Capital invest- ment in % 4,594 3,558 1,988 327 153 – – – – – – – – – – – – – – – 21,702 9,111 3,106 1,431 1,246 1,125 1,085 1,020 968 578 495 380 – 6 – – 1 – 1 – – – – – – – – – – – – – – – 3,941 1,141 791 589 7 55 219 95 193 97 44 43 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Group Financial Statements BMW (UK) Ltd., Farnborough BMW Russland Trading OOO, Moscow BMW i Ventures SCS SICAV-RAIF, Senningerberg ALPHABET (GB) Ltd., Farnborough Rolls-Royce Motor Cars Ltd., Farnborough BMW Iberica S. A., Madrid BMW France S. A. S., Montigny-le-Bretonneux BMW Finance N. V., The Hague BMW Austria Leasing GmbH, Salzburg BMW Financial Services Scandinavia AB, Sollentuna BMW Austria Bank GmbH, Salzburg Alphabet Nederland B. V., Breda 10 BMW Vertriebs GmbH, Salzburg Alphabet Belgium Long Term Rental NV, Aartselaar BMW Bank OOO, Moscow BMW Finanzdienstleistungen (Schweiz) AG, Dielsdorf Bavaria Reinsurance Malta Ltd., Floriana BMW Malta Ltd., Floriana BMW Financial Services Belgium S. A. / N. V., Bornem BMW Belgium Luxembourg S. A. / N. V., Bornem BMW Northern Europe AB, Stockholm BMW Financial Services B. V., Rijswijk 10 BMW Norge AS, Fornebu Alphabet Italia Fleet Management S. p. A., Rome Alphabet España Fleet Management S. A. U., Madrid Swindon Pressings Ltd., Farnborough BMW Financial Services Polska Sp. z o. o., Warsaw BMW Austria GmbH, Salzburg BMW Services Ltd., Farnborough Alphabet France Fleet Management S. N. C., Saint-Quentin-en-Yvelines Alphabet Austria Fuhrparkmanagement GmbH, Salzburg BMW Retail Nederland B. V., The Hague Alphabet Fuhrparkmanagement (Schweiz) AG, Dielsdorf BMW Portugal Lda., Porto Salvo BMW Financial Services (Ireland) DAC, Dublin BMW Financial Services Denmark A / S, Copenhagen BMW Hellas Trade of Cars A. E., Kifissia BMW Nederland B. V., Rijswijk Oy BMW Suomi AB, Helsinki BMW Distribution S. A. S., Vélizy-Villacoublay BMW Amsterdam B. V., Amsterdam Park Lane Ltd., Farnborough BMW Renting (Portugal) Lda., Porto Salvo BMW Romania S. R. L., Bucharest 11 BMW Italia Retail S. r. l., Rome BMW Automotive (Ireland) Ltd., Dublin Alphabet France S. A. S., Saint-Quentin-en-Yvelines BMW Danmark A / S, Copenhagen BMW Czech Republic s. r. o., Prague BMW Madrid S. L., Madrid BMW Slovenská republika s. r. o., Bratislava Alphabet UK Ltd., Glasgow BMW Slovenia distribucija motornih vozil d. o. o., Ljubljana 11 BMW Bulgaria EOOD, Sofia 11 191 373 291 288 277 233 228 225 211 176 165 138 129 121 100 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 90 189 20 58 91 34 35 2 22 22 11 29 30 10 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 192 Notes to the Group Financial Statements List of Investments at 31 December 2019 Alphabet Polska Fleet Management Sp. z o. o., Warsaw Société Nouvelle WATT Automobiles S. A. R. L., Saint-Quentin-en-Yvelines BMW (UK) Investments Ltd., Farnborough BiV Carry I SCS, Senningerberg BMW (UK) Capital plc, Farnborough Alphabet Luxembourg S. A., Leudelange Riley Motors Ltd., Farnborough BMW Central Pension Trustees Ltd., Farnborough Triumph Motor Company Ltd., Farnborough BLMC Ltd., Farnborough Sutum ROM GmbH, Salzburg 11, 14 Bavarian Sky S. A., Compartment German Auto Loans 6, Luxembourg 13 Bavarian Sky S. A., Compartment German Auto Loans 7, Luxembourg 13 Bavarian Sky S. A., Compartment German Auto Loans 8, Luxembourg 13 Bavarian Sky S. A., Compartment German Auto Loans 9, Luxembourg 13 Bavarian Sky S. A., Compartment German Auto Leases 5, Luxembourg 13 Bavarian Sky S. A., Compartment A, Luxembourg 13 Bavarian Sky S. A., Compartment B, Luxembourg 13 Bavarian Sky Europe S. A. Compartment A, Luxembourg 13 Bavarian Sky FTC, Compartment French Auto Leases 3, Paris 13 Bavarian Sky UK 1 plc, London 13 Bavarian Sky UK 2 plc, London 13 Bavarian Sky UK A Ltd., London 13 Bavarian Sky UK B Ltd., London 13 Bavarian Sky UK C Ltd., London 13 The Americas BMW (US) Holding Corp., Wilmington, Delaware BMW Manufacturing Co. LLC, Wilmington, Delaware BMW Bank of North America Inc., Salt Lake City, Utah Financial Services Vehicle Trust, Wilmington, Delaware BMW Financial Services NA LLC, Wilmington, Delaware BMW Canada Inc., Richmond Hill, Ontario BMW of North America LLC, Wilmington, Delaware BMW do Brasil Ltda., Araquari BMW US Capital LLC, Wilmington, Delaware BMW Financeira S. A. Credito, Financiamento e Investimento, São Paulo BMW SLP, S. A. de C. V., Villa de Reyes BMW de Mexico S. A. de C. V., Mexico City BMW of Manhattan Inc., Wilmington, Delaware Rolls-Royce Motor Cars NA LLC, Wilmington, Delaware BMW Financial Services de Mexico S. A. de C. V. SOFOM, Mexico City BMW Leasing de Mexico S. A. de C. V., Mexico City BMW Insurance Agency Inc., Wilmington, Delaware BMW de Argentina S. A., Buenos Aires BMW Consolidation Services Co. LLC, Wilmington, Delaware BMW Leasing do Brasil S. A., São Paulo BMW Acquisitions Ltda., São Paulo BMW Manufacturing Indústria de Motos da Amazônia Ltda., Manaus SB Acquisitions LLC, Wilmington, Delaware BMW Auto Leasing LLC, Wilmington, Delaware BMW FS Securities LLC, Wilmington, Delaware BMW FS Funding Corp., Wilmington, Delaware BMW Facility Partners LLC, Wilmington, Delaware – – – – – – – – – – – – – – – – – – – – – – – – – 4,012 2,281 1,480 889 692 586 493 179 140 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 52 452 160 – 670 968 174 632 9 – 97 – – – – – – – – – – – – – – – – – – 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Group Financial StatementsBMW Manufacturing LP, Woodcliff Lake, New Jersey BMW FS Receivables Corp., Wilmington, Delaware BMW Receivables 1 Inc., Richmond Hill, Ontario BMW Receivables Ltd. Partnership, Richmond Hill, Ontario BMW Receivables 2 Inc., Richmond Hill, Ontario BMW Extended Service Corp., Wilmington, Delaware BMW Vehicle Lease Trust 2017-2, Wilmington, Delaware 13 BMW Vehicle Lease Trust 2018-1, Wilmington, Delaware 13 BMW Vehicle Lease Trust 2019-1, Wilmington, Delaware 13 BMW Vehicle Owner Trust 2016-A, Wilmington, Delaware 13 BMW Vehicle Owner Trust 2018-A, Wilmington, Delaware 13 BMW Vehicle Owner Trust 2019-A, Wilmington, Delaware 13 BMW Floorplan Master Owner Trust Series 2018-1, Wilmington, Delaware 13 BMW Canada 2018-A, Richmond Hill, Ontario 13 BMW Canada Auto Trust 2017-1, Richmond Hill, Ontario 13 BMW Canada Auto Trust 2018-1, Richmond Hill, Ontario 13 BMW Canada Auto Trust 2019-1, Richmond Hill, Ontario 13 Africa BMW (South Africa) (Pty) Ltd., Pretoria BMW Financial Services (South Africa) (Pty) Ltd., Midrand SuperDrive Investments (RF) Ltd., Cape Town 13 Asia BMW Automotive Finance (China) Co. Ltd., Beijing BMW Financial Services Korea Co. Ltd., Seoul BMW Japan Finance Corp., Tokyo BMW China Automotive Trading Ltd., Beijing BMW Japan Corp., Tokyo Herald International Financial Leasing Co. Ltd., Tianjin BMW (Thailand) Co. Ltd., Bangkok BMW Korea Co. Ltd., Seoul BMW Leasing (Thailand) Co. Ltd., Bangkok BMW India Financial Services Private Ltd., Gurgaon BMW Manufacturing (Thailand) Co. Ltd., Rayong BMW Malaysia Sdn Bhd, Kuala Lumpur BMW China Services Ltd., Beijing BMW Asia Technology Centre Sdn Bhd, Kuala Lumpur PT BMW Indonesia, Jakarta BMW Holding Malaysia Sdn Bhd, Kuala Lumpur BMW Asia Pte. Ltd., Singapore BMW India Private Ltd., Gurgaon BMW Credit (Malaysia) Sdn Bhd, Kuala Lumpur BMW Asia Pacific Capital Pte Ltd., Singapore BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur BMW Tokio Corp., Tokyo 2015-2 ABL, Tokyo 13 2016-1 ABL, Tokyo 13 2016-2 ABL, Tokyo 13 2017-1 ABL, Tokyo 13 2017-2 ABL, Tokyo 13 2017-3 ABL, Tokyo 13 2018-1 ABL, Tokyo 13 2018-2 ABL, Tokyo 13 193 – – – – – – – – – – – – – – – – – 861 167 – 2,441 568 541 502 232 228 205 196 174 112 107 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 109 11 – 321 49 65 456 64 29 83 32 18 1 45 – – – – – – – – – – – – – – – – – – – 100 100 100 100 100 100 0 0 0 0 0 0 0 0 0 0 0 100 100 0 58 100 100 100 100 58 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 0 0 0 194 Notes to the Group Financial Statements List of Investments at 31 December 2019 2018-3 ABL, Tokyo 13 2019-1 ABL, Tokyo 13 2019-2 ABL, Tokyo 13 2019-3 ABL, Tokyo 13 Bavarian Sky China 2018-1, Beijing 13 Bavarian Sky China 2018-2, Beijing 13 Bavarian Sky China 2019-1, Beijing 13 Bavarian Sky China 2019-2, Beijing 13 Bavarian Sky China 2019-3, Beijing 13 Oceania BMW Australia Finance Ltd., Mulgrave BMW Australia Ltd., Melbourne BMW Financial Services New Zealand Ltd., Auckland BMW New Zealand Ltd., Auckland BMW Sydney Pty. Ltd., Sydney BMW Melbourne Pty. Ltd., Melbourne BMW Australia Trust 2011-2, Mulgrave 13 Bavarian Sky Australia Trust A, Mulgrave 13 bMW AG’s non-consolidated companies at 31 december 2019 • 72 Companies DoMESTic 7 Alphabet Fleetservices GmbH, Munich 4 Automag GmbH, Munich BMW Car IT GmbH, Munich 4 BMW i Ventures GmbH, Munich FoREiGn 7 Europe Alphabet Insurance Services Polska Sp. z o. o., Warsaw BMW (GB) Ltd., Farnborough BMW (UK) Pensions Services Ltd., Hams Hall BMW Car Club Ltd., Farnborough BMW Drivers Club Ltd., Farnborough BMW Financial Services Czech Republic s. r. o., Prague BMW Group Benefit Trust Ltd., Farnborough BMW Hungary Korlátolt Felelősségű Társaság, Vecsés BMW i Ventures B. V., The Hague BMW Manufacturing Hungary Kft., Vecsés BMW Manufacturing Russland OOO, Kaliningrad BMW Mobility Development Center s. r. o., Prague BMW Motorsport Ltd., Farnborough BMW Russland Automotive OOO, Kaliningrad Cezwei HU GmbH, Salzburg Cezwei PL GmbH, Salzburg John Cooper Garages Ltd., Farnborough John Cooper Works Ltd., Farnborough OOO BMW Leasing, Moscow U. T. E. Alphabet España-Bujarkay, Sevilla – – – – – – – – – 400 169 – – – – – – – – – – – – – – – 29 12 – – – – – – 0 0 0 0 0 0 0 0 0 100 100 100 100 100 100 0 0 Equity in € million Profit / loss in € million Capital invest- ment in % – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 Group Financial StatementsThe Americas 217-07 Northern Boulevard Corp., Wilmington, Delaware BMW Experience Centre Inc., Richmond Hill, Ontario BMW i Ventures Inc., Wilmington, Delaware BMW i Ventures LLC, Wilmington, Delaware BMW Leasing de Argentina S. A., Buenos Aires BMW Operations Corp., Wilmington, Delaware BMW Technology Corp., Wilmington, Delaware Designworks / USA Inc., Newbury Park, California MINI Business Innovation LLC, Wilmington, Delaware Mini Urban X Accelerator SPV LLC, Wilmington, Delaware Toluca Planta de Automoviles S. A. de C. V., Mexico City Africa BMW Automobile Distributors (Pty) Ltd., Midrand BPF Midrand Property Holdings (Pty) Ltd., Midrand Multisource Properties (Pty) Ltd., Midrand Asia BMW China Investment Ltd., Beijing BMW Finance (United Arab Emirates) Ltd., Dubai BMW Financial Services Hong Kong Ltd., Hong Kong BMW Financial Services Singapore Pte Ltd., Singapore BMW Hong Kong Services Ltd., Hong Kong BMW India Foundation, Gurgaon BMW India Leasing Private Ltd., Gurgaon BMW Insurance Services Korea Co. Ltd., Seoul BMW Middle East Retail Competency Centre DWC-LLC, Dubai BMW Mobility Services Ltd., Sichuan Tianfu New Area (Chengdu Section) BMW Philippines Corp., Manila BMW Technology Office Israel Ltd., Tel Aviv Herald Hezhong (Peking) Automotive Trading Co. Ltd., Beijing THEPSATRI Co. Ltd., Bangkok 195 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 70 100 100 100 196 Notes to the Group Financial Statements List of Investments at 31 December 2019 bMW AG’s associated companies, joint ventures and joint operations at 31 december 2019 • 73 Companies Joint ventures – equity accounted doMeStIC IONITY Holding GmbH & Co. KG, Munich 8 Blitz 18-353 GmbH, Munich 8, 11, 14 FoReIGn BMW Brilliance Automotive Ltd., Shenyang 8 Associated companies – equity accounted FoReIGn THERE Holding B. V., Amsterdam 8 Joint operations – proportionately consolidated entities FoReIGn Spotlight Automotive Ltd., Zhangjiagang 8, 11 Not equity accounted or proportionately consolidated entities DoMESTic 7 Encory GmbH, Unterschleißheim Digital Energy Solutions GmbH & Co. KG, Munich The Retail Performance Company GmbH, Munich PDB – Partnership for Dummy Technology and Biomechanics GbR, Gaimersheim FoREiGn 7 Bavarian & Co Co. Ltd., Incheon BMW Albatha Finance PSC, Dubai BMW Albatha Leasing LLC, Dubai BMW AVTOTOR Holding B. V., Amsterdam Critical TW S. A., Porto Equity in € million Profit / loss in € million Capital invest- ment in % 205 2,106 – 24 – 1,805 5,293 1,947 25 50 50 1,597 – 383 29.7 218 – – – – – – – – – – – – – – – – – – – 50 50 50 50 20 20 40 40 50 51 Group Financial StatementsbMW AG’s participations at 31 december 2019 • 74 Companies DoMESTic 7 Deutsches Forschungszentrum für Künstliche Intelligenz GmbH, Kaiserslautern GSB Sonderabfall-Entsorgung Bayern GmbH, Baar-Ebenhausen Hubject GmbH, Berlin IVM Industrie-Verband Motorrad GmbH & Co. Dienstleistungs KG, Essen Joblinge gemeinnützige AG Berlin, Berlin Joblinge gemeinnützige AG Leipzig, Leipzig Joblinge gemeinnützige AG München, Munich Racer Benchmark Group GmbH, Landsberg am Lech SGL Carbon SE, Wiesbaden FoREiGn 7 SGL Composites LLC, Dover, Delaware 197 Equity in € million Profit / loss in € million Capital invest- ment in % – – – – – – – – – – – – – – – – – – – – 4,6 3,1 15,6 20,4 9,8 16,7 6,2 9,1 18,3 49,0 1 The amounts shown for the German subsidiaries correspond to the annual financial statements drawn up in accordance with German accounting requirements (HGB). 2 The amounts shown for the foreign subsidiaries correspond to the annual financial statements drawn up in accordance with uniform IFRS rules. Equity and earnings not denominated in euro are translated into euro using the closing exchange rate at the balance sheet date. 3 Profit and Loss Transfer Agreement with BMW AG. 4 Profit and Loss Transfer Agreement with a subsidiary of BMW AG. 5 Exemption from drawing up a management report applied in accordance with § 264 (3) and § 264 b HGB. 6 Exemption from publication of financial statements applied in accordance with § 264 (3) and § 264 b HGB. 7 These entities are neither consolidated nor accounted for using the equity method due to their overall immateriality for the Group Financial Statements. 8 The amounts shown for entities accounted for using the equity method and for proportionately consolidated entities correspond to the annual financial statements drawn up in accordance with uniform IFRS rules. Equity not denominated in euro is translated into euro using the closing exchange rate at the balance sheet date, earnings are translated using the average rate. 9 Including power to appoint representative bodies. 10 Exemption pursuant to Article 2:403 of the Civil Code of the Netherlands (Burgerlijk Wetboek). 11 First-time consolidation. 12 Deconsolidation in the financial year 2019: DriveNow GmbH & Co. KG, Munich, DriveNow Verwaltungs GmbH, Munich, DriveNow Austria GmbH, Vienna, DriveNow UK Ltd., London, DriveNow Sverige AB, Sollentuna, DriveNow Belgium S. p. r. l., Brussels, DriveNow Italy S. r. l., Milan, BMW Coordination Center V. o. F., Bornem, BMW Services Belgium N. V., Bornem, BMW Roma S. r. l., Rome (merger), APD Industries plc, Birmingham, BMW Den Haag B. V., The Hague 13 Control on basis of economic dependence. 14 Other: Blitz 18-353 GmbH, Munich, has been operating under the name YOUR NOW GmbH since 3 January 2020. Sutum ROM GmbH was merged with BMW Romania S. R. L., Bucharest, effective 14 January 2020. 198 Notes to the Group Financial Statements List of Investments at 31 December 2019 Munich, 16 March 2020 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Oliver Zipse Klaus Fröhlich Ilka Horstmeier Dr. Milan Nedeljković Pieter Nota Dr. Nicolas Peter Dr.-Ing. Andreas Wendt Group Financial Statements4 Corporate Governance Company’s Govern- ing Constitution Board of Management Supervisory Board Compliance Compensation Report CORPORATE GOVERNANCE Page 200 Corporate Governance (Part of the Combined Management Report) Information on the Company’s Governing Constitution Page 200 Page 201 Board of Management Page 201 Supervisory Board Page 202 Shareholders and Annual General Meeting Page 202 Declaration of Compliance Page 202 Corporate Governance Statement Page 203 Members of the Board of Management Page 204 Members of the Supervisory Board Page 207 Overview of Supervisory Board committees and their composition Page 208 Compliance and Human Rights in the BMW Group Page 211 Compensation Report (Part of the Combined Management Report) Page 242 Glossary – Explanation of Key Figures Page 246 Responsibility Statement by the Company’s Legal Representatives Page 247 Independent Auditor’s Report 200 Information on the Company’s Governing Constitution Board of Management Supervisory Board CORPORATE GOVERNANCE Good corporate governance – acting in accordance with the principles of responsible management aimed at increasing enterprise value on a sustainable basis – is an essential requirement for the BMW Group embracing all areas of the business. Corporate culture within the BMW Group is founded on transparent reporting and internal communication, corporate governance in the interest of all stakeholders, trustful cooperation both of the Board of Management and the Supervisory Board as well as among employees, and compliance with applicable law. The Board of Management and Supervisory Board report below on corporate governance at BMW AG in accordance with Section 3.10 of the German Corpo- rate Governance Code (DCGK) in the version dated 7 February 2017 and principle 22 DCGK in the version dated 16 December 2019. Information on the Company’s Governing Constitution The designation BMW Group comprises Bayerische Motoren Werke Aktiengesellschaft (BMW AG) and its Group entities. BMW AG is a stock corporation (Aktien gesellschaft) within the meaning of the German Stock Corporation Act (Aktiengesetz) and has its registered office in Munich, Germany. It has three representative bodies: the Annual General Meeting, the Supervisory Board and the Board of Management. The duties and powers of those bodies derive from the Stock Corporation Act and the Arti- cles of Incorporation of BMW AG. Shareholders, as the owners of the business, exercise their rights at the Annual General Meeting. The Board of Manage- ment is responsible for managing the enterprise and is monitored and advised by the Supervisory Board. The Supervisory Board appoints the members of the Board of Management and can, for an important rea- son, revoke an appointment at any time. The Board of Management informs the Supervisory Board and reports to it regularly, promptly and comprehen- sively, in line with the principles of conscientious and faithful accountability and in accordance with the law and the reporting duties determined by the Supervisory Board. The Board of Management requires the approval of the Supervisory Board for certain major business proceedings. The Supervisory Board is not, however, authorised to undertake man- agement measures itself. The close interaction between Board of Management and Supervisory Board in the interests of the enter- prise as described above is also known as a “two-tier board structure”. Corporate GovernanceBoard of Management The Board of Management manages the enterprise under its own responsibility, acting in the best inter- ests of the BMW Group with the aim of achieving sus- tainable growth in value. The interests of shareholders, employees and other stakeholders are also taken into account in the pursuit of this aim. In accordance with § 7 of the Articles of Incorporation, the Board of Management of BMW AG comprises two or more persons; other than that the number of mem- bers of the Board of Management is determined by the Supervisory Board. At 31 December 2019, the Board of Management comprised seven members. The Board of Management decides on the principal guidelines for managing the enterprise, determines and agrees upon the strategic orientation with the Supervisory Board, and ensures its implementation. The Board of Management is also responsible for ensuring that all provisions of law and internal regulations are com- plied with. Further details on compliance within the BMW Group are available in the section “Corporate Governance, Compliance and Human Rights in the BMW Group” of the Annual Report. The Board of Management is also responsible for ensuring that appropriate risk management and risk controlling systems are in place throughout the Group. Members of the Board of Management are required to act in the enterprise’s best interests and may not pursue personal interests in their decisions or take advantage of business opportunities intended for the benefit of the BMW Group. Individual members of the Board of Management of BMW AG are required to disclose any conflicts of interest to the Supervisory Board without delay and inform the other members of the Board of Management accordingly. Deliberations are held and decisions taken by the Board of Management as a collegiate body at full Board meetings, at Product and Customer full Board meetings (since 1 November 2019) and at Sustainability Board meetings (combined with full Board meetings with effect from 1 November 2019). The Board of Manage- ment also deliberates and makes decisions at meetings of its Customer committee (since 1 November 2019) and its Senior Executives and Operations committees. The overall framework for developing business strategies, the use of resources, the implementation of strategies and matters of particular importance to BMW AG are decided upon at full Board of Management meetings. Terms of procedure approved by the Board of Man- agement contain a plan for the allocation of areas of responsibility among the individual Board members. Further information on the composition and work pro cedures of the Board of Management and its com- mittees is available at www.bmwgroup.com / scg (Corporate Governance). 201 Supervisory Board BMW AG’s Supervisory Board is composed of ten shareholder representatives (elected by the Annual General Meeting) and ten employee representatives (elected in accordance with the Co-Determination Act). The ten Supervisory Board members represent- ing employees comprise seven Company employees, including one executive staff representative, and three members elected following nomination by unions. The Supervisory Board has the task of advising and super- vising the Board of Management in its management of BMW AG. It is involved in all decisions of fundamental importance for BMW AG. The Supervisory Board appoints the members of the Board of Management and decides upon the level of compensation they receive. The Supervisory Board can revoke appoint- ments for important reasons. Members of the Supervisory Board of BMW AG are obliged to act in the best interests of the enterprise as a whole. They may not pursue personal interests in their decisions or take advantage of business opportunities intended to benefit the BMW Group. Members of the Supervisory Board are obliged to inform the full Supervisory Board of any conflicts of interest, in particular those resulting from a consultant or executive function with clients, sup- pliers, lenders or other business partners, so that the Supervisory Board can report to the shareholders at the Annual General Meeting on its treatment of the issue. Significant and non-temporary conflicts of interest of a Supervisory Board member result in the termination of mandate. The Supervisory Board regularly assesses the efficiency of its activities. To this end, shared discussion is con- ducted within the Supervisory Board and individual meetings held with the Chairman, prepared on the basis of a questionnaire sent in advance, which is drawn up by the Supervisory Board. The Supervisory Board has stated specific targets for its composition, agreed to a diversity concept and determined a competency profile. Members of the Supervisory Board are responsible for undertaking any training required for the performance of their duties. The Company provides them with appropriate assistance therein. Taking into account the specific circumstances of the BMW Group and the number of Board members, the Supervisory Board has set up a Presiding Board and four committees: the Personnel Committee, the Audit Committee, the Nomination Committee and the Medi- ation Committee. These serve to raise the efficiency of the Supervisory Board’s work and facilitate the handling of complex issues. Declaration of Compliance Once a year, the Board of Management and the Super- visory Board of BMW AG issue a Declaration of Compli- ance pursuant to § 161 of the German Stock Corporation Act (AktG) with regard to the recommendations of the “Government Commission on the German Corporate Governance Code”, as officially published and valid at the date of the Declaration. BMW AG’s current and previous Declarations of Compliance are available online at www.bmwgroup.com / compliancedeclaration (Corporate Governance). In the Declaration of Compliance issued in December 2019, the Board of Management and the Supervisory Board declared that all recommen- dations of the German Corporate Governance Code (version dated 7 February 2017) will be complied with going forward. Corporate Governance Statement Further information on corporate management and governance, including the declaration of compliance according to § 161 of the German Stock Corporation Act, can be found in the Corporate Governance State- ment (sections 289 f and 315 of the German Commer- cial Code (HGB)) at www.bmwgroup.com / compliancedeclaration (Corporate Governance). 202 Supervisory Board Shareholders and Annual General Meeting Declaration of Compliance Corporate Govern- ance Statement Members of the Board of Management Composition of the Presiding Board and the various committees is based on legal requirements, the Arti- cles of Incorporation, rules of procedure and corporate governance principles, while taking into particular account the expertise of Board members. BMW AG ensures that the Supervisory Board and its committees are appropriately equipped to carry out their duties. This includes providing a central Supervisory Board office to support the chairpersons in their coordination work. Further information on the composition and work procedures of the Supervisory Board and its com- mittees is available at www.bmwgroup.com / scg (Corporate Governance). Shareholders and Annual General Meeting The shareholders of BMW AG exercise their rights at the Annual General Meeting. The Annual General Meeting decides in particular on the utilisation of unappropriated profit, the ratification of the acts of the members of the Board of Management and of the Supervisory Board, the appointment of the external auditor, changes to the Articles of Incorporation and specified capital measures and elects the shareholders’ representatives to the Supervisory Board. Moreover, the system for the compensation of mem- bers of the Board of Management is presented to the Annual General Meeting for approval in the case of significant changes, but at least every four years. Shareholders may exercise their voting rights at the Annual General Meeting either in person, via a proxy or via a representative designated by BMW AG. Voting rights may also be exercised by postal vote. Corporate Governance203 Dr. Milan nedeljković (b.1969) Production (since 1 October 2019) Mandates BMW (South Africa) (Pty) Ltd.♦, Chairman (since 1 November 2019) BMW Motoren GmbH ♦, Chairman (Member since 7 October 2019, Chairman since 4 December) pieter nota (b.1964) Customer, Brands, Sales (since 1 April 2019) Sales and Brand BMW, Aftersales BMW Group (until 31 March 2019) Mandates Rolls-Royce Motor Cars Limited ♦, Chairman (since 1 April 2019) dr. nicolas peter (b.1962) Finance Mandates BMW Brilliance Automotive Ltd.♦, Deputy Chairman peter Schwarzenbauer (b.1959) Transformation Electromobility (1 April 2019 until 31 October 2019) MINI, Rolls-Royce, BMW Motorrad, Customer Engagement and Digital Business Innovation BMW Group (until 31 March 2019) Mandates Scout24 AG Rolls-Royce Motor Cars Limited ♦, Chairman (until 31 March 2019) dr.-Ing. Andreas Wendt (b.1958) Purchasing and Supplier Network Production (16 August 2019 until 30 September 2019) General Counsel: dr. Andreas liepe MEMBERS OF THE BOARD OF MANAGEMENT oliver Zipse (b.1964) Chairman (since 16 August 2019) Production (until 15 August 2019) Mandates BMW (South Africa) (Pty) Ltd.♦, Chairman (until 31 October 2019) BMW Motoren GmbH ♦, Chairman (until 7 October 2019) harald Krüger (b.1965) Chairman (until 15 August 2019) Mandates Deutsche Telekom AG Milagros Caiña Carreiro-Andree (b.1962) Human Resources, Labour Relations Director (until 31 October 2019) Mandates LOGISTRIAL Real Estate AG ♦ (23 September 2019 until 17 December 2019) Klaus Fröhlich (b.1960) Development Mandates E.ON SE ilka Horstmeier (b.1969) Human Resources, Labour Relations Director (since 1 November 2019) ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. Dr. jur. Karl-Ludwig Kley (b.1951) Member since 2008, elected until the AGM 2021 Deputy Chairman of the Supervisory Board Chairman of the Supervisory Board of E.ON SE and of the Deutsche Lufthansa Aktiengesellschaft Mandates E.ON SE, Chairman Deutsche Lufthansa Aktiengesellschaft, Chairman christiane Benner 2 (b.1968) Member since 2014, elected until the AGM 2024 Second Chairwoman of IG Metall Mandates Continental AG, Deputy Chairwoman Dr. rer. pol. Kurt Bock (b.1958) Member since 2018, elected until the AGM 2023 Former Chairman of the Board of Management of BASF SE Mandates FUCHS PETROLUB SE, Chairman (since 7 May 2019) Fresenius Management SE ♦ Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in Munich Verena zu Dohna-Jaeger 2 (b.1975) Member since 16 May 2019, elected until the AGM 2024 Department head with the Executive Board of IG Metall Mandates ABB AG Franz Haniel (b.1955) Member since 2004 until 16 May 2019 Entrepreneur Mandates Franz Haniel & Cie. GmbH ♦, Chairman DELTON Technology SE ♦ Heraeus Holding GmbH ♦ TBG AG ♦ 204 Members of the Supervisory Board MEMBERS OF THE SUPERVISORY BOARD Dr.-ing. Dr.-ing. E. h. norbert Reithofer (b.1956) Member since 2015, elected until the Annual General Meeting (AGM) 2020 Chairman of the Supervisory Board Former Chairman of the Board of Management of BMW AG Mandates Siemens Aktiengesellschaft Henkel AG & Co. KGaA (Shareholders’ Committee) Manfred Schoch 1 (b.1955) Member since 1988, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Chairman of the European and General Works Council Industrial Engineer Stefan quandt (b.1966) Member since 1997, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Entrepreneur Mandates DELTON Health AG ♦, Chairman DELTON Technology SE ♦, Chairman Frankfurter Allgemeine Zeitung GmbH ♦ (since 24 June 2019) AQTON SE ♦, Chairman Entrust Datacard Corp.♦ Stefan Schmid 1 (b.1965) Member since 2007, elected until the AGM 2024 Deputy Chairman of the Supervisory Board Chairman of the Works Council, Dingolfing 1 Employee representatives (Company employees). 2 Employee representatives (union representatives). 3 Employee representatives (members of senior management). ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. Corporate Governance 205 Horst Lischka 2 (b.1963) Member since 2009, elected until the AGM 2024 General Representative of IG Metall Munich Mandates KraussMaffei Group GmbH ♦ MAN Truck & Bus SE ♦ (since 19 March 2019, former MAN Truck & Bus AG) Städtisches Klinikum München GmbH ♦ Willibald Löw 1 (b.1956) Member since 1999, elected until the AGM 2024 Chairman of the Works Council, Landshut Simone Menne (b.1960) Member since 2015, elected until the AGM 2021 Member of supervisory boards Mandates Deutsche Post AG Springer Nature AG & Co. KGaA ♦ Johnson Controls International plc Russell Reynolds Associates Inc.♦ (since 19 January 2019) Dr. Dominique Mohabeer 1 (b.1963) Member since 2012, elected until the AGM 2024 Member of the Works Council, Munich Brigitte Rödig 1 (b.1963) Member since 2013, elected until the AGM 2024 Member of the Works Council, Dingolfing Dr. Vishal Sikka (b.1967) Member since 16 May 2019, elected until the AGM 2024 CEO & Founder, Vianai Systems, Inc. Mandates Oracle Corporation (since 6 December 2019) Ralf Hattler 3 (b.1968) Member since 2017 until 16 May 2019 Head of Purchasing Indirect Goods and Services, Raw Material, Production Partner dr.-Ing. heinrich hiesinger (b.1960) Member since 2017, elected until the AGM 2022 Former Chairman of the Board of Management of thyssenkrupp AG Mandates Deutsche Post AG (since 15 May 2019) prof. Dr. rer. nat. Dr. h. c. Reinhard Hüttl (b.1957) Member since 2008, elected until the AGM 2023 Chairman of the Executive Board of Helmholtz-Zentrum Potsdam Deutsches GeoForschungsZentrum – GFZ University Professor Susanne Klatten (b.1962) Member since 1997, elected until the AGM 2024 Entrepreneur Mandates SGL Carbon SE, Chairwoman ALTANA AG ♦, Deputy Chairwoman UnternehmerTUM GmbH ♦, Chairwoman prof. dr. rer. pol. Renate Köcher (b.1952) Member since 2008, elected until the AGM 2022 Director of Institut für Demoskopie Allensbach Gesellschaft zum Studium der öffentlichen Meinung mbH Mandates Infineon Technologies AG Nestlé Deutschland AG ♦ Robert Bosch GmbH ♦ 1 Employee representatives (Company employees). 2 Employee representatives (union representatives). 3 Employee representatives (members of senior management). ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. 206 Members of the Supervisory Board Overview of Super visory Board committees and their composition Jürgen Wechsler 2 (b.1955) Member since 2011 until 16 May 2019 Former Regional Head of IG Metall Bavaria Mandates Schaeffler AG, Deputy Chairman Siemens Healthcare GmbH ♦, Deputy Chairman (until 18 March 2019) Dr. Thomas Wittig 3 (b.1960) Member since 16 May 2019, elected until the AGM 2024 Senior Vice President Financial Services Mandates BMW Bank GmbH ♦, Chairman BMW Automotive Finance (China) Co., Ltd.♦, Chairman Werner Zierer 1 (b.1959) Member since 2001, elected until the AGM 2024 Chairman of the Works Council, Regensburg 1 Employee representatives (Company employees). 2 Employee representatives (union representatives). 3 Employee representatives (members of senior management). ♦ Not listed on the stock exchange. Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. Corporate Governance Overview of Supervisory Board committees and their composition Principal duties, basis for activities Members 207 pReSIdInG boARd — preparation of Supervisory Board meetings to the extent that the subject matter to be — activities based on terms of procedure discussed does not fall within the remit of a committee peRSonnel CoMMIttee — preparation of decisions relating to the appointment and revocation of appointment of members of the Board of Management, the compen sation and the regular review of the Board of Management’s compensation system — conclusion, amendment and revocation of employment contracts (in conjunction with the resolutions taken by the Supervisory Board regarding the compensation of the Board of Management) and other contracts with members of the Board of Management — decisions relating to the approval of ancillary activities of Board of Manage ment members, including acceptance of non-BMW Group supervisory mandates as well as the approval of transactions requiring Supervisory Board approval by dint of law (e. g. loans to Board of Management or Supervisory Board members) — established in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of procedure AudIt CoMMIttee — supervision of the financial reporting process, the effectiveness of the internal control system, the risk management system, as well as the performance of Supervisory Board duties in connection with audits pursuant to § 32 of the German Securities Trading Act (WpHG) Norbert Reithofer 1, Manfred Schoch, Stefan Quandt, Stefan Schmid, Karl-Ludwig Kley Norbert Reithofer 1, Manfred Schoch, Stefan Quandt, Stefan Schmid, Karl-Ludwig Kley Karl-Ludwig Kley 1, 2, Norbert Reithofer, Manfred Schoch, Stefan Quandt, Stefan Schmid — supervision of external audit, in particular auditor independence and additional work — preparation of proposals for election of external auditor at Annual General Meeting, performed by external auditor engagement (recommendation) of external auditor, determination of additional areas of audit emphasis and fee agreements with external auditor Group Financial Statements — preparation of Supervisory Board’s resolution on Company and — discussion of interim reports with Board of Management prior to publication — preparation of the Supervisory Board’s audit of the non-financial reporting, preparation of the selection of the auditor for non-financial reporting and engagement of the auditor — supervision of internal audit system and compliance as well as the audit and supervision of any needs for action related to possible violations of duties by members of the Board of Management in preparation of a resolution in the Supervisory Board — decision on approval for utilisation of Authorised Capital 2019 — amendments to Articles of Incorporation only affecting wording — established in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of procedure noMInAtIon CoMMIttee — identification of suitable candidates as shareholder representatives on the Supervisory Board to be put forward for inclusion in the Super visory Board’s proposals for election at the Annual General Meeting — established in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of procedure Norbert Reithofer 1, Susanne Klatten, Karl-Ludwig Kley, Stefan Quandt (In line with the recommendations of the German Corporate Governance Code, the Nomination Committee comprises only shareholder representatives.) MedIAtIon CoMMIttee — proposal to Supervisory Board if resolution for appointment of Board of Management member has not been carried by the necessary two-thirds majority of Supervisory Board members’ votes — established as required by law 1 Chair. 2 (Independent) financial expert within the meaning of §§ 100 (5) and 107 (4) AktG, no. 5.3.2 GCGC. Norbert Reithofer, Manfred Schoch, Stefan Quandt, Stefan Schmid (In accordance with statutory require ments, the Mediation Committee comprises the Chairman and Deputy Chairman of the Supervisory Board and one member each selected by shareholder representatives and employee representatives.) It is planned to bring about a change in the position of Chair of the Audit Committee directly following the 2020 Annual General Meeting. In line with the requirements profile, the intention is for an indepen- dent financial expert to continue to hold this position in the future. 208 Compliance and Human Rights in the BMW Group COMPLIANCE AND HUMAN RIGHTS IN THE BMW GROUP Responsible and lawful conduct is fundamental to the success of the BMW Group. Compliance is an integral part of our corporate culture and the reason why customers, shareholders, business partners and the general public place their trust in us. The Board of Management and the employees of the BMW Group are obliged to act responsibly and in compliance with applicable laws and regulations. The BMW Group also expects its business partners to conduct themselves in the same manner. The BMW Group Compliance Management System is designed to ensure that the BMW Group, its repre- sentative bodies, its managers and staff act in a lawful manner. Particular emphasis is placed on measures to ensure compliance with antitrust legislation and avoid the risk of corruption or money laundering. Activities to avoid non-compliance with the law are managed and monitored by the BMW Group Compliance Committee. These activities include legal monitoring, internal compliance regulations, communications and training activities, complaint and case management, compliance reporting and compliance controls, as well as following through with sanctions in cases of non-compliance. The BMW Group Compliance Committee reports regularly and on a case-by-case basis to the Board of Management and the Audit Committee of the Super- visory Board on all compliance-related issues, includ- ing the progress made in refining the BMW Group Compliance Management System, details of inves- tigations performed, known infringements of the law, sanctions imposed and corrective / preventative measures implemented. This also ensures the Board of Management and Supervisory Board are immediately notified of any cases of particular significance. On the basis of this information, the Board of Manage- ment keeps track of and analyses compliance-related developments and trends and initiates the measures needed to improve the Compliance Management System. In 2019 the system was further enhanced, par- ticularly with a focus on the characteristics of the roles and responsibilities in the Group-wide Compliance Management as well as the monitoring of compliance training and additional preventative activities. bMW Group Compliance Management System • 75 Supervisory board bMW AG board of Management bMW AG bMW Group Compliance Committee bMW Group Compliance Committee office bMW Group Compliance network Annual Report Annual Report Annual Compliance Reporting Run Compliance Instruments of the bMW Group Compliance Controls Compliance Reporting Compliance Case Management Compliance Strategy Legal Compliance Monitoring and Trends Compliance Risks and Preventive Excellence Compliance Processes and IT Systems Compliance Codes and Internal Regulations Compliance Academy and Culture Compliance Communications The decisions taken by the BMW Group Compliance Committee are drafted in concept and implemented operationally by the BMW Group Compliance Com- mittee Office. The BMW Group Compliance Commit- tee Office has more than 20 employees and is allocated in organisational terms to the Chairman of the Board of Management. For operational implementation of compliance topics, it is supported by a Group-wide compliance network of around 240 BMW Group Compliance Responsibles (heads of the local units) and over 70 local Compliance Officers (heads of the local compliance functions). The specific compliance activ ities required for financial services business are coordinated by a separate compliance department within the Financial Services segment. Corporate Governance209 The various elements of the BMW Group Compliance Management System are shown in the diagram on the previous page and are applicable to all BMW Group organisational units worldwide. The BMW Group Legal Compliance Code, which forms the core of the Group’s Compliance Management System, is supple- mented by an internal set of rules. The BMW Group Policy “Antitrust Compliance”, which establishes binding rules of conduct for all employees across the BMW Group to prevent unlawful restriction of compe- tition, deserves particular mention. The BMW Group Policy “Corruption Prevention” and the BMW Group Instruction “Corporate Hospitality and Gifts” deal with lawful handling of gifts and benefits and define appro- priate assessment criteria and approval procedures. Compliance measures are determined and prioritised on the basis of a regular Group-wide compliance risk assessment that relies on data-based risk indicators and transaction validation, among other methods. Various internal media and communications materi- als are used to raise employee awareness across all compliance issues, including newsletters, employee newspapers and the compliance homepage in the BMW Group intranet, where employees can find all compliance-related information and training materi- als. A Group-wide Compliance Day was organised for the first time in 2019 to boost employee awareness of the importance of creating a culture of transparency and trust. Existing employee training activities were restructured and refined with the creation of the BMW Group Compliance Academy in 2019. As well as impart- ing knowledge, its online and classroom training options with Company-specific case studies play an important role in reinforcing compliance in the corporate culture. The online training modules must be repeated by the required target groups every two years and include a final test. Successful completion of the test is confirmed by a certificate. More than 48,500 managers and staff worldwide have so far received training in the basic principles of compli- ance and hold a valid training certificate. Successful completion of the training programme is mandatory for all BMW Group managers. The Company makes sure that newly recruited managers and promoted staff undergo compliance training. In this way, the BMW Group achieves almost full training coverage for its managers in compliance matters. Online training in antitrust compliance is mandatory for managers and staff exposed to antitrust risks as a result of their functions or on specific occasions. A total of more than 35,000 managers and employees worldwide have so far completed antitrust compliance training and currently hold a valid certificate. Additional classroom training and multi-day coaching sessions are also held for all key compliance topics in local markets. The main emphasis here is on training in antitrust law. Any member of staff with questions or concerns relating to compliance is expected to discuss these matters with their managers and with the relevant departments within the BMW Group: in particular, with the BMW Group Compliance Committee Office, Legal Affairs and Corporate Audit. The BMW Group Compliance Contact also serves as a further point of contact and provides non-employees with a system for reporting concerns relating to compliance. Commu- nication with the BMW Group Compliance Contact may remain anonymous, if preferred. BMW Group employees worldwide also have the opportunity to submit information about possible breaches of the law within the Company anonymously and confidentially in several languages via the BMW Group SpeakUP Line. All compliance-related queries and concerns are documented and followed up by the BMW Group Compliance Committee Office using an electronic Case Management System. If necessary, Corporate Audit, Corporate Security, the legal departments or the Works Council may be called upon to assist in the process. Various IT systems support BMW Group employees with the assessment, approval and documentation of compliance-relevant matters. For example, all exchange activities with competitors must be docu- mented and approved in a special compliance IT system. The same applies to verifying legal admissibility and documenting benefits, especially in connection with corporate hospitality. The BMW Group also uses an IT-based Business Relations Compliance programme to ensure the reliability of its business relations. Rel- evant business partners are checked and evaluated for potential compliance risks. Appropriate measures are implemented to manage compliance risks based on the results of the evaluation. A further IT system is used to verify customer integrity as required under anti-money-laundering regulations. Through the Group-wide reporting system, compli- ance responsibles across all organisational units of the BMW Group report, on both a regular and ad hoc basis, on the compliance status of their respective units, on any identified legal risks and incidences of non-compliance, as well as on sanctions and correc- tive / preventative measures implemented. Compliance is also an important factor in safeguarding the future of the BMW Group workforce. With this in mind, the Board of Management and the national and international employee representative bodies of the BMW Group have agreed on a binding set of joint principles for lawful conduct. Employee representa- tives are regularly involved in the process of refining compliance management within the BMW Group. 210 Compliance and Human Rights in the BMW Group Compensation Report Compliance with and implementation of compli- ance rules and processes are audited regularly by Corporate Audit and subjected to control checks by the BMW Group Compliance Committee Office. Corporate Audit carries out on-site audits as part of its regular activities. The BMW Group Compliance Committee also engages Corporate Audit to perform compliance-specific checks and, if necessary, brings in Corporate Security to investigate suspected cases. A BMW Group Compliance Spot Check, a sample test specifically designed to identify potential corruption risks, and two antitrust compliance validations (to identify and audit possible antitrust risks) were carried out in addition in 2019. Managers, in particular, bear a high degree of respon- sibility and must set a good example with regard to preventing infringements. Managers throughout the BMW Group acknowledge this principle by signing a written declaration, in which they also undertake to make staff working for them aware of legal risks. Managers must, at regular intervals and on their own initiative, verify compliance with the law. It is important to signal to employees that they take compliance risks seriously and that disclosing rele- vant information is extremely valuable. In dealings with their staff, managers remain open to discussion and listen to differing opinions. Any indication of non-compliance with the law must be rigorously and judiciously investigated. It is essential for compliance at the BMW Group that employees are aware of and comply with applicable legal regulations. The BMW Group does not tolerate violations of the law by its employees. Culpable violations of the law result in employment-contract sanctions and may involve personal liability conse- quences for the employee involved. The BMW Group is committed to respecting interna- tionally recognised human rights and gears its due dil- igence process towards the UN Guiding Principles on Business and Human Rights, focusing on topics and areas of activity where it can leverage its influence as a commercial enterprise. The BMW Group stated its position clearly back in 2005, with the Joint Decla- ration on Human Rights and Working Conditions at the BMW Group, which was updated in 2010. In 2018, for further clarification, the BMW Group published its Code on Human Rights and Working Conditions, which strengthens the Company’s commitment to human rights and outlines how it promotes human rights and implements the core labour standards of the ILO. Corporate Governance211 principles of compensation The compensation system for the Board of Management at BMW AG is designed to encourage a management approach focused on the sustainable development of the BMW Group. A further principle of the compensa- tion system at the BMW Group is that of consistency. This means that compensation systems for the Board of Management, executive management and employ- ees of BMW AG are composed of similar elements. The Supervisory Board performs an annual review to ensure that all Board of Management compensation components are appropriate, both individually and in total, and do not encourage the Board of Management to take inappropriate risks for the BMW Group. At the same time, the compensation model used for the Board of Management needs to be attractive for highly qualified executives in a competitive environment. The compensation of members of the Board of Man- agement is determined by the full Supervisory Board on the basis of performance criteria and after taking into account any remuneration received from Group companies. The principal performance criteria are the tasks and exercise of mandate of the Board member, the economic situation as well as the performance and future prospects of the BMW Group. The Supervisory Board sets ambitious and relevant parameters as the basis for variable compensation. It also ensures that variable components based on multi-year criteria take account of both positive and negative developments and that the overall incentive is on the long term. As a general rule, targets and comparative parameters may not be changed retrospectively. COMPENSATION REPORT (PART OF THE COMBINED MANAGEMENT REPORT) The following section describes the principles govern- ing the compensation of the Board of Management for financial years since 2018. A description of the stipulations set out in the Company’s statutes relat- ing to the compensation of the Supervisory Board is also provided. In addition to explaining the system of compensation, details of components of compensation are also provided with figures. Furthermore, the com- pensation of each member of the Board of Management and the Supervisory Board for the financial year 2019 is disclosed by individual member and analysed with its component parts. 1. board of Management compensation Responsibilities The full Supervisory Board is responsible for determin- ing and regularly reviewing the system and structure of the Board of Management’s compensation as well as for determining the compensation of individual Board members. The Supervisory Board’s Personnel Committee is responsible for the preparatory work relating to those tasks. The Supervisory Board reviews the appropriateness of the compensation system annually. In preparation, the Personnel Committee also consults remuneration studies. In order to check that the compensation system is in line with peers, the Supervisory Board especially compares compensation paid by other DAX companies. For a vertical view, it compares Board compensation with the salaries of executive managers and with the average salaries of employees of BMW AG based in Germany, also with regard to salary devel- opment over time. During the consultative process, consideration is also given to the recommendations of an independent external remuneration expert as well as to input from investors and analysts. The Supervisory Board presents the compensation system to the Annual General Meeting for shareholder approval whenever significant changes are proposed, but at least once every four years. The currently valid compensation system was approved by the Annual General Meeting in 2018. 212 Compensation Report Compensation system, compensation components Board of Management compensation comprises fixed and variable cash elements as well as a share-based component. Retirement and surviving dependants’ benefit entitlements are also in place. The compensa- tion components are described in more detail below. overview of compensation system: depiction of allocation to cash benefits (target compensation) and pension contribution 1 • 76 in % Pension contribution approx. 8 Share-based remuneration approx. 14 Performance Cash Plan approx. 24 Base salary approx. 27 Earn- ings-based component of the bonus approx. 8 Performance component of the bonus approx. 19 1 Simplified depiction of target amounts for the variable cash remuneration of the Chairman of the Board of Management and pension contribution. Excludes other remuneration. Based on the assumption that the share price remains unchanged for the calculation of the matching component. overview of compensation system: depiction of variable remuneration (target compensation) 2 • 77 in % Share-based remuneration approx. 22 Performance Cash Plan approx. 37 Earnings-based component of the bonus approx. 12 Performance component of the bonus approx. 29 2 Simplified depiction of target amounts for the variable cash remuneration of the Chairman of the Board of Management. Excludes basic salary, other remuneration and pension contribution. Based on the assumption that the share price remains unchanged for the calculation of the matching component. Fixed remuneration Fixed remuneration consists of a base salary, which is paid monthly, and fringe benefits (other remuneration elements such as the use of Company cars, insurance premiums and contributions towards security sys- tems). With effect from the financial year 2018, the base salary is € 0.8 million p. a. for a Board member during the first period of office, € 0.95 million p. a. for a Board member from the second period of office or the fourth year of mandate and € 1.8 million p. a. for the Chairman of the Board of Management. variable remuneration The variable remuneration of the Board of Manage- ment comprises three components: — bonus — Performance Cash Plan and — share-based remuneration Payment of a discretionary additional bonus is not provided for. An upper limit has been set for each component of variable remuneration (see Overview of compensation system and compensation components). bonus In the case of 100 % target achievement, the bonus comprises an earnings-related component of 30 % and a performance-related component of 70 %. The target bonus (100 %) is € 0.85 million p. a. for a Board member during the first period of office, € 1.0 million p. a. from the second period of office or the fourth year of mandate and € 1.8 million p. a. for the Chairman of the Board of Management. For all Board members, the upper limit of the bonus is set at 180 % of the relevant target bonus. In order to calculate the earnings-related component, an earnings factor is determined on the basis of the target parameters and multiplied by 30 % of the target bonus amount. The level of the earnings- related com- ponent depends on the degree to which the targets set by the Supervisory Board for Group net profit (from the financial year 2022: earnings share of the shareholders of BMW AG) and Group post-tax return on sales are achieved. The degree of achievement is expressed in an earnings factor. The underlying measurement values are determined in advance for a period of three financial years and may not be changed retrospectively. The earnings factor is capped at a maximum of 1.8. The bonus is paid out after the end of the Annual General Meeting, at which the sepa- rate financial statements of BMW AG for the relevant financial year are presented. Corporate Governance213 An earnings factor of 1.000 would give rise to a profit- related component of € 0.255 million for a Board member in the first period of office, € 0.3 million from the second period of office or the fourth year of mandate and € 0.54 million for the Chairman of the Board of Management. For instance, in the event of a Group net profit of € 5.3 billion and a post-tax return on sales of 5.6 %, the earnings factor is 1.000. Similarly, a Group net profit of € 6.9 billion and a post- tax return on sales of 7.3 % gives rise to an earnings factor of 1.500 and a Group net profit of € 9.0 billion and a post-tax return on sales of 8.0 % to one of 1.637. A minimum earnings factor of 0.135 arises in the event of a Group net profit of € 3 billion and a post- tax return on sales of 3 %. If the Group net profit were below € 3 billion or the post-tax return on sales below 3 %, the earnings factor would be zero. In this case, a profit-related component would not be paid. The maximum earnings factor of 1.800 is reached in the event of a Group net profit of € 11 billion and a post-tax return on sales of 9 %. In exceptional circumstances, for instance major acquisitions or disposals, the Supervisory Board may adjust the earnings factor. Earnings components: allocation table for calculating earnings factor 1 • 78 9.0 Upper limit 8.0 7.4 7.3 5.6 4.8 3.0 Lower limit 0.135 % n i s e l a s n o n r u t e r x a t - t s o p p u o r G 1.000 0.798 ³ 1.637 1.800 1.520 ² 1.500 3.0 Lower limit 5.0 5.3 6.9 7.2 9.0 11.0 Upper limit Group net profit after tax (in € billion) 1 Simplified depiction. 2 Earnings factor 2018. 3 Earnings factor 2019. The performance-related component is calculated using a performance factor which the Supervisory Board sets for each member of the Board of Management and which is multiplied by 70 % of the target bonus amount. The Supervisory Board sets the performance factor on the basis of a detailed evaluation of the contribution made by Board members to sustain able and long-term business development over a period of at least three financial years. The evaluation by the Supervisory Board is based on predefined criteria that take into account the Group’s long-term success, the interests of shareholders and stakeholders as well as social responsibility. The criteria include in particular innovation (economic and ecological, for example in the reduction of car- bon dioxide emissions), the Group’s market position compared to its competitors, customer focus, ability to adapt, leadership, corporate culture, promotion of compliance and integrity, contribution to the Group’s attractiveness as an employer, progress in implementing the diversity concept, and activities that foster corporate social responsibility. The Supervisory Board also draws comparisons with competitors. The individual performance factor lies between zero and a maximum 1.8. 214 Compensation Report Bonus overview • 79 eARnInGS CoMponent bonuS Earnings factor x 0.3 of target amount — Value between 0 and 1.8 Basis for earnings factor: — Group net profit — Group post-tax return on sales + peRFoRMAnCe CoMponent Performance factor x 0.7 of target amount — Value between 0 and 1.8 = totAl — Cash payment — Capped at 180 % of target amount Basis for performance factor: — Contribution to sustainable and long-term business development over a period of at least three financial years — Qualitative, mainly non-financial parameters performance Cash plan Since the financial year 2018, variable cash com- pensation includes a multi-year and future-oriented Performance Cash Plan (PCP). The PCP is calculated at the end of a three-year evaluation period by mul- tiplying a predefined target amount by a factor that is based on multi-year target achievement (the PCP factor). The PCP target amount (100 %) amounts to € 0.85 million p. a. for a Board member in the first period of office, € 0.95 million p. a. from the second period of office or the fourth year of mandate and € 1.6 million p. a. for the Chairman of the Board of Management. The maximum amount that can be paid to a Board member is capped at 180 % of the PCP target amount p. a. The PCP evaluation period comprises three years, the grant year and the two subsequent years. PCP entitlements are paid in cash. The bonus is paid out after the end of the Annual General Meeting, at which the separate financial statements of BMW AG for the third year of the evaluation period are presented. In order to determine the PCP factor, a multi-year earnings factor is multiplied by a multi-year perfor- mance factor. The PCP factor is capped at a maximum value of 1.8. performance cash plan overview • 80 In order to determine the multi-year earnings factor, an earnings factor is calculated for each year of the three-year evaluation period and an average is then calculated for the evaluation period. As for the earn- ings-related component of the bonus, the earnings factor for each individual year within the evaluation period is determined on the basis of Group net profit and post-tax return on sales for the relevant year. The maximum earnings factor is 1.8. The underlying measurement values are determined in advance for a period of three financial years and may not be changed retrospectively. In addition to the multi-year earnings factor, the Supervisory Board also determines a multi-year per- formance factor after the end of the evaluation period. To this end, the Supervisory Board takes account of in particular the business development during the evaluation period, the forecast trend in the business development, the Board member’s individual contri- bution to profitability and the status of compliance within the Board member’s area of responsibility. The multi-year performance factor can be between 0.9 and 1.1. tARGet AMount x pCp FACtoR = CASh pAyMent — Cash payment at end of evaluation period — Capped at 180 % of target amount Corporate Governance215 pcp factor overview • 81 MultI-yeAR eARnInGS FACtoR — Average earnings factor — Based on Group net profit and Group post-tax return on sales — Value between 0 and 1.8 x MultI-yeAR peRFoRMAnCe FACtoR = pCp FACtoR Measurement based on multi-year performance factor: — Trend in business development — Status of compliance in each Board member’s — Individual contribution to profitability — Forecast trend in business development — Value between 0.9 and 1.1 area of responsibility other In the event of death or invalidity, special rules apply for early payment of performance cash plans and share-based remuneration components based on the target amounts. Insofar as the service contract is prematurely terminated and the Company has an extraordinary right of termination, or if the Board member resigns without the Company’s agreement, entitlements to amounts as yet unpaid relating to per- formance cash plans and share-based remuneration are forfeited. A one-year post-contractual non-competition clause has been agreed with Board members under spec- ified circumstances. During that one-year period, the former Board member is entitled to receive monthly compensation equivalent to 60 % of his or her previous base remuneration, reduced by any amount of other income exceeding 40 % of the base remuneration. The Company may unilaterally waive the requirement to comply with the post-contractual non-competition clause. Members of the Board of Management who were Board members on 1 January 2018 receive advance payments out of the Performance Cash Plan 2018 and the Performance Cash Plan 2019 in the years 2019 and 2020. At the end of each relevant evaluation period, the advance payment is set off or repaid, depending on the amount then determined. The advance pay- ment for each relevant year is € 0.5 million for a Board member in the first period of office and € 0.6 million from the second period of office or the fourth year of mandate. For the Chairman of the Board of Manage- ment the amount is € 0.9 million p. a. Share-based remuneration At the end of the Annual General Meeting at which the separate financial statements of BMW AG for the relevant financial year are presented, members of the Board of Management receive a cash compensation (investment component) for the specific purpose of investment – after tax and deductions – in shares of common stock of BMW AG. The investment compo- nent corresponds to 45 % of the gross bonus. The shares of common stock are purchased immediately after the investment component has been paid out. As a general rule, the acquired shares are required to be held by Board members for four years. This period also applies if a Board member leaves the Board of Management. At the end of the holding period, Board members receive from the Company for every three shares of common stock held, either one additional share of common stock or the cash equivalent, to be decided at the Company’s discretion (matching component). Upper limits have been defined for both the invest- ment component and the matching component (see Overview of compensation system and compen- sation components). 216 Compensation Report overview of compensation system and compensation components Component bASe SAlARy Parameter / measurement base Member of the Board of Management: — € 0.80 million p. a. (first period of office) — € 0.95 million p. a. (from second period of office or fourth year of mandate) Chairman of the Board of Management: — € 1.80 million p. a. vARIAble ReMuneRAtIon Bonus (sum of earnings-related bonus and performance-related bonus) a) Earnings-related bonus (at 100 % target achievement corresponds to 30 % of target amount) b) Performance-related bonus (at 100 % target achievement corresponds to 70 % of target amount) Target amount p. a. (at 100 % target achievement): — € 0.85 million (first period of office) — € 1.0 million (from second period of office or fourth year of mandate) — € 1.8 million (Chairman of the Board of Management) — Capped at 180 % of target amount, see section Remuneration caps — Payment at the end of the Annual General Meeting at which the separate financial statements of BMW AG are presented — Formula: 30 % target amount x earnings factor — Base amount p. a. (30 % target amount per bonus): — € 0.255 million (first period of office) — € 0.30 million (from second period of office or fourth year of mandate) — € 0.54 million (Chairman of the Board of Management) share of the shareholders of BMW AG) and Group post-tax return on sales — Earnings factor is derived from Group net profit (from the financial year 2022: earnings — Allocation table fixed in advance for a period of three financial years — The earnings factor is 1.0 in the event of a Group net profit of € 5.3 billion and a post-tax — Earnings factor may not exceed 1.8 — Maximum amount of earnings-related bonus p. a.: return on sales of 5.6 % — € 0.459 million (first period of office) — € 0.54 million (from second period of office or fourth year of mandate) — € 0.972 million (Chairman of the Board of Management) — Formula: 70 % target amount x performance factor — Base amount p. a. (70 % target amount per bonus): — € 0.595 million (first period of office) — € 0.70 million (from second period of office or fourth year of mandate) — € 1.26 million (Chairman of the Board of Management) — Primarily qualitative, non-financial criteria, expressed in terms of a performance factor aimed at measuring the Board member’s contribution to the sustainable and long-term development and the future viability of the Company over a period of at least three finan- cial years — Criteria for the performance factor include: innovation (economic and ecological, for example in the reduction of carbon dioxide emissions), the Group’s market position compared to its competitors, customer focus, ability to adapt, leadership, corporate culture, promotion of compliance and integrity, contribution to the Group’s attractiveness as an employer, progress in implementing the diversity concept, and activities that foster corporate social responsibility — Performance factor may not exceed 1.8 — Maximum amount of performance-related bonus p. a.: — € 1.071 million (first period of office) — € 1.26 million (from second period of office or fourth year of mandate) — € 2.268 million (Chairman of the Board of Management) Corporate GovernanceComponent Parameter / measurement base 217 vARIAble ReMuneRAtIon Performance Cash Plan a) Multi-year earnings factor b) Multi-year performance factor Share-based remuneration programme a) Cash remuneration component (investment component) b) Share-based remuneration component (matching component) otheR ReMuneRAtIon Target amount p. a. (at 100 % target achievement): — € 0.85 million (first period of office) — € 0.95 million (from second period of office or fourth year of mandate) — € 1.6 million (Chairman of the Board of Management) — Three-year evaluation period — Capped at 180 % of target amount, see section Remuneration caps — Formula: PCP factor x target amount — PCP factor: multi-year earnings factor x multi-year performance factor — PCP factor may not exceed 1.8 — Payment at the end of the Annual General Meeting at which the separate financial state- ments of BMW AG for the third year of the evaluation period are presented and Group post-tax return on sale — Earnings factor for each year of three-year evaluation period derived from Group net profit — Earnings factor for each year may not exceed 1.8 — Average for evaluation period calculated — Determined by Supervisory Board at end of evaluation period — Criteria include in particular the trend in business development during the evaluation period, the forecast trend in business development, individual contribution to profitability and the status of compliance within the Board member’s area of responsibility — Multi-year performance factor can be between 0.9 and 1.1 — Requirement for Board of Management members to invest an amount of 45 % of the — Requirement for Board of Management members to hold the acquired shares of common gross bonus after tax and contributions in BMW AG common stock stock for four years — Earmarked cash remuneration amounting to 45 % of the gross bonus — Cash remuneration p. a. at 100 % target achievement of the bonus: — € 0.3825 million (first period of office) — € 0.45 million (from second period of office or fourth year of mandate) — € 0.81 million (Chairman of the Board of Management) — Maximum remuneration, see section Remuneration caps — Payment at the end of the Annual General Meeting at which the separate financial — Share acquisition immediately after payment of earmarked cash remuneration — Once the four-year holding period requirement is fulfilled, Board of Management mem- statements of BMW AG for the relevant financial year are presented bers receive for each three common stock shares held either – at the Company’s option – one further share of common stock or the equivalent amount in cash — Maximum remuneration, see section Remuneration caps Contractual agreement, main points: non-cash benefits from use of Company car, insurance premiums, contributions towards security systems 218 Compensation Report overview of compensation system and compensation components onwards RetIReMent And SuRvIvInG dependAntS’ beneFItS Model Principal features Defined contribution system with guaranteed minimum rate of return Pension based on amounts credited to individual savings accounts for contributions paid and interest earned, various forms of disbursement Pension contributions p. a.: Member of the Board of Management: € 350,000 Chairman of the Board of Management: € 500,000 ReMuneRAtIon CA pS (MAxIMuM ReMuneRAtIon) in € p. a. Member of the Board of Management in the first period of office Member of the Board of Management in the second period of office or from fourth year of mandate Chairman of the Board of Management Share-based compensation programme Bonus Performance Cash Plan Cash compen- sation for share acquisition Monetary value of matching component Total* 1,530,000 1,530,000 688,500 344,500 4,925,000 1,800,000 3,240,000 1,710,000 2,880,000 810,000 1,458,000 405,000 729,000 5,500,000 9,850,000 * Including base salary, other fixed remuneration elements and pension contribution. The overall cap is lower than the sum of the maximum amounts for each of the individual components. Retirement benefits With effect from 1 January 2010, the provision of retirement benefits for members of the Board of Management was changed to a defined contribution system with a guaranteed minimum return. Retire- ment benefits remain unchanged as part of the new compensation system applicable for financial years from 2018 onwards, as they are appropriate and in line with customary market practice. If a mandate is terminated, the defined contribution system provides, in the case of death or invalidity, for amounts accumulated on individual pension accounts to be paid out as a one-off amount or in instalments. For entitlements arising before 2016, there is an option to receive payment as a lifelong pension or in a combined form. Former Board members are entitled to receive the retirement benefit at the earliest upon reaching the age of 60, or in the case of entitlements awarded for the first time after 1 January 2012, upon reaching the age of 62. The amount of the benefits to be paid is determined on the basis of the amount accrued in each Board member’s individual pension savings account. The amount on this account results from annual contri- butions paid in, plus interest earned depending on the type of investment. If a member of the Board of Management with a vested entitlement dies prior to the commencement of bene- fit payments, a surviving spouse or registered partner, or otherwise surviving children – in the latter case depending on their age and education – are entitled to receive benefits as surviving dependants. In the case of death or invalidity, a minimum benefit is payable based on the number of contributions possible up to the age of 60 (subject to maximum of ten contributions). The annual contribution paid by the Company is € 350,000 for a Board member and € 500,000 for the Chairman of the Board of Management. The guaran- teed minimum rate of return p. a. corresponds to the maximum interest rate used to calculate insurance reserves for life insurance policies (guaranteed interest on life insurance policies). When granting pension entitlements, the Supervisory Board considers the targeted level of pension provision in each case as well as the resulting expense for the BMW Group. Corporate Governance219 to € 0.06 million. The expected cash value of the match- ing component for the relevant proportionate period in the financial year 2020 amounts to € 0.05 million. The Company will pay a pension contribution of € 0.2 mil- lion for the period from the date of departure from the Board of Management up to 31 December 2019 and a corresponding proportionate amount of € 0.2 million for the financial year 2020. Compensation for the agreed one-year post-contractual non-competition clause amounts to € 1.1 million. A provision has been recognised for remuneration relating to the period after 31 December 2019. Ms Caiña Carreiro-Andree left the Board of Manage- ment at the end of 31 October 2019 and was released from her duties for the remaining period of her ser- vice contract (until 30 June 2020). The proportionate amount of base and other remuneration relating to the period after her departure from the Board and to the financial year 2019 amounts to € 0.2 million. Fixed remuneration relating to the financial year 2020 amounts to € 0.5 million. Contributions falling due under the defined contri- bution model are paid into an external fund in con- junction with a trust model that is also used to fund pension obligations to employees. Income earned on an employed or a self-employed basis up to the age of 63 may be offset against instal- ment payments. In addition, certain circumstances have been specified, in the event of which the Com- pany no longer has any obligation to pay benefits. Transitional payments are not provided. In the event of the death of a Board member during the service contract term, the base remuneration for the month of death and a maximum of three further calendar months are paid to entitled surviving dependants. Members of the Board of Management who retire immediately after their service on the Board, or who are deemed to be in an equivalent position, are entitled to acquire vehicles and other BMW Group products and services at conditions that also apply to BMW pensioners and to lease BMW Group vehicles in accordance with the guidelines applicable to senior heads of departments. Retired Chairmen of the Board of Management are entitled to use a BMW Group vehicle as a company car on a similar basis to senior heads of departments, and depending on availability and against payment, use BMW chauffeur services. Termination benefits on premature termination of Board activities, benefits paid by third parties In agreement with the Supervisory Board, Mr Krüger resigned from the Board of Management at the end of 15 August 2019 and was released from his duties for the remaining term of his service contract, which ends on 30 April 2020. The proportionate amount of base and other remuneration relating to the period after his departure from the Board and to the financial year 2019 amounted to € 0.7 million. The proportionate amount of base remuneration relating to the finan- cial year 2020 amounts to € 0.6 million. The expected amount of variable cash remuneration (bonus, cash component of share-based remuneration, PCP) for the remaining term of the contract from the date of departure from the Board of Management totals € 3.5 million, where necessary taking into account forecast figures. This includes the bonus for the pe riod from 16 August to 31 December 2019 amounting to € 0.8 million as well as the proportionate amount of the cash component of remuneration (investment component) for this period amounting to € 0.3 million. The cash value of the cash component of share-based remuneration (match ing component) for the period from 16 August 2019 to 31 December 2019 amounts Remuneration caps The Supervisory Board has stipulated upper limits for all variable remuneration components and for the remuneration of members of the Board of Manage- ment in total. The upper limits are shown in the table Overview of compensation system and compensation components. The overall upper limits (caps) have not changed in conjunction with the revised compensation system for financial years from 2018 onwards and are lower than the sum of the maximum amounts of the various individual components. Revision of board of Management compensation for financial years from 2021 onwards Regulations governing management board compen- sation and the reporting thereof were again reformed by lawmakers through the implementation of the EU’s Second Shareholder Rights Directive (ARUG II). More- over, the Government Commission on the German Corporate Governance Code revised the recommenda- tions and suggestions relating to management board compensation in its revised version of the German Corporate Governance Code dated 16 December 2019. The Supervisory Board has examined the new regula- tions and intends to revise the compensation system for the Board of Management of BMW AG during the financial year 2020. The revised compensation system will be submitted for approval by the shareholders at the Annual General Meeting held during the finan- cial year 2021. The Supervisory Board will also take account of input from investors when revising the compensation system. 220 Compensation Report The expected amount of variable cash remuneration (bonus, cash component of share-based remuneration, PCP) for the remaining term of the contract from the date of departure from the Board of Management totals € 1.9 million, where necessary taking into account forecast figures. This includes a bonus for the period from 1 November to 31 December 2019 amounting to € 0.2 million and the proportionate amount of the cash component of remuneration (investment component) for this period amounting to € 0.1 million. The cash value of the cash remuneration component of the share-based remuneration programme (matching component) for the period from 1 November 2019 to 31 December 2019 amounts to € 0.01 million. The expected cash value of the matching component for the relevant proportionate period in the financial year 2020 amounts to € 0.05 million. The proportionate amount of pension contribution for the 2019 and 2020 financial years is € 0.1 million and € 0.2 million respectively. Compensation for the agreed one-year non-competition clause amounts to € 0.6 million. A provision has been recognised for remuneration relating to the period after 31 December 2019. Mr Schwarzenbauer left the Board of Management at the end of 31 October 2019. Under the terms of his service contract, a one-year post-contractual non-com- petition clause applies. The proportionate amount of compensation relating to the financial year 2019 is € 0.1 million. The corresponding figure for the remain- ing period from 1 January 2020 to 31 October 2020 is € 0.5 million, for which a provision has been recognised. In line with the recommendation of the German Corporate Governance Code dated 7 February 2017, Board of Management service contracts provide for severance pay to be paid to the Board member in the event of premature termination by the Company without important reason, the amount of which is limited to a maximum of two years’ compensation (severance payment cap). If the remaining term of the contract is less than two years, the severance payment is reduced proportionately. For these purposes, annual compensation comprises base remuneration, the target bonus amount and the target PCP amount for the last full financial year before termination. No commitments or agreements exist for payment of compensation in the event of early termination of a Board member’s mandate due to a change of control or a takeover offer. No members of the Board of Manage- ment received any payments or relevant commitment from third parties in 2019 on account of their activities as members of the Board of Management. Corporate Governance221 total compensation of the board of Management for the financial year 2019 (2018) The total compensation of the current members of the Board of Management of BMW AG for the financial year 2019 amounted to € 21.4 million (2018: € 24.0 mil- lion), of which € 8.1 million (2018: € 8.2 million) relates to fixed components including other remuneration. Variable components amounted to € 12.6 million (2018: € 15.0 million) and the share-based remuneration com- ponent to € 0.7 million (2018: € 0.8 million). The BMW Group achieved a net profit of € 5,022 mil- lion (2018: € 7,207 million) and a post-tax return on sales of 4.8 % (2018: 7.4 %). According to the defined allocation table, these results yield an earnings factor of 0.798 (2018: 1.520) for the earnings component relevant for the bonus of members of the Board of Management in office during the financial year 2019. The Supervisory Board set a performance factor of 1.20 (2018: 1.20) for the performance component of Board members for the financial year 2019. In determining the performance factor, the Super- visory Board uses various criteria to evaluate the contribution of Board members to the sustainable and long-term development and future viability of the Company. In this context, the Supervisory Board considers developments over recent years as well as the impact of planning decisions going forward. A central topic of focus was innovation performance, particularly in the area of electrification. The Super- visory Board took into account continuous growth in the number of electrified vehicles delivered in recent years as well as the measures taken to accelerate the penetration of technologies relating to electrification, including the opening of the new battery cell com- petence centre. Also considered were the continuous progress made in reducing the fleet’s CO2 emissions as well as the planning decisions taken – such as the development of the product portfolio – to ensure compliance with emission thresholds. The develop- ment of the market position was another focus area of the evaluation. Here, the Supervisory Board took into account in particular the BMW Group’s achieve- ments in confirming its position as the world’s lead- ing pre mium automobile manufacturer for the 16th consecutive year and setting a new delivery volume record for the ninth consecutive year. Furthermore, the Supervisory Board also considered the Board of Management’s decision to successively integrate electrified models into the production system. The focus on flexible plant structures is a prerequisite for the further expansion of electrification. As part of the evaluation of other performance criteria, the Supervi- sory Board also assessed in particular the Company’s ability to adapt to change, measured for example in terms of developments in the area of cooperation arrangements and strategic investments. In the area of Corporate Social Responsibility, consideration was given to the BMW Group’s activities to promote children and young people through educational programmes and road safety education as well as to the BMW Group’s excellent performance in various sustainability indices over a number of years. The BMW Group’s attractiveness as an employer was eval- uated by reference to various studies over a period of several years, in which the BMW Group was ranked among the top employers. in € million Amount Proportion in % Amount Proportion in % 2019 2018 Fixed compensation Variable cash compensation Share-based compensation component* Total compensation 8.1 12.6 0.7 21.4 37.8 58.9 3.3 100.0 8.2 15.0 0.8 24.0 34.2 62.5 3.3 100.0 * Matching component; provisional number / cash value calculated at grant date (date on which the entitlement became binding in accordance with German Accounting Standard 17 (DRS 17)). The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. The following table shows the compensation of the members of the Board of Management in accordance with commercial law and the accounting principles required to be applied. 222 Compensation Report Compensation of the individual members of the board of Management for the financial year 2019 (2018) in € or number of matching shares Base salary Other compensation Total Bonus Share-based compensation component (invest- ment component) Performance Cash Plan 2018 – 20208 Performance Cash Plan 2019 – 20218 Total Number Monetary value Fixed compensation Variable cash compensation Variable cash compensation Share-based compensation component (matching component) 9 Compensation Total Oliver Zipse 1 Harald Krüger 2 Milagros Caiña Carreiro-Andree 3 Klaus Fröhlich Ilka Horstmeier 4 Milan Nedeljković 5 Pieter Nota Nicolas Peter Peter Schwarzenbauer 6 Andreas Wendt Total 7 1,269,892 (900,000) 1,122,581 50,947 1,320,839 1,404,380 (24,994) (924,994) (1,231,200) 87,597 1,210,178 1,279,742 631,971 (554,040) 575,884 (1,800,000) (22,392) (1,822,392) (2,332,800) (1,049,760) 791,667 (950,000) 950,000 (950,000) 133,333 (–) 200,000 (–) 800,000 (800,000) 800,000 (800,000) 791,667 (950,000) 800,000 (200,000) 7,659,140 205,105 229,373 103,218 60,607 852,274 899,500 (74,964) (1,024,964) (1,296,000) 71,822 1,021,822 1,079,400 (64,033) (1,014,033) (1,296,000) 29,375 162,708 152,915 (–) (–) (–) 5,105 (–) 20,782 (90,369) 29,988 (38,612) 37,347 102,701 (13,029) 496,271 (–) (–) 820,782 917,490 (890,369) (1,101,600) 829,988 917,490 (838,612) (1,101,600) 829,014 899,500 902,701 (213,029) 917,490 (275,400) (51,777) (1,001,777) (1,296,000) 404,775 (583,200) 485,730 (583,200) 68,812 (–) (–) 412,871 (495,720) 412,871 (495,720) 404,775 (583,200) 412,871 (123,930) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) 2,036,351 (–) (1,785,240) 1,855,626 (–) (3,382,560) 1,304,275 (–) (1,879,200) 1,565,130 (–) (1,879,200) 221,727 332,591 (–) (–) 1,330,361 (–) (1,597,320) 1,330,361 (–) (1,597,320) 1,304,275 (–) (1,879,200) 1,330,361 (–) (399,330) 12,611,058 (–) (–) – – – – – – – – – – – 1,725 (1,045) 1,346 (1,981) 1,016 (1,181) 1,135 (1,100) 173 (–) 280 (–) 1,036 (1,004) 965 (935) 1,016 (1,181) 1,036 (277) 9,728 103,037 3,460,227 (90,288) (2,800,522) 93,870 3,159,674 (171,158) (5,376,110) 70,856 2,227,405 (102,038) (3,006,202) 79,155 2,666,107 (95,040) (2,988,273) 12,013 396,448 (–) (–) (–) (–) 72,251 2,223,394 (86,746) (2,574,435) 67,299 2,227,648 (80,784) (2,516,716) 70,856 2,204,145 (102,038) (2,983,015) 72,251 2,305,313 (21,645) (634,004) 659,614 21,426,083 (–) (15,008,860) (9,087) (782,828) (24,014,510) Milagros Caiña Carreiro-Andree3 Oliver Zipse 1 Harald Krüger 2 Klaus Fröhlich Ilka Horstmeier 4 Pieter Nota Nicolas Peter Peter Schwarzenbauer6 Andreas Wendt Total 7 18,026 555,722 Milan Nedeljković5 8,155,411 8,697,280 3,913,778 (7,801,613) (421,209) (8,222,822) (10,350,938) (4,657,922) 1 Member of the Board of Management since 13 May 2015, Chairman of the Board of Management since 16 August 2019. 2 Member and Chairman of the Board of Management until 15 August 2019. 3 Member of the Board of Management until 31 October 2019. 4 Member of the Board of Management since 1 November 2019. 5 Member of the Board of Management since 1 October 2019. 6 Member of the Board of Management until 31 October 2019. 7 Disclosures for the previous year include amounts relating to a member of the Board of Management who left office with effect from the end of the financial year 2018. 8 PCP is paid out after the end of the relevant three-year evaluation period. 9 Provisional amount / cash value calculated at grant date (date on which the entitlement became binding in law in accordance with German Accounting Standard 17 (DRS 17). The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. See note 41 to the Group Financial Statements for a description of the accounting treatment of the share-based compensation component. Corporate Governancein € or number of matching shares Base salary compensation Total Other Share-based compensation component (invest- Bonus ment component) Performance Cash Plan 2018 – 20208 Performance Cash Plan 2019 – 20218 Total Number Monetary value Fixed compensation Variable cash compensation Variable cash compensation Share-based compensation component (matching component) 9 Compensation Total Milan Nedeljković 5 200,000 5,105 205,105 229,373 103,218 Oliver Zipse 1 Harald Krüger 2 Klaus Fröhlich Ilka Horstmeier 4 Milagros Caiña Carreiro-Andree 3 Pieter Nota Nicolas Peter Peter Schwarzenbauer 6 Andreas Wendt Total 7 (1,800,000) (22,392) (1,822,392) (2,332,800) (1,049,760) 1,269,892 (900,000) 1,122,581 791,667 (950,000) 950,000 (950,000) 133,333 (–) (–) 800,000 (800,000) 800,000 (800,000) 791,667 (950,000) 800,000 (200,000) 7,659,140 50,947 1,320,839 1,404,380 (24,994) (924,994) (1,231,200) 87,597 1,210,178 1,279,742 60,607 852,274 899,500 (74,964) (1,024,964) (1,296,000) 71,822 1,021,822 1,079,400 (64,033) (1,014,033) (1,296,000) 29,375 162,708 152,915 (–) (–) 20,782 (90,369) 29,988 (38,612) 37,347 102,701 (13,029) 496,271 (–) (–) (–) (–) 820,782 917,490 (890,369) (1,101,600) 829,988 917,490 (838,612) (1,101,600) 829,014 899,500 902,701 (213,029) 917,490 (275,400) (51,777) (1,001,777) (1,296,000) 631,971 (554,040) 575,884 404,775 (583,200) 485,730 (583,200) 68,812 (–) (–) 412,871 (495,720) 412,871 (495,720) 404,775 (583,200) 412,871 (123,930) (7,801,613) (421,209) (8,222,822) (10,350,938) (4,657,922) 8,155,411 8,697,280 3,913,778 (–) (–) (–) (–) (–) (–) – – – – – – – – – – – (–) (–) (–) (–) (–) 1 Member of the Board of Management since 13 May 2015, Chairman of the Board of Management since 16 August 2019. 2 Member and Chairman of the Board of Management until 15 August 2019. 3 Member of the Board of Management until 31 October 2019. 4 Member of the Board of Management since 1 November 2019. 5 Member of the Board of Management since 1 October 2019. 6 Member of the Board of Management until 31 October 2019. 8 PCP is paid out after the end of the relevant three-year evaluation period. 7 Disclosures for the previous year include amounts relating to a member of the Board of Management who left office with effect from the end of the financial year 2018. 9 Provisional amount / cash value calculated at grant date (date on which the entitlement became binding in law in accordance with German Accounting Standard 17 (DRS 17). The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. See note 41 to the Group Financial Statements for a description of the accounting treatment of the share-based compensation component. – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) – (–) 2,036,351 (1,785,240) 1,855,626 (3,382,560) 1,304,275 (1,879,200) 1,565,130 (1,879,200) 221,727 (–) 332,591 (–) 1,330,361 (1,597,320) 1,330,361 (1,597,320) 1,304,275 (1,879,200) 1,330,361 (399,330) 12,611,058 (15,008,860) 1,725 (1,045) 1,346 (1,981) 1,016 (1,181) 1,135 (1,100) 173 (–) 280 (–) 1,036 (1,004) 965 (935) 1,016 (1,181) 1,036 (277) 9,728 103,037 3,460,227 (90,288) (2,800,522) 93,870 3,159,674 (171,158) (5,376,110) 70,856 2,227,405 (102,038) (3,006,202) 79,155 2,666,107 (95,040) (2,988,273) 12,013 396,448 (–) (–) 18,026 555,722 (–) (–) 72,251 2,223,394 (86,746) (2,574,435) 67,299 2,227,648 (80,784) (2,516,716) 70,856 2,204,145 (102,038) (2,983,015) 72,251 2,305,313 (21,645) (634,004) 659,614 21,426,083 (9,087) (782,828) (24,014,510) 223 Oliver Zipse 1 Harald Krüger 2 Milagros Caiña Carreiro-Andree3 Klaus Fröhlich Ilka Horstmeier 4 Milan Nedeljković5 Pieter Nota Nicolas Peter Peter Schwarzenbauer6 Andreas Wendt Total 7 224 Compensation Report In addition to the disclosures required by German commercial law and the accounting principles required to be applied, the following tables show the amounts awarded and payments made to individual members of the Board of Management in accordance with the requirements of the German Corporate Governance Code in the version dated 7 February 2017. Oliver Zipse Chairman of the board of Management since 16 August 2019 Member of the board of Management since 13 May 2015 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 1,269,892 1,269,892 1,269,892 900,000 1,269,892 900,000 Fringe benefits (other compensation) 50,947 50,947 50,947 24,994 50,947 24,994 Total 1,320,839 1,320,839 1,320,839 924,994 1,320,839 924,994 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 390,323 0 702,581 285,000 311,477 433,200 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 910,753 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme – 1,194,624 Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 – 585,484 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – – – – 103,037 – – 0 – 0 – 0 – – – – 0 – – 665,000 – 798,000 1,639,355 – 1,092,903 – – 916,667 – 566,666 2,150,323 712,900 – – 427,500 – 554,040 1,053,871 – – – – 526,935 – – – – – 90,288 – – 631,971 – – – – – – – – – – – – – 4,505,060 1,320,839 7,393,904 3,309,449 4,070,090 3,276,900 406,452 406,452 406,452 353,289 406,452 353,289 Total compensation 4,911,512 1,727,291 7,137,097 4 3,662,738 4,476,542 3,630,189 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. Corporate Governance225 Harald Krüger Chairman of the board of Management 13 May 2015 until 15 August 2019 Member of the board of Management since 1 december 2008 until 13 May 2015 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 1,122,581 1,122,581 1,122,581 1,800,000 1,122,581 1,800,000 Fringe benefits (other compensation) 87,597 87,597 87,597 22,392 87,597 22,392 Total 1,210,178 1,210,178 1,210,178 1,822,392 1,210,178 1,822,392 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 336,774 336,774 606,194 540,000 336,774 820,000 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – – – 1,260,000 – 1,512,000 Performance component of the bonus 2019 (three-year plan term) 1 903,677 903,677 1,414,452 – 942,968 – Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 – 997,849 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 – – 0 – – 1,600,000 – 900,000 1,796,129 – 561,290 – – 810,000 – 1,049,760 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 558,203 558,203 909,290 Share-based remuneration component (matching component) 2013 for holding obligation 2014 – 2018 Share-based remuneration component (matching component) 2014 for holding obligation 2015 – 2019 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – – – – – – – – – – – – – – – – – – 93,870 91,011 454,645 – – – – – – – – – 171,158 – – 575,884 – – 88,157 57,105 – – – – – – – – – – – – – 4,100,551 3,099,843 6,390,888 6,203,550 3,684,199 6,192,309 316,758 316,758 316,758 504,831 316,758 504,831 Total compensation 4,417,309 3,416,601 6,143,011 4 6,708,381 4,000,957 6,697,140 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. 226 Compensation Report Milagros Caiña Carreiro-Andree human Resources, Industrial Relations director Member of the board of Management 1 July 2012 until 31 october 2019 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 791,667 791,667 791,667 950,000 791,667 950,000 Fringe benefits (other compensation) 60,607 60,607 60,607 74,964 60,607 74,964 Total 852,274 852,274 852,274 1,024,964 852,274 1,024,964 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 250,000 0 450,000 300,000 199,500 456,000 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – – – 700,000 – 840,000 Performance component of the bonus 2019 (three-year plan term) 1 700,000 700,000 1,050,000 – 700,000 – Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 – 791,667 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 – – 0 – – 950,000 – 600,000 1,425,000 – 500,000 – – 450,000 – 583,200 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 375,000 315,000 675,000 Share-based remuneration component (matching component) 2013 for holding obligation 2014 – 2018 Share-based remuneration component (matching component) 2014 for holding obligation 2015 – 2019 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – – – – – – – – – – – – – – – – – – 70,856 55,095 337,500 – – – – – – – – – 102,038 – – 404,775 – – 81,130 52,520 – – – – – – – – – – – – – 3,039,797 1,922,369 4,789,774 3,527,002 2,709,069 3,585,294 295,446 295,446 295,446 354,224 295,446 354,224 Total compensation 3,335,243 2,217,815 4,583,333 4 3,881,226 3,004,515 3,939,518 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. Corporate Governance227 Klaus Fröhlich development Member of the board of Management since 9 december 2014 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 950,000 950,000 950,000 950,000 950,000 950,000 Fringe benefits (other compensation) 71,822 71,822 71,822 64,033 71,822 64,033 Total 1,021,822 1,021,822 1,021,822 1,014,033 1,021,822 1,014,033 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 300,000 0 540,000 300,000 239,400 456,000 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 700,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2014 for holding obligation 2015 – 2019 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 950,000 – 450,000 – – – – – 79,155 – – 0 – 0 – 0 – – – – – 0 – – 700,000 – 840,000 1,260,000 – 840,000 – – 950,000 – 600,000 1,710,000 – 600,000 – – 450,000 – 583,200 810,000 – – – – – 405,000 – – – – – – 95,040 – – 485,730 2,966 – – – – – – – – – – – – – – 3,500,977 1,021,822 5,746,822 3,509,073 3,189,918 3,493,233 353,327 353,327 353,327 353,119 353,327 353,119 Total compensation 3,854,304 1,375,149 5,500,000 4 3,862,192 3,543,245 3,846,352 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. 228 Compensation Report Ilka Horstmeier human Resources, Industrial Relations director Member of the board of Management since 1 november 2019 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation Fringe benefits (other compensation) Total 133,333 133,333 133,333 29,375 29,375 29,375 162,708 162,708 162,708 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 42,500 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 99,167 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 141,667 – 63,750 12,013 – 0 – 0 – 0 – 0 0 – 76,500 – 178,500 – 255,000 – 114,750 57,417 – 521,805 162,708 844,875 58,333 58,333 58,333 – – – – – – – – – – – – – – – 133,333 29,375 162,708 33,915 – 119,000 – 0 – 68,812 – – 384,435 58,333 442,768 – – – – – – – – – – – – – – – Total compensation 580,138 221,041 820,833 4 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. Corporate GovernanceMilan Nedeljković production Member of the board of Management since 1 october 2019 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout 229 bASe SAlARy Fixed compensation Fringe benefits (other compensation) Total 200,000 200,000 200,000 5,105 5,105 5,105 205,105 205,105 205,105 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 63,750 0 114,750 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 148,750 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 212,500 – 95,625 18,026 – – 0 – 0 – 0 0 – – 267,750 – 382,500 – 172,125 86,125 – 743,756 205,105 1,228,355 87,500 87,500 87,500 – – – – – – – – – – – – – – – 200,000 5,105 205,105 50,873 – 178,500 – 0 – 103,218 – – 537,696 87,500 625,196 – – – – – – – – – – – – – – – Total compensation 831,256 292,605 1,231,250 4 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. 230 Compensation Report Pieter Nota Customer, brands, Sales Member of the board of Management since 1 April 2018 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 800,000 800,000 800,000 800,000 800,000 800,000 Fringe benefits (other compensation) 20,782 20,782 20,782 90,396 20,782 90,396 Total 820,782 820,782 820,782 890,396 820,782 890,396 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 255,000 0 459,000 255,000 203,490 387,600 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 850,000 – 382,500 – 72,251 – – 0 – 0 – 0 – 0 – – 595,000 – 714,000 1,071,000 – 714,000 – – 850,000 – 500,000 1,530,000 – 500,000 – – 382,500 – 495,720 688,500 – 412,871 – 86,746 344,500 – – – – – – – – – – 2,975,533 820,782 4,913,782 3,059,642 2,651,143 2,987,716 359,979 359,979 359,979 350,000 359,979 350,000 Total compensation 3,335,512 1,180,761 4,925,000 4 3,409,642 3,011,122 3,337,716 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. Corporate Governance231 Nicolas Peter Finance Member of the board of Management since 1 January 2017 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 800,000 800,000 800,000 800,000 800,000 800,000 Fringe benefits (other compensation) 29,988 29,988 29,988 38,612 29,988 38,612 Total 829,988 829,988 829,988 838,612 829,988 838,612 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 255,000 0 459,000 255,000 203,490 387,600 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 850,000 – 382,500 – – 67,299 – – 0 – 0 – 0 – – 0 – – 595,000 – 714,000 1,071,000 – 714,000 – – 850,000 – 500,000 1,530,000 – 500,000 – – 382,500 – 495,720 688,500 – – 344,500 – – – 80,784 – – 412,871 – – – – – – – – – 2,979,787 829,988 4,922,988 3,001,896 2,660,349 2,935,932 353,327 353,327 353,327 353,119 353,327 353,119 Total compensation 3,333,114 1,183,315 4,925,000 4 3,355,015 3,013,676 3,289,051 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. 232 Compensation Report Peter Schwarzenbauer transformation electromobility Member of the board of Management since 1 April 2013 until 31 october 2019 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation 791,667 791,667 791,667 950,000 791,667 950,000 Fringe benefits (other compensation) 37,347 37,347 37,347 51,777 37,347 51,777 Total 829,014 829,014 829,014 1,001,777 829,014 1,001,777 one-yeAR vARIAble ReMuneRAtIon Earnings-based component of the bonus 1 250,000 0 450,000 300,000 199,500 456,000 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 583,333 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2013 for holding obligation 2014 – 2018 Share-based remuneration component (matching component) 2014 for holding obligation 2015 – 2019 Share-based remuneration component (matching component) 2015 for holding obligation 2016 – 2020 Share-based remuneration component (matching component) 2016 for holding obligation 2017 – 2021 Share-based remuneration component (matching component) 2017 for holding obligation 2018 – 2022 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 791,667 – 375,000 – – – – – – 70,856 – – 0 – 0 – 0 – – – – – – 0 – – 700,000 – 840,000 1,050,000 – 700,000 – – 950,000 – 600,000 1,425,000 – 500,000 – – 450,000 – 583,200 675,000 – – – – – – 337,500 – – – – – – – 102,038 – – 404,775 – – 60,779 52,520 – – – – – – – – – – – – – 2,899,870 829,014 4,766,514 3,503,815 2,685,809 3,541,756 291,667 291,667 291,667 353,119 291,667 353,119 Total compensation 3,191,537 1,120,681 4,583,333 4 3,856,934 2,977,476 3,894,875 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. Corporate Governance233 Andreas Wendt purchasing and Supplier network Member of the board of Management since 1 october 2018 in € FY 2019 FY 2019 (Min) FY 2019 (Max) FY 2018 FY 2019 FY 2018 Grants Payout bASe SAlARy Fixed compensation Fringe benefits (other compensation) Total one-yeAR vARIAble ReMuneRAtIon 800,000 102,701 800,000 102,701 800,000 102,701 200,000 800,000 200,000 13,029 102,701 13,029 902,701 902,701 902,701 213,029 902,701 213,029 Earnings-based component of the bonus 1 255,000 0 459,000 63,750 203,490 96,900 MultI-yeAR vARIAble ReMuneRAtIon Performance component of the bonus Performance component of the bonus 2018 (three-year plan term) 1 – Performance component of the bonus 2019 (three-year plan term) 1 595,000 Performance Cash Plan PCP 2018 – 2020 2 PCP 2019 – 2021 2 Share-based remuneration programme Cash remuneration component (investment component) 2018 for holding obligation 2019 – 2023 1 Cash remuneration component (investment component) 2019 for holding obligation 2020 – 2024 1 Share-based remuneration component (matching component) 2018 for holding obligation 2019 – 2023 Share-based remuneration component (matching component) 2019 for holding obligation 2020 – 2024 Other Total Pension expense 3 – 850,000 – 382,500 – 72,251 – – 0 – 0 – 0 – 0 – – 148,750 – 178,500 1,071,000 – 714,000 – 212,500 1,530,000 – – 95,625 – 0 – 688,500 – 412,871 – 21,645 344,500 – – – – – – – 0 – 123,930 – – – – 3,057,452 902,701 4,995,701 755,299 2,233,062 612,359 353,327 353,327 353,327 132,500 353,327 132,500 Total compensation 3,410,779 1,256,028 4,925,000 4 887,799 2,586,389 744,859 1 The bonus and cash remuneration component reported for the financial years 2019 and 2018 in accordance with the German Corporate Governance Code will be paid in 2020 and 2019 respectively. 2 Advance payments relating to the PCP 2019 – 2021 and the PCP 2018 – 2020 reported for the 2019 and 2018 financial years will be paid in 2020 or 2019. 3 Pension expense measured in accordance with IAS 19 reflects the expense recognised by the Company; this amount was not paid in the financial year. 4 Agreed cap. The cap is lower than the sum of the maximum amounts of the various individual components. 234 Compensation Report For financial years from 2018 onwards, a new variable compensation component was introduced in the form of the Performance Cash Plan. The PCP is paid out after the end of the relevant three-year evaluation pe riod. In the case of the PCP for the financial year 2019, the eval- uation period covers the financial years 2019 to 2021. The target amount for the PCP 2019 – 2021 is € 1.195 mil- lion for Mr Zipse, € 0.95 million for Mr Fröhlich, € 0.142 million for Ms Horstmeier, € 0.213 million for Mr Nedeljković and € 0.85 million each for Mr Nota, Dr Peter and Dr Wendt. The proportionate amount of the target amount is € 0.998 million for Mr Krüger and € 0.792 million each for Ms Caiña Carreiro-Andree and Mr Schwarzenbauer. Due to the fact that the criteria for the evaluation period 2019 to 2021 have not yet been fully met, this component is not included in variable compensation for the financial year 2019. In the financial year 2019, advance payments totalling € 4.27 million were made to the members of the Board of Management, who belonged to the Board at 1 January 2018, for the PCP 2018 – 2020. This figure includes advance payments to Mr Krüger, Ms Caiña Carreiro-Andree and Mr Schwarzenbauer totalling € 2.10 million. At the end of each relevant evaluation period, the advance payments are set off or repaid, depending on the amount then determined. In the financial year 2019, an expense of € 8.3 million (2018: € 5.3 million) was recognised for the PCP in accordance with IAS 19. Members of the Board of Management hold a total of 92,519 shares of BMW common stock (2018: 65,690) which are subject to holding requirements relating to the financial years 2015 – 2018 (cash remuneration components 2015 – 2018). The cash remuneration component for the financial year 2019 will be paid after the Annual General Meeting 2020. The purchase of shares of BMW common stock takes place imme- diately thereafter. Corporate GovernanceShares of BMW common stock held by individual members of the board of Management subject to holding requirements in connection with share-based remuneration for the financial years 2015 – 2018 1 in € Oliver Zipse 2 Harald Krüger 3 Milagros Caiña Carreiro-Andree 4 Klaus Fröhlich Ilka Horstmeier 5 Milan Nedeljković 6 Pieter Nota Nicolas Peter Peter Schwarzenbauer 7 Andreas Wendt Total 235 Total1 11,938 (7,821) 24,788 (19,528) 15,608 (13,294) 13,305 (9,106) – (–) – (–) 3,954 (–) 6,736 (3,053) 15,202 (12,888) 988 (–) 92,519 (65,690) 1 Only takes into account shares of BMW common stock acquired with the cash remuneration component relating to the Board of Management’s share-based remuneration programme and for which the four-year holding requirement has not yet expired. 2 Member of the Board of Management since 13 May 2015, Chairman of the Board of Management since 16 August 2019. 3 Member and Chairman of the Board of Management until 15 August 2019. 4 Member of the Board of Management until 31 October 2019. 5 Member of the Board of Management since 1 November 2019. 6 Member of the Board of Management since 1 October 2019. 7 Member of the Board of Management until 31 October 2019. In addition, an expense of € 2.9 million (2018: € 3.4 mil- lion) was recognised in the financial year 2019 for current members of the Board of Management for the period after the end of their service relationship. This relates to the expense for allocations to pension provisions in accordance with IAS 19. Total benefits paid to former members of the Board of Management and their surviving dependants for the financial year 2019 amounted to € 16.0 million (2018: € 9.2 million). This total figure of former members of the Board of Management also includes amounts totalling € 10.3 million, as reported above, in con- nection with the departure of Mr Krüger, Ms Caiña Carreiro-Andree and Mr Schwarzenbauer from the Board of Management. Some of these amounts have not yet been paid. Pension obligations to former members of the Board of Management and their surviving dependants are fully covered by pension provisions amounting to € 113.1 million (2018: € 91.0 million), recognised in accordance with IAS 19. 236 Compensation Report Share-based component of the individual members of the board of Management for the financial year 2019 (2018) 1 in € Oliver Zipse 2 Harald Krüger 3 Milagros Caiña Carreiro-Andree 4 Klaus Fröhlich Ilka Horstmeier 5 Milan Nedeljković 6 Pieter Nota Nicolas Peter Peter Schwarzenbauer 7 Andreas Wendt Total 8 Expense in 2019 in accordance with HGB and IFRS Provision at 31. 12. 2019 in accordance with HGB and IFRS1 135,272 (29,002) 170,267 (30,821) 143,912 (46,218) 104,384 (– 19,097) 668 (–) 1,516 (–) 76,736 (23,661) 150,428 (51,812) 139,649 (32,264) 34,672 (1,632) 358,043 (222,771) 571,504 (458,341) 359,649 (268,257) 356,008 (254,591) 668 (–) 1,516 (–) 100,397 (23,661) 231,415 (80,987) 441,254 (354,125) 36,304 (1,632) 957,504 2,456,758 (274,927) (1,786,110) 1 Provisional number or provisional monetary value calculated on the basis of the closing price of BMW common stock in the Xetra trading system on 30 December 2019 (€ 73.14) (fair value at reporting date). 2 Member of the Board of Management since 13 May 2015, Chairman of the Board of Management since 16 August 2019. 3 Member and Chairman of the Board of Management until 15 August 2019. 4 Member of the Board of Management until 31 October 2019. 5 Member of the Board of Management since 1 November 2019. 6 Member of the Board of Management since 1 October 2019. 7 Member of the Board of Management until 31 October 2019. 8 Disclosures for the previous year include amounts relating to a member of the Board of Management who left office during the financial year 2018. Corporate Governancepension entitlements in € Oliver Zipse 2 Harald Krüger 3 Milagros Caiña Carreiro-Andree 4 Klaus Fröhlich Ilka Horstmeier 5 Milan Nedeljković 6 Pieter Nota Nicolas Peter Peter Schwarzenbauer 7 Andreas Wendt Total 8 237 Service cost in accordance with IFRS for the financial year 20191 Service cost in accordance with HGB for the financial year 20191 Defined benefit obligation IFRS1 Defined benefit obligation HGB1 406,452 (353,289) 316,758 (504,831) 406,452 3,054,273 3,054,125 (356,550) (2,298,444) (2,298,405) 319,966 7,259,148 7,259,148 (509,486) (5,753,913) (5,753,776) 295,446 297,688 3,463,676 3,463,676 (354,224) (357,468) (2,561,031) (2,560,943) 353,327 (353,119) 58,333 (–) 87,500 (–) 359,979 (350,000) 353,327 (353,119) 355,573 3,256,267 3,256,267 (356,382) (2,660,630) (2,660,630) 58,333 993,548 992,662 (–) (–) (–) 87,500 1,421,605 1,421,152 (–) (–) (–) 362,125 760,562 760,306 (350,000) (350,276) (350,041) 355,573 2,656,550 2,656,550 (356,382) (2,004,567) (2,004,567) 291,667 291,667 2,682,925 2,682,925 (353,119) (356,382) (2,188,161) (2,188,159) 353,327 (132,500) 355,573 2,414,082 2,414,082 (132,500) (1,886,766) (1,886,766) 2,876,116 2,890,450 27,962,636 27,960,893 (2,754,201) (2,775,150) (19,703,788) (19,703,287) 1 Service cost differs due to the different valuation bases used to measure pension obligations for HGB purposes (expected settlement amount) and for IFRS purposes (present value of the defined benefit obligation). 2 Member of the Board of Management since 13 May 2015, Chairman of the Board of Management since 16 August 2019. 3 Member and Chairman of the Board of Management until 15 August 2019. 4 Member of the Board of Management until 31 October 2019. 5 Member of the Board of Management since 1 November 2019. 6 Member of the Board of Management since 1 October 2019. 7 Member of the Board of Management until 31 October 2019. 8 Prior year’s figures comprise only members of the Board of Management at 31 December 2018. 238 Compensation Report 2. Supervisory board compensation Responsibilities, provisions of Articles of Incorporation The compensation of the Supervisory Board is specified either by a resolution of the shareholders at the Annual General Meeting or in the Articles of Incorporation. The compensation provisions valid for the financial year under report were resolved by shareholders at the Annual General Meeting on 14 May 2013 and are set out in Article 15 of BMW AG’s Articles of www.bmwgroup.com Incorporation, which are available at within the section “Company” (menu items “Company Portrait” and “Corporate Governance”) as well as in “BMW Group Download Centre”. Compensation principles, compensation components The Supervisory Board of BMW AG receives a fixed compensation component as well as an earnings- related compensation component, which is oriented toward sustainable growth. The earnings-related component is based on average earnings per share of common stock for the remuneration year and the two preceding financial years. The fixed and earnings-related components in combi- nation are intended to ensure that the compensation of Supervisory Board members is appropriate in relation to the tasks of Supervisory Board members and the Company’s financial condition and also takes account of the Company’s performance over several years. In accordance with the Articles of Incorporation, each member of BMW AG’s Supervisory Board receives, in addition to the reimbursement of reasonable expenses, a fixed amount of € 70,000 (payable at the end of the year) as well as earnings-related compensation of € 170 for each full € 0.01 by which the average amount of (undiluted) earnings per share (EPS) of common stock reported in the Group Financial Statements for the remuneration year and the two preceding financial years exceeds a minimum amount of € 2.00, payable after the Annual General Meeting held in the fol- lowing year. An upper limit corresponding to twice the amount of the fixed compensation is in place for the earnings-related compensation. The limit for a member of the Supervisory Board with no additional compensation-relevant function is set at € 140,000. With fixed compensation elements and an earnings- related compensation component oriented toward sustainable growth, the compensation structure in place for BMW AG’s Supervisory Board complies with the recommendation on supervisory board compensa- tion contained in section 5.4.6 paragraph 2 sentence 2 of the German Corporate Governance Code (version dated 7 February 2017). The German Corporate Governance Code (version dated 7 February 2017) also recommends in sec- tion 5.4.6 paragraph 1 sentence 2 that the exercising of chair and deputy chair positions in the Supervisory Board as well as the chair and membership of commit- tees should also be considered in the compensation. Accordingly, the Articles of Incorporation of BMW AG stipulate that the Chairman of the Supervisory Board shall receive three times the amount and each Deputy Chairman shall receive twice the amount of the remuneration of a Supervisory Board member. Each chairman of the Supervisory Board’s committees receives twice the amount and each member of a committee receives one-and-a-half times the amount of the remuneration of a Supervisory Board mem- ber, provided the relevant committee convened for meetings on at least three days during the financial year. If a member of the Supervisory Board exercises more than one of the functions referred to above, the compensation is measured only on the basis of the function that is remunerated with the highest amount. In addition, each member of the Supervisory Board receives an attendance fee of € 2,000 for each full meeting of the Supervisory Board (Plenum) which the member has attended, payable at the end of the financial year. Attendance at more than one meeting on the same day is not remunerated separately. The Company also reimburses to each member of the Supervisory Board reasonable expenses and any value- added tax arising on the member’s remuneration. The amounts disclosed below are net amounts. In order to perform his duties, the Chairman of the Supervisory Board has the use of an office, with administrative support, as well as access to the BMW car service. Corporate Governancetotal compensation of the Supervisory board for the financial year 2019 In accordance with Article 15 of the Articles of Incor- poration, the compensation of the Supervisory Board for activities during the financial year 2019 totalled € 5.6 million (2018: € 5.6 million). This includes fixed remuneration of € 2.0 million (2018: € 2.0 million) and variable remuneration of € 3.6 million (2018: € 3.6 million). The earnings-related remuneration for the financial year 2019 was capped at the maximum amount stipulated in the Articles of Incorporation. 239 in € million Fixed compensation Variable compensation Total compensation Supervisory Board members did not receive any fur- ther compensation or benefits from the BMW Group for advisory or agency services personally rendered. 2019 2018 Amount Proportion in % Amount Proportion in % 2.0 3.6 5.6 35.7 64.3 100.0 2.0 3.6 5.6 35.7 64.3 100.0 240 Compensation of the individual members of the Supervisory Board for the financial year 2019 (2018) Compensation Report in € Fixed compensation Attendance fee Variable compensation Norbert Reithofer (Chairman) Manfred Schoch (Deputy Chairman) 1 Stefan Quandt (Deputy Chairman) Stefan Schmid (Deputy Chairman) 1 Karl-Ludwig Kley (Deputy Chairman) Christiane Benner 1 Kurt Bock Verena zu Dohna-Jaeger 1, 2 Franz Haniel 3 Ralf Hattler 3 Heinrich Hiesinger Reinhard Hüttl 4 210,000 (210,000) 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 70,000 (70,000) 70,000 (43,656) 43,844 (–) 26,344 (70,000) 26,344 (70,000) 70,000 (70,000) 70,000 (70,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (8,000) 8,000 (10,000) 10,000 (8,000) 10,000 (8,000) 8,000 (–) 2,000 (8,000) 2,000 (10,000) 10,000 (10,000) 8,000 420,000 (420,000) 280,000 (280,000) 280,000 (280,000) 280,000 (280,000) 280,000 (280,000) 140,000 (140,000) 140,000 (87,312) 87,688 (–) 52,688 52,688 (140,000) 140,000 (140,000) 122,000 4 1 These employee representatives have – in line with the guidelines of the Deutscher Gewerkschaftsbund – requested that their remuneration be paid into the Hans Böckler-Stiftung. 2 Member of the Supervisory Board since 16 May 2019. 3 Member of the Supervisory Board until 16 May 2019. 4 Due to the requirements of his employer, Prof. Dr. Hüttl has waived his Supervisory Board compensation until further notice, to the extent that such compensation exceeds the amount of € 200,000 (excluding value added tax) p. a. (10,000) (120,000) (140,000) (218,000) Total 640,000 (640,000) 430,000 (430,000) 430,000 (430,000) 430,000 (428,000) 428,000 (430,000) 220,000 (218,000) 220,000 (138,968) 139,532 (–) 81,032 81,032 (220,000) 220,000 (220,000) 200,000 (200,000) Corporate GovernanceCompensation of the individual members of the Supervisory Board for the financial year 2019 (2018) 241 in € Susanne Klatten Renate Köcher Horst Lischka 1 Willibald Löw 1 Simone Menne Dominique Mohabeer 1 Brigitte Rödig 1 Vishal Sikka 2 Jürgen Wechsler 1, 3 Thomas Wittig 2 Werner Zierer 1 Total 4 Fixed compensation Attendance fee Variable compensation 70,000 (70,000) 70,000 (70,000) 70,000 (70,000) 70,000 (70,000) 70,000 (70,000) 70,000 (70,000) 70,000 (70,000) 43,844 (–) 26,344 (70,000) 43,844 (–) 70,000 (70,000) 1,820,564 10,000 (8,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (8,000) 10,000 (10,000) 10,000 (10,000) 8,000 (–) 2,000 (8,000) 8,000 (–) 10,000 (10,000) 196,000 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 140,000 (140,000) 87,688 (–) 52,688 (140,000) 87,688 (–) 140,000 (140,000) Total 220,000 (218,000) 220,000 (220,000) 220,000 (220,000) 220,000 (220,000) 220,000 (218,000) 220,000 (220,000) 220,000 (220,000) 139,532 (–) 81,032 (218,000) 139,532 (–) 220,000 (220,000) 3,623,128 5,639,692 1 These employee representatives have – in line with the guidelines of the Deutscher Gewerkschaftsbund – requested that their remuneration be paid into the Hans Böckler-Stiftung. 2 Member of the Supervisory Board since 16 May 2019. 3 Member of the Supervisory Board until 16 May 2019. 4 Disclosures for the previous year include amounts relating to a member of the Supervisory Board who left office during the financial year 2018. (1,820,188) (188,000) (3,620,377) (5,628,565) 3. other With the exception of purchase, rental, leasing and financing contracts for vehicles on customary terms and conditions and the advance payments relating to the PCP 2018 – 2020 described above, neither BMW AG nor any of its subsidiaries granted loans or advances to members of the Board of Management or the Super- visory Board during the financial year 2019, nor were any contingent liabilities entered into on their behalf. Revision of Supervisory board compensation for financial years from 2020 onwards The Supervisory Board and Board of Management propose to submit a proposal to the Annual General Meeting 2020 to change Supervisory Board compensa- tion for financial years beginning after 1 January 2020 to an exclusively fixed compensation. The proposal of an exclusively fixed compensation model also corre- sponds to the new suggestion for supervisory board remuneration put forward by the Government Com- mission on the German Corporate Governance Code in the Code version dated 16 December 2019, section G.18. The proposed model is intended to strengthen the independent advisory and control function of the Supervisory Board. At the same time, the proposal will also help to simplify the compensation system. A detailed description of the proposal will be included in the invitation to the Annual General Meeting 2020. 242 Glossary – Explanation of Key Figures GLOSSARY – EXPLANATION OF KEY FIGURES Asset-backed financing transactions A form of corporate financing involving the sale of receivables to a financing company. Bond A securitised debt instrument in which the issuer certifies its obligation to repay the nominal amount at the end of a fixed term and to pay a fixed or variable rate of interest. Business volume in balance sheet terms The sum of the balance sheet line items “Leased prod- ucts” and “Receivables from sales financing” (current and non-current), as reported in the balance sheet for the Financial Services segment. Cash flow hedge A hedge against exposures to the variability in fore- casted cash flows, particularly in connection with exchange rate fluctuations. CO2 fleet emissions The calculation of average CO2 fleet emissions of a manufacturer is reported through the weighted aver- age of CO2 emissions by all vehicles newly registered in the reporting period. The calculation is based on the volume of new registrations of the manufacturer in the EU in the calendar year as well as the individual vehicle- specific CO2 emissions, which have been cal- culated based on the WLTP test cycle and adapted to the New European Driving Cycle (NEDC). Additional effects from the recognition of eco-innovations are not taken into consideration in the disclosure of fleet emis- sions for 2019. For the 2020 forecast, the disclosure relates purely to a reduction of the CO2 fleet emissions and not the CO2 fleet limit, which the BMW Group needs to achieve. This means that the recognition of super credits, phase-in and eco-innovations is not part of the forecast. Capital expenditure ratio Investments in property, plant and equipment and other intangible assets (excluding capitalised devel- opment costs) as a percentage of Group revenues. Commercial paper Short-term debt instruments with a term of less than one year which are usually issued at a discount to their face value. Capitalisation rate Capitalised development costs as a percentage of research and development expenditure. Cash flow Liquid funds generated (cash inflows) or used (cash outflows) during a reporting period. Cash flow at risk Similar to “value at risk” (see definition below). Consolidation The process of combining separate financial state- ments of Group entities into Group Financial State- ments, depicting the financial position, net assets and results of operations of the Group as a single economic entity. Corporate Governance243 EBIT Abbreviation for “Earnings Before Interest and Taxes”, equivalent in the BMW Group income statement to “Profit / loss before financial result”. This is comprised of revenues less cost of sales, selling and administra- tive expenses and the net amount of other operating income and expenses. EBIT margin Profit / loss before financial result as a percentage of revenues. EBT EBIT plus financial result. Effective tax rate The effective tax rate is calculated by dividing the income tax expense by the Group profit before tax. Equity ratio Equity capital as a percentage of the balance sheet total. Credit default swap (CDS) Financial swap agreements, under which creditors of securities (usually bonds) pay premiums to the seller of the CDS to hedge against the risk that the issuer of the bond will default. As with credit default insurance agreements, the party receiving the premiums gives a commitment to compensate the bond creditor in the event of default. Deliveries A new or used vehicle will be recorded as a deliv- ery once handed over to the end user (which also includes leaseholders under lease contracts with BMW Financial Services). In the US and Canada, end users also include (1) dealers when they designate a vehicle as a service loaner or demonstrator vehicle and (2) dealers and other third parties when they purchase a company vehicle at auction and dealers when they purchase company vehicles directly from BMW Group. Deliveries may be made by BMW AG, one of its international subsidiaries, a BMW Group retail outlet, or independent third party dealers. The vast majority of deliveries – and hence the reporting to BMW Group of deliveries – is made by independent third party dealers. Retail vehicle deliveries during a given reporting period do not correlate directly to the revenue that BMW Group recognises in respect of such reporting period. Earnings per share (EPS) Basic earnings per share are calculated for common and preferred stock by dividing the net profit after minority interests, as attributable to each category of stock, by the average number of shares in circulation. Earnings per share of preferred stock are computed on the basis of the number of preferred stock shares entitled to receive a dividend in each of the relevant financial years. 244 Glossary – Explanation of Key Figures Fair value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair value hedge A hedge against exposures to fluctuations in the fair value of a balance sheet item. Free cash flow Free cash flow is derived from cash flows from oper- ating and investing activities. The cash flows from investing activities from the purchase and sale of marketable securities and investment funds is not included. Cash flows from the purchase and sale of shares and the dividend payout from investments accounted for using the equity method are included in the cash flows from investing activities. Goodwill Goodwill corresponds to the consideration paid to acquire an entity, less the fair value of the separate assets acquired and liabilities assumed. The buyer is willing to pay the additional amount in return for future expected earnings. Gross profit margin Gross profit as a percentage of Group revenues. Liquidity Cash and cash equivalents as well as marketable secu- rities and investment funds. Post-tax return on sales Group net profit as a percentage of Group revenues. Pre-tax return on sales Group profit / loss before tax as a percentage of Group revenues. Research and development expenditure The sum of research and non-capitalised development cost and capitalised development cost (not including the associated scheduled amortisation). Research and development expenditure ratio Research and development expenditure as a percent- age of Group revenues. Research and development locations The engineering, IT and process expertise required for the (pre-)development of hardware and software for all BMW Group products and services is combined at the Group’s international research and development locations. Return on capital employed (RoCE) RoCE in the Automotive and Motorcycles segments is measured on the basis of relevant segment profit before financial result and the average amount of capital employed – at the end of the last five quar- ters – in the segment concerned. Capital employed corresponds to the sum of all current and non-current operational assets, less liabilities that generally do not incur interest. Corporate Governance245 Return on equity (RoE) RoE in the Financial Services segment is calculated as segment profit before taxes, divided by the aver- age amount of equity capital – at the end of the last five quarters – attributable to the Financial Services segment. Value at risk A measure of the potential maximum loss in value of an item during a set time period, based on a specified probability. Vocational and further training Comprises in-house vocational training provided by the BMW Group in 11 countries as well as the further training of BMW Group employees and temporary staff working for consolidated companies worldwide. Workforce size The BMW Group’s workforce comprises the employees of BMW AG and those of all companies in which it holds a majority interest, irrespective of the treat- ment of those companies for consolidation purposes. Employees with dormant employment contracts, employees in the non-work phases of pre-retirement part-time working arrangements and low-income earners are not included. 246 Responsibility Statement by the Company’s Legal Representatives Independent Auditor’s Report RESPONSIBILITY STATEMENT BY THE COMPANY’S LEGAL REPRESENTATIVES Statement pursuant to § 117 No. 1 of the Securities Trading Act (WpHG) in conjunction with § 297 (2) sentence 4 and § 315 (1) sentence 5 of the German Commercial Code (HGB) “To the best of our knowledge, and in accordance with the applicable reporting principles, the Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and profit of the Group, and the Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.” Munich, 16 March 2020 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Oliver Zipse Klaus Fröhlich Ilka Horstmeier Dr. Milan Nedeljković Pieter Nota Dr. Nicolas Peter Dr.-Ing. Andreas Wendt Corporate GovernanceINDEPENDENT AUDITOR’S REPORT To Bayerische Motoren Werke Aktiengesellschaft, Munich Report on the Audit of the Consoli- dated Financial Statements and of the Group Management Report Audit Opinions We have audited the consolidated financial statements of Bayerische Motoren Werke Aktiengesellschaft, Munich, and its subsidiaries (the Group), which com- prise the consolidated balance sheet as at Decem- ber 31, 2019, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the financial year from January 1 to December 31, 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, on the basis of the knowledge obtained in the audit, — the accompanying consolidated financial state- ments comply, in all material respects, with the IFRS as adopted by the EU, and the addi- tional requirements of German commercial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commer- cial Code] and, in compliance with these require- ments, give a true and fair view of the assets, liabilities, and financial position of the Group as at December 31, 2019, and of its financial per- formance for the financial year from January 1 to December 31, 2019, and 247 — the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appro- priately presents the opportunities and risks of future development. Our audit opinion on the group management report does not cover the content of those parts of the group man- agement report listed in the “Other Information” section of our auditor’s report. Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group manage- ment report. Basis for the Audit Opinions We conducted our audit of the consolidated financial statements and of the group management report in accordance with § 317 HGB and the EU Audit Regulation (No. 537 / 2014, referred to subsequently as “EU Audit Regulation”) in compliance with Ger- man Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these require- ments. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial state- ments and on the group management report. 248 Independent Auditor’s Report Key Audit Matters in the Audit of the Consolidated Financial Statements Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year from January 1 to December 31, 2019. These matters were addressed in the context of our audit of the consolidated financial state- ments as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. In our view, the matters of most significance in our audit were as follows: — Measurement of leased products — Valuation of receivables from sales financing — Valuation of provisions for statutory and non- statutory warranty obligations and product guarantees — Measurement and recognition of YOUR NOW equity investments — Measurement of provision for risks relating to an EU antitrust proceeding Our presentation of these key audit matters has been structured in each case as follows: — Matter and issue — Audit approach and findings — Reference to further information Hereinafter we present the key audit matters: Measurement of leased products The BMW Group leases vehicles to end customers under operating leases (leased products). At the balance sheet date, the figure reported under the “leased products” line item for operating leases was EUR 42,609 million (approximately 18.7 % of total assets). Leased products are measured at cost, which is depreciated on a straight-line basis over the lease term to the expected residual value (recoverable amount). A key estimated value for subsequent measurement of leased products is the expected residual value at the end of the lease term. The BMW Group uses internally available data on historical empirical values, current market data and market estimates as well as forecasts by external market research institutes. The estimation of future residual values is subject to judgment due to the large number of assumptions to be made by the executive directors and the amount of data included in the determination. Against this background and due to the resulting significant uncertainties with regard to estimates in the context of measuring the residual values of the leased products, this matter was of particular significance in the context of our audit. As part of our audit we obtained an understanding of the development of operating leases, the underlying residual value risks as well as the business processes for the identification, management, monitoring and measurement of residual value risks, among other things by inquiries and inspection of documents re lated to the internal calculation methods. Further- more we evaluated the appropriateness and effec- tiveness of the internal control system, particularly regarding the determination of expected residual values. This included the evaluation of the propriety of the relevant IT systems as well as the implemented interfaces therein by our IT specialists. In addition, we evaluated the appropriateness of the forecasting methods, the model assumptions as well as the parameters used for the measurement of the residual values based on the validations carried out by the BMW Group. For this purpose, we inquired with the BMW Group’s experts responsible for the management and monitoring of residual value risks and inspected the internal analysis on residual value developments and residual value forecasts as well as the validation results. We examined the mathematically correctness of the forecast values using the key calculation steps. Based on our audit procedures, we were able to satisfy ourselves that the methods and processes for determining the expected residual values of leased products underlying the valuation are appropriate and the assumptions and parameters included in the forecast model for the residual value are appropriate as a whole. The Company’s disclosures on the applied “Accounting policies, assumptions, judgments and estimations” are contained in the notes to the consolidated financial statements under note 4 and on leased products are contained under note 23. Corporate Governance249 In our view, the assumptions and parameters used in the measurement of receivables from sales financing were appropriate overall. The Company’s disclosures on the applied “Accounting policies, assumptions, judgments and estimations” are contained in the notes to the consolidated financial statements under note 4 and on “receivables from sales financing” are contained under note 25. valuation of provisions for statutory and non-statu- tory warranty obligations and product guarantees Provisions for statutory and non-statutory war- ranty obligations as well as product guarantees are included in the consolidated financial statements of BMW Group as a material amount in other provi- sions. The provisions amounted to EUR 5,550 million (approximately 2.4 % of total assets) as at December 31, 2019. BMW Group is responsible for the legally required warranty and product guarantees in the respective sales market. In order to estimate the liabilities arising from statutory and non-statutory warranty obligations and product guarantees for vehicles sold, information on the type and volume of damages arising and on remedial measures is recorded and analyzed at vehicle model level. The expected amount of obligations is extrapolated from costs of the past and recognized as a provision in the corresponding amount, if the criteria of IAS 37 have been met. For specific or anticipated individual circumstances, for example recalls, additional provi- sions are recognized provided they have not already been taken into account. The determination of provisions is associated with unavoidable estimation uncertainties and is subject to a high risk of change, depending on factors such as notification of detected defects as well as claims made by vehicle owners. Against this background, this matter was of particular significance during our audit. Valuation of receivables from sales financing The BMW Group offers end customers, dealerships and importers various financing models for vehicles. In this context, current and non-current receivables from sales financing totaling EUR 92,437 million are reported in the consolidated statement of financial position as at the balance sheet date (approximately EUR 40.4 % of total assets). Impairment losses amount- ing to EUR 1,099 million were recognized on these receivables as at the balance sheet date. In order to determine the amount of the necessary valuation allowances to be recognized with respect to receiv- ables from sales financing, the BMW Group, among others, evaluates the creditworthiness of the dealers, importers and end customers, as well as any loss ratios, and risk provisioning parameters are derived based on historical default probabilities and loss ratios. The determination of the valuation allowances by the executive directors is subject to a significant degree of judgment due to several value-influencing factors such as the estimation of creditworthiness, the deter- mination of probabilities of default and loss ratios and was therefore of particular significance in the context of our audit. As part of our audit we obtained a comprehensive understanding of the development of receivables from sales financing, the associated default-related risks as well as the business processes for the identifica- tion, management, monitoring and measurement of default risks, among other things by inquiries and inspection of documents on the internal calculation methods. Furthermore we evaluated the appropriate- ness and effectiveness of the internal control system regarding the determination of the impairment loss to recognize. In this context, we also evaluated the relevant IT systems and internal processes. The eval- uation included an assessment by our IT specialists of the appropriateness of the systems concerned and associated interfaces to ensure the completeness of data as well as the audit of automated controls for data processing. As part of our audit we assessed in particular the appropriateness of the risk classification procedures as well as the risk provisioning parameters used. For this purpose, we analyzed in particular the validations of parameters that are regularly conducted by the Company. To assess the default risk, we also used targeted sampling of individual cases to examine whether the attributes for assignment to the respective risk categories were suitably available and the impair- ment losses had been calculated using the parameters defined for these risk categories. 250 Independent Auditor’s Report In order to assess the appropriateness of the valuation method used for the determination of the provisions for statutory and non-statutory warranty obligations as well as product guarantees including the assump- tions and parameters, we primarily obtained an understanding of the process for determining the assumptions and parameters through discussions with the responsible employees of the BMW Group. We also evaluated the appropriateness as well as effective- ness of controls for determining the assumptions and parameters. With the involvement of our IT specialists, we checked the IT systems used regarding their com- pliance. We compared the expenses for claims and technical actions with actual costs incurred in order to draw conclusions on the forecast accuracy. Based on a targeted sample of vehicle models, the mathematically correctness of the valuation model used across the Group was examined. We examined and evaluated the assumptions used by the BMW Group concerning the extent to which the past values were representative of the expected susceptibility of damage, the expected value of damage per vehicle (comprising parts and labor input) as well as the expected assertion of claims from statutory and non-statutory warranties. In our view, the method for the valuation of provisions for statutory and non-statutory warranty obligations as well as product guarantees is overall appropriate. Taking into consideration the information available, we believe that, overall, the measurement parameters and assumptions used by the executive directors are appropriate. The Company’s disclosures on the applied “Accounting policies, assumptions, judgments and estimations” are contained in the notes to the consolidated financial statements under note 4 and on “Other provisions” are contained under note 33. Measurement and recognition of youR noW equity investments In the BMW Group’s consolidated financial state- ments as at December 31, 2019, the line item “Invest- ments accounted for using the equity method” the YOUR NOW equity investments with a carrying amount of EUR 987 million (approximately 0.4 % of total assets) is reported. The BMW Group and a competitor have bundled mobility services within YOUR NOW. As a result of the combination with the competitor, the BMW Group contributed its investment in DriveNow GmbH & Co. KG, Munich, Parkmobile Group Holding B. V., Amsterdam, Digital Charging Solutions GmbH, Berlin and Reach Now LLC, Seattle. In the course of the transaction, disposal proceeds amounting to EUR 232 million were realized and a reversal of impairment losses amounting to EUR 97 million was recognized. YOUR NOW gen- erated negative operating earnings amounting to EUR 662 million in the past financial year, which were recognized in the consolidated financial statements. Furthermore, there was a triggering event at the level of the BMW Group and a EUR 240 million impair- ment loss was recognized. The Company has defined a triggering event to be in particular a significant deviation from target figures. The determination of the reversal of impairment losses, the purchase price allocation as well as the impairment loss is based on the exercise of judg- ment by the executive directors, which is subject to significant estimation uncertainties. Against this background, this matter was of particular significance during our audit. As part of our audit, we examined and evaluated the methodological procedure adopted for the purposes of calculating the fair value for the determination of the reversal of impairment losses, among other things. We compared the future cash inflows used in the cal- culation against the underlying budget and assessed their appropriateness. Moreover, we examined the methodological procedure used in the purchase price allocation. In connection with the impairment loss, we assessed whether a triggering event had occurred. We examined the impairment test conducted by the BMW Group based on the occurrence of a triggering event and assessed its methodical correctness. After comparing the future cash inflows used against the budget adopted by the shareholders, we examined in particular the derivation of the discount rate used. The valuation parameters and assumptions used by the executive directors are overall in line with our expec- tations and are also within the ranges considered by us to be acceptable. The Company’s disclosures on the applied “Account- ing policies, assumptions, judgments and estimations” are contained in the notes to the consolidated finan- cial statements under note 2 and on the YOUR NOW equity investments are contained under note 24. Corporate Governance251 Other Information The executive directors are responsible for the other information. The other information comprises the following non-audited parts of the group management report: — the statement on corporate governance pur- suant to § 289 f HGB and § 315 d HGB included in section “Statement on Corporate Gover- nance (§ 289 f HGB)” of the group management report — the corporate governance report pursuant to No. 3.10 of the German Corporate Governance Code — the separate non-financial report pursuant to § 289 b Abs. 3 HGB and § 315 b Abs. 3 HGB The other information comprises further the remaining parts of the annual report – excluding cross-references to external information – with the exception of the audited consolidated financial statements, the audited group management report and our auditor’s report. Our audit opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information — is materially inconsistent with the consolidated financial statements, with the group manage- ment report or our knowledge obtained in the audit, or — otherwise appears to be materially misstated. Measurement of provision for risks relating to an eu antitrust proceeding In April 2019, the BMW Group was notified by the European Commission of complaints in a pending antitrust proceeding. The European Commission accuses various manufacturers of colluding to restrict competition in the field of innovation. In this con- nection, a EUR 1.4 billion provision for litigation and risk provisioning was recognized in the consolidated financial statements under the balance sheet item “Other provisions”. The risk assessment to be made on developments in the EU antitrust proceeding and the estimation of whether or not a provision must be recognized to cover the risks, and if so, in what amount the current obligation must be measured, is subject to a high degree of uncertainties and charac- terized by the estimates and assumptions made by the executive directors. In our view, this matter was of particular significance for our audit due to the significant uncertainties con- cerning the outcome of the EU antitrust proceeding and the potential effects on BMW AG’s assets, liabil- ities, financial position and financial performance. With the knowledge that estimated values result in an increased risk of accounting misstatements and that the executive directors’ recognition and measurement decisions have a direct effect on consolidated result, we evaluated the appropriateness of the carrying amounts, with the involvement of an internal PwC antitrust law expert. Furthermore, we also held reg- ular meetings with the Company’s legal department in order to receive information regarding updates on current developments and the reasons for the corresponding estimates. The development of the aforementioned risks arising from the EU antitrust proceeding, including the executive directors’ esti- mates concerning the potential proceeding outcomes, was provided to us by the Company in writing. In addition, we obtained and evaluated an external legal confirmation as at the balance sheet date. In our view, the estimates made by the executive directors regarding the recognition and measurement of the provision for the risks from the EU antitrust proceeding described above and the associated risk provision in the consolidated financial statements are sufficiently documented and substantiated. The Company’s disclosures on the applied “Accounting policies, assumptions, judgments and estimations” are contained in the notes to the consolidated financial statements under note 4 and on “Other operating expenses” are contained under note 10. 252 Independent Auditor’s Report Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report The executive directors are responsible for the prepa- ration of the consolidated financial statements that comply, in all material respects, with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315 e Abs. 1 HGB and that the consolidated financial statements, in com- pliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial report- ing based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appro- priately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report. The supervisory board is responsible for overseeing the Group’s financial reporting process for the prepa- ration of the consolidated financial statements and of the group management report. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropri- ate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an audi- tor’s report that includes our audit opinions on the consolidated financial statements and on the group management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accor- dance with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report. We exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstate- ment of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropri- ate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one result- ing from error, as fraud may involve collusion, forgery, intentional omissions, misrepresenta- tions, or the override of internal controls. Corporate Governance— Obtain an understanding of internal control rele- vant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group man- agement report in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems. — Evaluate the appropriateness of accounting poli- cies used by the executive directors and the reasonableness of estimates made by the execu- tive directors and related disclosures. — Conclude on the appropriateness of the execu- tive directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to con- tinue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to mod- ify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. How ever, fu- ture events or conditions may cause the Group to cease to be able to continue as a going concern. — Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the con- solidated financial statements present the un- derlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, finan- cial position and financial performance of the Group in compliance with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315 e Abs. 1 HGB. 253 — Obtain sufficient appropriate audit evidence regard ing the financial information of the enti- ties or business activities within the Group to express audit opinions on the consolidated finan- cial statements and on the group management report. We are responsible for the direction, su- pervision and performance of the group audit. We remain solely responsible for our audit opinions. — Evaluate the consistency of the group manage- ment report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides. — Perform audit procedures on the prospective in- formation presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we eval- uate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective informa- tion from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal con- trol that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consoli- dated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. 254 Independent Auditor’s Report Other Legal and Regulatory Requirements German Public Auditor Responsible for the Engagement The German Public Auditor responsible for the engagement is Andreas Fell. Munich, 11 March 2020 / limited to the amendment referred to in the Information on the Supplementary Audit: 16 March 2020 pricewaterhousecoopers GmbH Wirtschaftsprüfungsgesellschaft Petra Justenhoven Wirtschaftsprüferin [German Public Auditor] Andreas Fell Wirtschaftsprüfer [German Public Auditor] Further Information pursuant to Article 10 of the EU Audit Regulation We were elected as group auditor by the annual gen- eral meeting on May 16, 2019. We were engaged by the supervisory board on May 17, 2019. We have been the group auditor of the Bayerische Motoren Werke Aktiengesellschaft, Munich, without interruption since the financial year 2019. We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report). Information on the Supplementary Audit We issue this auditor’s report on the amended con- solidated financial statements and amended group management report on the basis of our statutory audit completed on March 11, 2020 and our supplementary audit completed on March 16, 2020, which concerned the amendments to disclosures in the notes to the con- solidated financial statements and the group manage- ment report due to the updated reporting on expected developments and on risks and opportunities taking into account new information on the effects of the spread of coronavirus. Please refer to the presentation of the amendments by the executive directors in the sections entitled “Basis of preparation” and “Report on post-balance sheet date events” in the amended notes to the consolidated financial statements, and in the sections entitled “Organization and business model”, “Report on economic position”, “Report on expected developments” and “Report on risks and opportunities” in the amended group management report. Corporate GovernanceOTHER INFORMATION Page 256 BMW Group Ten-year Comparison 5 Other Information Ten-year Comparison 256 BMW Group Ten-year Comparison BMW GROUP TEN-YEAR COMPARISON delIveRIeS Automobiles 2 Motorcycles 3 pRoduCtIon voluMe Automobiles Motorcycles 3 FInAnCIAl SeRvICeS Contract portfolio 2019 2018 1 2017 2016 2015 2014 2013 2012 2011 2010 units units units units 2,538,367 2,483,292 2,468,658 2,352,440 175,162 165,566 164,153 145,032 2,257,851 2,117,965 1,963,798 1,845,186 1,668,982 1,461,166 136,963 123,495 115,215 106,358 104,286 98,047 2,564,025 2,541,534 2,505,741 2,359,756 187,116 162,687 185,682 145,555 2,279,503 2,165,566 2,006,366 1,861,826 1,738,160 1,481,253 151,004 133,615 110,127 113,811 110,360 99,236 contracts 5,973,682 5,235,207 5,380,785 5,114,906 4,718,970 4,359,572 4,130,002 3,846,364 3,592,093 3,190,353 Business volume (based on balance sheet carrying amounts) € million 142,834 133,147 124,719 123,394 111,191 96,390 84,347 80,974 75,245 66,233 Business volume (based on balance sheet carrying amounts) InCoMe StAteMent Revenues Gross profit margin Earnings before financial result Earnings before tax Return on sales (earnings before tax / revenues) Income taxes Effective tax rate Net profit for the year bAlAnCe Sheet Non-current assets Current assets Capital expenditure (excluding capitalised development costs) Capital expenditure ratio (capital expenditure / revenues) Equity Equity ratio Non-current provisions and liabilities Current provisions and liabilities Balance sheet total CASh FloW StAteMent Cash and cash equivalents at balance sheet date Free cash flow Automotive segment peRSonnel Workforce at year-end 4 Personnel cost per employee dIvIdend Dividend total € million 104,210 96,855 98,282 94,163 92,175 80,401 76,059 76,848 68,821 60,477 % € million € million % € million % € million € million € million € million % % € million € million € million 17.3 7,411 7,118 6.8 2,140 30.1 5,022 19.0 8,933 9,627 9.9 2,530 26.3 7,064 20.3 9,899 10,675 10.9 2,000 18.7 8,675 19.9 9,386 9,665 10.3 2,755 28.5 6,910 137,404 124,202 121,964 121,671 90,630 5,650 5.4 26.3 85,502 82,625 84,736 5,029 5.2 57,829 27.7 79,698 71,411 73,542 4,688 4.8 54,107 27.7 69,634 71,765 66,864 3,731 4.0 47,363 25.1 73,183 67,989 € million 59,907 228,034 208,938 195,506 188,535 172,174 154,803 138,377 131,835 123,429 110,164 € million € million 12,036 2,567 10,979 2,713 9,039 4,459 7,880 5,792 6,122 5,404 7,688 3,481 7,671 3,003 8,370 3,809 7,776 3,166 7,432 4,471 133,778 € 98,901 134,682 101,178 129,932 100,760 124,729 99,575 122,244 116,324 110,351 105,876 100,306 97,136 92,337 89,869 89,161 84,887 95,453 83,141 € million 1,646 2,303 2,630 2,300 2,102 1,904 1,707 1,640 1,508 852 Dividend per share of common stock / preferred stock € 2.50 5 / 2.52 5 3.50 / 3.52 4.00 / 4.02 3.50 / 3.52 3.20 / 3.22 2.90 / 2.92 2.60 / 2.62 2.50 / 2.52 2.30 / 2.32 1.30 / 1.32 Dividend per share of common stock / preferred stock 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment enables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. 3 Excluding Husqvarna, deliveries up to 2013: 59,776 units; production up to 2013: 59,426 units. 4 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time working arrangements and low wage earners. 5 Proposal by management. 19.7 9,593 9,224 10.0 2,828 30.7 6,396 110,343 61,831 3,826 4.2 42,764 24.8 63,819 65,591 21.2 9,118 8,707 10.8 2,890 33.2 5,817 97,959 56,844 4,601 5.7 37,437 24.2 58,288 59,078 20.1 7,978 7,893 10.4 2,564 32.5 5,329 86,193 52,184 4,967 6.5 35,600 25.7 51,643 51,134 20.2 8,275 7,803 10.2 2,692 34.5 5,111 81,305 50,530 4,151 5.4 30,606 23.2 52,834 48,395 21.1 8,018 7,383 10.7 2,476 33.5 4,907 74,425 49,004 2,720 4.0 27,103 22.0 49,113 47,213 18.1 5,111 4,853 8.0 1,610 33.1 3,243 67,013 43,151 2,312 3.8 23,930 21.7 46,100 40,134 delIveRIeS Automobiles 2 Motorcycles 3 pRoduCtIon voluMe Automobiles Motorcycles 3 FInAnCIAl SeRvICeS Contract portfolio InCoMe StAteMent Revenues Gross profit margin Earnings before financial result Earnings before tax Income taxes Effective tax rate Net profit for the year bAlAnCe Sheet Non-current assets Current assets Return on sales (earnings before tax / revenues) Capital expenditure (excluding capitalised development costs) Capital expenditure ratio (capital expenditure / revenues) Equity Equity ratio Non-current provisions and liabilities Current provisions and liabilities Balance sheet total CASh FloW StAteMent Cash and cash equivalents at balance sheet date Free cash flow Automotive segment peRSonnel Workforce at year-end 4 Personnel cost per employee dIvIdend Dividend total Other Information 2019 2018 1 2017 2016 2015 2014 2013 2012 2011 2010 2,538,367 2,483,292 2,468,658 2,352,440 175,162 165,566 164,153 145,032 2,257,851 2,117,965 1,963,798 1,845,186 1,668,982 1,461,166 136,963 123,495 115,215 106,358 104,286 98,047 2,564,025 2,541,534 2,505,741 2,359,756 187,116 162,687 185,682 145,555 2,279,503 2,165,566 2,006,366 1,861,826 1,738,160 1,481,253 151,004 133,615 110,127 113,811 110,360 99,236 contracts 5,973,682 5,235,207 5,380,785 5,114,906 4,718,970 4,359,572 4,130,002 3,846,364 3,592,093 3,190,353 257 delIveRIeS Automobiles 2 Motorcycles 3 pRoduCtIon voluMe Automobiles Motorcycles 3 FInAnCIAl SeRvICeS Contract portfolio Business volume (based on balance sheet carrying amounts) € million 142,834 133,147 124,719 123,394 111,191 96,390 84,347 80,974 75,245 66,233 Business volume (based on balance sheet carrying amounts) € million 104,210 96,855 98,282 94,163 92,175 80,401 76,059 76,848 68,821 60,477 19.7 9,593 9,224 10.0 2,828 30.7 6,396 110,343 61,831 3,826 4.2 42,764 24.8 63,819 65,591 21.2 9,118 8,707 10.8 2,890 33.2 5,817 97,959 56,844 4,601 5.7 37,437 24.2 58,288 59,078 20.1 7,978 7,893 10.4 2,564 32.5 5,329 86,193 52,184 4,967 6.5 35,600 25.7 51,643 51,134 20.2 8,275 7,803 10.2 2,692 34.5 5,111 81,305 50,530 4,151 5.4 30,606 23.2 52,834 48,395 21.1 8,018 7,383 10.7 2,476 33.5 4,907 74,425 49,004 2,720 4.0 27,103 22.0 49,113 47,213 18.1 5,111 4,853 8.0 1,610 33.1 3,243 67,013 43,151 2,312 3.8 23,930 21.7 46,100 40,134 228,034 208,938 195,506 188,535 172,174 154,803 138,377 131,835 123,429 110,164 € million € million 12,036 2,567 10,979 2,713 9,039 4,459 7,880 5,792 6,122 5,404 7,688 3,481 7,671 3,003 8,370 3,809 7,776 3,166 7,432 4,471 133,778 € 98,901 134,682 101,178 129,932 100,760 124,729 99,575 122,244 116,324 110,351 105,876 100,306 97,136 92,337 89,869 89,161 84,887 95,453 83,141 € million 1,646 2,303 2,630 2,300 2,102 1,904 1,707 1,640 1,508 852 InCoMe StAteMent Revenues Gross profit margin Earnings before financial result Earnings before tax Return on sales (earnings before tax / revenues) Income taxes Effective tax rate Net profit for the year bAlAnCe Sheet Non-current assets Current assets Capital expenditure (excluding capitalised development costs) Capital expenditure ratio (capital expenditure / revenues) Equity Equity ratio Non-current provisions and liabilities Current provisions and liabilities Balance sheet total CASh FloW StAteMent Cash and cash equivalents at balance sheet date Free cash flow Automotive segment peRSonnel Workforce at year-end 4 Personnel cost per employee dIvIdend Dividend total Dividend per share of common stock / preferred stock € 2.50 5 / 2.52 5 3.50 / 3.52 4.00 / 4.02 3.50 / 3.52 3.20 / 3.22 2.90 / 2.92 2.60 / 2.62 2.50 / 2.52 2.30 / 2.32 1.30 / 1.32 Dividend per share of common stock / preferred stock 1 Prior year’s figures adjusted due to a change in accounting policy in connection with the adoption of IFRS 16; see note 6 to the Group Financial Statements. In addition, figures for the prior year have been adjusted due to changes in presentation of selected items, which are not material overall. 2 Delivery figures have been adjusted retrospectively going back to 2015. The basis for the adjustments is a review of sales data in prior periods for the BMW Group’s most important markets (China, USA, Germany, UK, Italy and Japan). The retrospective adjustment enables better comparability. Additional information can be found in the section “Comparison of Forecasts for 2019 with Actual Results in 2019”. 3 Excluding Husqvarna, deliveries up to 2013: 59,776 units; production up to 2013: 59,426 units. 4 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time working arrangements and low wage earners. 5 Proposal by management. units units units units % % % € million € million € million € million € million € million € million % % € million € million € million 17.3 7,411 7,118 6.8 2,140 30.1 5,022 90,630 5,650 5.4 26.3 85,502 82,625 19.0 8,933 9,627 9.9 2,530 26.3 7,064 84,736 5,029 5.2 57,829 27.7 79,698 71,411 20.3 9,899 10,675 10.9 2,000 18.7 8,675 73,542 4,688 4.8 54,107 27.7 69,634 71,765 19.9 9,386 9,665 10.3 2,755 28.5 6,910 66,864 3,731 4.0 47,363 25.1 73,183 67,989 137,404 124,202 121,964 121,671 € million 59,907 delIveRIeS Automobiles 2 Motorcycles 3 Automobiles Motorcycles 3 pRoduCtIon voluMe FInAnCIAl SeRvICeS Contract portfolio InCoMe StAteMent Revenues Gross profit margin Earnings before financial result Earnings before tax Income taxes Effective tax rate Net profit for the year bAlAnCe Sheet Non-current assets Current assets Return on sales (earnings before tax / revenues) Capital expenditure (excluding capitalised development costs) Capital expenditure ratio (capital expenditure / revenues) Equity Equity ratio Non-current provisions and liabilities Current provisions and liabilities Balance sheet total CASh FloW StAteMent Cash and cash equivalents at balance sheet date Free cash flow Automotive segment peRSonnel Workforce at year-end 4 Personnel cost per employee dIvIdend Dividend total 258 This version of the Annual Report is a translation from the German version. Only the original German version is binding. P U B L I S H E D B Y Bayerische Motoren Werke Aktiengesellschaft 80788 Munich Germany Telephone +49 89 382-0

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