Bayerische Motoren Werke AG (OTCPK:BAMXY) Q1 2013 Earnings Call May 2, 2013 8:00 AM ET
Colleagues, ladies and gentlemen, good morning and welcome to the Conference Call Interim Report 31st March 2013. First of all, as always, Dr. Norbert Reithofer, CEO of BWM AG and Dr. Friedrich Eichiner Member of the Board Management of BMW AG; Finance will give you an overview of business development after that you will be given the opportunity to ask questions.
I’ll pass the floor to Dr. Reithofer.
Good morning ladies and gentlemen. We have a clear strategy up to 2020. At our Annual Accounts Press Conference, I’ve already talked about how we successfully implemented the first stage of our strategy in 2012. Now we’re targeting our second major milestone for the year 2016. As we do so, we regularly adjust our assumption to factoring current changes in our business environment.
In 2016, we aim to sell over 2 million vehicles of our three brands, BMW, MINI and Rolls-Royce. BMW Motorrad, in our Financial Services, business will also continue to grow and contribute to the main successes of our company.
At the same time profitability is and will remain the basis for us to master the many different challenges facing the automotive industry. One thing is clear; we aim to shape our future through our own efforts as an independent company. We are still targeting an EBIT margin of between 8% and 10% in the automotive segment over the medium-term.
We are aware, but this is an ambitious goal in the light of the current conditions. Our economic and political environment is becoming increasingly more uncertain and more volatile, growth rate in China are a source of uncertainty for instance, while the political situation in crisis regions remains unclear.
Also you Europe to find a right balance between its self tightening measures and growth. Like experts, we expect the consolidation of public budget to take seven more years. All of these developments adds risks to the economic and consumer spending and will affect our business performance.
As always, companies need the most reliable framework possibly in order to planning for the future. But this can only be achieved with parameters that are based on the sound analysis.
One example, where this is clearly not the case, at the recent proposal made by the European Parliament to tighten CO2 limits in Europe from 2025 on. This proposal was politically motivated and published without conducting any kind of technical feasibility study. The EUs 95 grams CO2 target for 2020 is already impossible to meet without the use of alternative drive technology.
The European Union must decide it’s not the countries whether they want to do this; it depends on the number of electrically driven vehicles. Therefore the European Union must decide as other countries have whether or not it wants to combine reductions and emissions and fuel consumptions with boosting incentives for technological advancements. It is therefore hard to understand why alternatives drive systems should only be credited with the factor of 1.5 in European, while the same drive trend technology is credit with the factor of five China and two in the United States. This is not only counterproductive for the industrial base in Germany, but also in Europe.
I must emphasize Europe is currently not in its strong enough position to isolate itself from global competition in this way. Automotive markets are already developing unevenly at a global level forecast or from moderate growth in the automotive market over the course of 2013. This total market growth will be driven by the strong demand anticipated in U.S. China and certain growth markets.
In Europe, however, we expect to see a decline in new car registrations. In the first three months of the year, BMW Group made gains in all three major regions of the world, Europe, the Americas and Asia. This shows that our efforts to achieve balance growth continues to pay off. We are focused clearly and closely on each individual market no matter how big or small this maybe. We are confident therefore that our positive track record will continue throughout the current fiscal year. Our targets for 2013 are no record sales at group level.
Group earnings before tax are expected to reach the previous year’s level. This assumes that global economic and political conditions do not worsen significantly. So where do we standup in first quarter. We have delivered more than 448,000 cars to customers worldwide. this is the best result we have ever achieved in a first quarter. Our pre-tax result of the Group stands at over €2 billion. With this, the record level of the previous year was nearly reached. At 9.9%, the EBIT margin in the automotive segment is at the upper end of our profitability range target of between 8% and 10%.
Group profit amounts to over €1.3 billion. again, we’ve almost achieved the previous year’s record level. At the BMW Group, our thinking and actions are always geared towards long-term. Our aim is to actively shape individual mobility of tomorrow and ensure our company’s successful development. Because the iconic change in the automotive industry has only just begun, we have responsibility towards our shareholders and associates to prepare the company as best as we can for all conceivable changes that’s lie ahead. We believe that now is the right time to invest in the future.
This means investments in drive drain technologies and new vehicle concepts; existing and new locations; our brands and sub-brands; new services and sales structures; as well as the qualification of our staff. We will once again be making strategic recruitments this year.
We are increasing staff numbers to capitalize on the group’s planned growth. We are also strengthening our expertise so that we have the proper know-how we need in key future areas that is e-mobility and carbon fiber. Accordingly, our workforce grew by about 5% at the end of the first quarter. We are firmly convinced that our investments today will benefit us tomorrow and beyond. We offer our customers a broad range of young and attractive products and will continue to do so in the future. This year customers can also choose between 11 new models in different vehicle segments.
March saw the successful launch of the revised BMW Z4. Another March launch was the Paceman, the seventh member of the MINI family. And the new BMW M6 Gran Coupé will be in showrooms from May on. Mid-year, the new BMW 3 Series Gran Turismo will be available as the third variant of the current BMW 3 Series. Then in the second half of the year we will launch the first model of our new 4 Series, the new BMW 4 Series Coupe. And another major highlight towards the end of the year will come from Rolls-Royce with the launch of the Wraith.
Looking ahead briefly to 2014, we have already shared a glimpse of what to expect, with two totally new vehicle concepts, the BMW Concept X4 and the BMW Concept Active Tourer. Now 2013 will be dominated by the start of the series production of our ultra-sustainable BMW i family. Already this fall, you will be available to experience the fully-electric BMW i3 on the road. And it will be available to our customers at the end of the year.
Many of you were at the Innovation Days in Leipzig, there we gave you a behind-the-scenes look at BMW i. What kind of efficiencies we have achieved in the production of BMW i model; how do we conserve resources on a large scale; what is our 360 degree approach to ensure customer satisfaction from crash tests to insurance coverage. After the event, many media reports and experts expressed the same sentiment about BMW Group that we are creating a new and unique driving experience for the future.
We see this as motivation and an obligation. As a multi-brand company devoted exclusively to premium mobility, we are refining our BMW MINI and Rolls-Royce brands with new models and technologies to fit the times. We are confident that BMW i will offer the most viable solutions for e-mobility. We continue to capitalize on our strong global position and profits invest in the company's future with our strategy we set the course for continued success up to 26 and beyond 2020.
Thank you for your attention.
Thank you, Dr. Reithofer. I'll pass the floor to Dr. Eichiner to continue.
Ladies and gentlemen, good morning from me as well. BMW Group has continued to strengthen its position as the world's leading premium auto manufacturer. Despite a challenging sales environment in Europe and stronger competition, we’ve made a successful start to the year. Our profitability for the first quarter of 2013 was within the target range. At the same time, we made important upfront investments to secure the future success of the company.
Now let's take a look at our business figures. The BMW Group expanded its leadership of the Premium segment with a 5.3% increase in sales, thanks to its attractive new models, our core BMW brand saw particularly strong growth with gains of 7% on top of year’s strong first quarter.
The BMW 3 Series, 5 Series and 6 Series as well as the X1 and the 7 Series Sedan are all leaders in their respective segments. Sales growth was evenly distributed worldwide. The BMW Group achieved the largest volume gains in Asia and China in particular. In China, our joint venture benefited from the expansion of local production capacities. As a result, first quarter deliveries of imported BMW vehicles were below last year’s very high level. This will balance out over the course of the year.
The BMW Group also pasted higher sales in North America, and especially the United States, where the X models, in particular, generated stronger demand. European sales improved year-on-year after a weaker first quarter in 2012. European markets developed unevenly and we expect to face further challenges on the continent over the course of the year. The ongoing euro crisis is unsettling consumers as a results competition in the market hasn’t intensified. Nevertheless, in particular the BMW 1 and the BMW 3 Series performed very well. Before I go in to the details of our quarterly figures I’d like to point out a change in our counting.
The Group and Auto profit phase from last year were adjusted because we implemented changes in pension accounting in line with revised IAS 19. You will find more detailed information about this in the notes to the Group financial statements under number 3. At Group, revenues reached €17.5 billion, with a pre-tax profit of €2 billion. The pre-tax return on sales group was 11.4%. In the first three month of this year BMW Group forged ahead with product and technology development. This also led to an increase in the company’s headcount by the end of the quarter, (inaudible) group had 16,470 employees that’s roughly 600 more than at the end of 2012. Year-over-year this also resulted in higher personnel cost.
R&D expenditure totaled €988 million in the first quarter. This represents an increase of 2% over the previous year within R&D ratio for the first quarter of 5.4% of revenue. For the entire as announced development costs will be higher than last year. The expansion under renew of our product portfolio and the development lower emission and alternative [car] technologies will be our main focus. Our R&D ratio would probably slightly reach our target range of 5% to 5.5% of revenues. The BMW Group’s capital expenditure for the quarter totaled €1.21 billion that’s twice as much as the same period last year. Investments and future technologies will enhance the long-term competitiveness, (inaudible) the creation of our e-mobility production network to state it according to plan. 3 Series production of the BMW I3 is now underway.
We’ve also invested in adding and expanding capacity and we are preparing for the production of new vehicles in our plants. The CapEx ratio for the first quarter was 6.9% of revenue as previously announced we will exceed our targets here of below 7% over the full year. As of March, Group liquidity totaled almost €11 billion, liquid asset position therefor remains solid.
Let’s now move on to the automotive segment. The segment had revenues of more than €15 billion in the first quarter, which was slightly below last year’s high level. The segment EBIT for the first quarter totaled more than €1.58 billion this is 16% lower than the strong EBITDA of the previous year. The EBIT margins for the segment bought at the upper end of the target range at 9.9%. Stronger competition in Europe and higher percentage of joint venture models produced in China affected segment earnings.
As [Peter] announced our front investments in future projects of around €1 billion will affect year-over-year earnings over the full year. The first quarter was impacted to a lesser by this. And as a result, earnings development benefited. The aforementioned increase in CapEx dampened the development of free cash flow in the auto segment which was €628 million. As already announced, free cash flow will remain under €3 billion for the full-year due to the high investments to secure future success. After end of March, next financial assets in the automotive segment amounted to almost €14.1 billion. Now I’d like to turn to the financial services segment. This was a very successful first quarter for BMW Group Financial Services. The segment benefited from our sales growth and concluded more than 340,000 new leasing and financing contracts with retail customers. This represents an 11.2% increase over the same period last year.
Pre-tax profit climbed to €549 million and a penetration rate that’s the percentage of new vehicles leased or financed by BMW Financial Services reached 44.2% in the first quarter. This increased mainly due to the new dynamic business in the United States and China and in Germany. Used car markets have been largely stable in Germany, France, the U.K. and the U.S. since the end of 2012, but they remained weak in Southern Europe. The market situation in Europe seems likely to remain this way for the rest of the year. So we have made preparations; thus we’re well prepared and covered for any potential risks. And the largest leasing market, the U.S., we expect used car prices to change little over the coming months.
Credit risks remained stable compared to last year in almost all markets. The situation is still difficult in the southern European markets and expectations remain very cautious. Here also, exposed and potential risks have been covered with corresponding provisions. That brings me to the Motorcycle Segment. The segment delivered more motorcycles in the first quarter than ever before. BMW Motorrad Motorcycle sale rose by 1.5% to more than 24,700 vehicles. Although European markets contracted, BMW motorbikes made gains in the U.S. and Brazil and Japan. The Motorcycle segment had revenues of €436 million, almost matching last year’s level. The segment EBIT reached a new high or €51 million.
Deconsolidation of first quarter was competed in March. For the full year, we anticipate higher year-on-year sales for BMW Motorrad mainly thanks to the maxiscooters now fully available and the new F 800 GT and R 1200 GS models. Ladies and gentlemen, now back to the group. We are concerning our guidance for 2013. The BMW Group is still targeting record sales this year. Stronger demand is forecast in the U.S., China and some emerging markets. Europe’s markets are likely to shrink. BMW Group is consistently pursuing its strategic course. Thanks to its financial strength, we’re able to continue preparing for the future of our company and enhancing its competitiveness. Innovation, future technologies and future internationalization are the focus of our research and investment activities.
In the second half of the year, we anticipate additional costs from the market launch and ramp up of BMW i3 and other new models. Improving cost structures and efficiency still are a high priority. Our goal remains profitable growth within our target margin range. At group level consistent with previous year’s forecast, we aim to achieve a profit before tax on a similar scale to that reported in 2012. This requires that conditions do not worsen significantly at the time; we are aware of the possibility of a further slow down and declining car markets in Europe.
A short-term recovery in the second half of the year seems unlikely there. However, despite lasting uncertainty about the budget deficit, the U.S. economy is expected to continue to grow. Stable growth is also forecasted in China. We are maintaining our target range of 8% to 10% of EBIT margin in the automotive segment. The target for the financial services segment is to return on equity of at least 18%. At BMW Motorrad, we expect to see a positive trend in earnings. Account volatility in the global market makes long-term forecasts difficult. The spread of debt crisis in Europe substantially slower growth in China, political hotspots as well as increasing regulation could affect our business more than we are able to predict today. Due to economic challenges, the BMW Group does not except tailwinds for its business in 2013. However, we benefit from our young and attractive vehicle portfolio and it play a strategic orientation. That is how we intend to maintain our leading position in the global Premium segment. Thank you.
Thank you, Dr. Eichiner, colleagues. You’ll now have the opportunity to ask your questions. I’d like to ask the colleagues to give the technical information for the conference.
(Operator Instructions) Thank you and the first question please. First question, Nico Schmidt, Dow Jones.
Nico Schmidt – Dow Jones
Good morning. Nico Schmidt from Dow Jones. I’d like to know have you had any indications yet as to sales have developed in April and whether there is anything new about capacity expansion in Russia? Thank you.
Thank you. I’ll pass this to Dr. Reithofer.
Okay. On capacity expansion in Russia, there is nothing new to be said about this at the moment and on the sales figures for April, we assumed that there will be an increase single digit range. It’s only 2 of May, market data just coming in. Thank you. Next question please.
Next question (inaudible)
Good morning, gentlemen. I wanted to know about currency effect on our EBIT. How in the first quarter, how do you see the future development of these effects? Then I wanted to know about the price situation in Europe. What it looked like at the moment, I mean, we are observing some sort of an upswing in Great Britain at the moment. Do you expect that this will continue, will be able to benefit from a better market there and then I wanted to ask about the competitor Audi, who delivered an even better margin, is that something we need to get used to or do you have to get used to the fact that Audi is making so much headwind?
Thank you (inaudible) I’d say we’ll start with Dr. Reithofer on Audi and then Dr. Eichiner.
(Inaudible) we compare groups with groups and if you make that comparison I would like to ask you to have a look at the Audi group first quarter and Daimler in the first quarter and BMW Group in the first quarter and then draw your conclusions from that. Mr. Eichiner?
Well, currency effects and raw material prices in the first quarter, well, that was more or less neutral. We don’t expect any major burden not for the entire year either, but no tailwind either. Then price effects, well, here the picture is slightly different there is stability for example in the United States and many emerging markets, but there is still a lot of pressure in Europe due to the overall economic situation here. And price developments in Europe is something that has certainly affected us negatively 15 to 100 basis points. This is what we expect for the entire year and then the first quarter it was even – the effect was even stronger. Now the situation in Great Britain, despite the increased sales volume there, we do recognize that there is fierce competition and there is also pressure on prices. These are the general conditions we have in all of Europe where we have to do our business. Thank you. Next question please.
Next question (inaudible)
Good morning. Three questions. One topic is temp work these days you still got a few thousands of those working for you. Will that number be reduced over the next month?
Second question, you’ve addressed this. Europe is not going so well, possibly even for the next two years, it’s going better elsewhere. Does that mean production will follow the most important markets? Does that mean you will produce fewer costs here and more abroad? Are you planning to setup new plants such as Audi is doing in Mexico?
And third question Dr. Reithofer, you said saving assets in Europe, that will have to be continued, at the same time industry in Europe continues to shrink with just proceeds new figures concerning this and now in you opinion, saving and growth, is there – are they in a right balance? Is the German line, the lines Berlin still the right one? Wouldn’t we need more growth – more interest for growth such as the new Italian (inaudible) is demanding?
Thank you, Mr. (inaudible).
Okay. Well, let me start with your first question, temp workers and we will reduce their numbers. I’d like to answer like this. I mean, how many new associates have we hired at BMW Group? I mean, March 2013, we’ve got 106,470 employees. In Germany, by the way 77,278 and increased compared to the previous year’s 5,210 or 5.1%. And among those, I mean in Germany plus 3,359 plus 4.5%.
As you can see here, we are hiring new staff. We’re increasing our head count. Just I want to tell you that this is a piece of good news as a group these days still hires new workers and new associates and I think there are many that we’ve employed.
Now, the temp workers; of courses, temp workers are an instrument, tools in our company in order to be flexible and respond to the high volatility of the global economy. Let me point out at this point. We permanently need this flexibility and one way of coping with it is to temp workers and the number of temp workers. I mean that fluctuates considerably and the number changes because of their fluctuations. I can’t really give you any figures. What I can say, production follows the market; yes, that’s correct. But if I look at 2012, in 2012 more than 1 million vehicles were built in Germany. It’s a positive figure.
Production in Germany has increased for the philosophy of production followed the market; it’s something that the German market also benefits from. Of course, we will continue to expand in China. As you know, last year, if I remember correctly, 150,000 vehicles were built in China and that is a growing figure towards 200,000 and then 300,000 of course.
Last year, it was for the first time that more than 300 vehicles were built in the United States. This is also a growing number, not this year perhaps, because this year, this has affected also by the ramp up of new products in the U.S. But next year in 2014, production figures in the U.S. will also grow and then as you know, country we’re about to build a plant in Brazil. They are supposed to produce around about 30,000 units there. Then we’re currently debating or reconsidering how we’re going to expand production in Russia. So there will be a lot of international activity, but the way the capacities are used in the German plant, there is no risk for employment or capacities over German markets. On the contrary, last year I said more than 100 – more than 1 million vehicles were built in Germany.
Now on the whole story of industry in Europe and balance between savings, efforts and growth. It’s quite important that budgets are consolidated. And the consolidated budget is, of course, a potent and important requisite for sound state finance. But we need a reasonable balance. There needs to be both cost savings and growth.
I know that for politics, it’s not easy to achieve this balance at the moment. That’s not an easy task if I may say so. But financial concentration, it’s definitely important. This is my point of view. Thank you. Next question please.
[Mac Sportman, DPASX]
Good morning. I wanted to know, can you give a best explanation of; there is declining profits from cars, which is offset by financial services, which role do leasing contracts play here and how exactly do you achieve that offsets that you’ve got a balanced EBIT.
Unidentified Company Representative
Thank you, Mr. Buckland, Mr. Eichiner, please?
Unidentified Company Representative
Well, at the Annual Accounts Press Conference, we had already announced that corresponding changes in the Automotive segment will take place, that there will be pressure and that EBIT will probably be low that of previous year, but still the Group profit will be about the same as that of the previous year. There’s two developments which are responsible for that. That’s the solid financial services business. This year, we’re seeing an increase in the contribution of that segment and in the area of consolidations, we’re not benefiting from a very profitable portfolio. We’re eliminating intercompany profits, and since profitability of our products has increased much after 2009, we were able to eliminate more gains or profits which are coming back from the portfolio into realization and that effect now helps us to achieve improvements there and both effects, the consolidation effect plus the very good financial services business, they will both make their contribution to make sure that we can achieve our guidance. Thank you. Next questions please.
(Inaudible) I’ve got two questions. One is about discounts, sales are decline – or turnover declining, sales increasing, is that part of your discount policy? How high are your discounts? Where do you have to give discounts? Is that in all three regions or just in Europe? Second question, you gave that nice figure plus 5% in staffs, are this temp workers that are changing into permanent employment or are these new external associates? Thank you.
Unidentified Company Representative
Let’s start with the (inaudible). Well, all I can tell you it’s both [Mr. Vick]. We are taking over temp workers into our staff and we’re also employing additional associates where we see lack of qualification. We need engineers, for example, we need national scientists when we talk about expansion of e-mobility, we need specialists for carbon fiber, and of course, we also hire those right from universities. It’s both.
The second part of your question, sales, revenues, turnover, growth, well, there are some effects that come into play. Currency alone just accounts for 1% of that. Adjusted for currency effects, that will be 1% less in our decline in sales or revenues, that’s one effect. The other effect it’s also driven by developments in China. In 2012, we did – delivered front loading in the first quarter. That means import volume was much higher. I’d already mentioned that in my speech. In the first quarter, we’ve got 18% fewer import vehicles and much more vehicles produced locally from a joint venture. And in the quarter, this has a corresponding effect in our result, which – but over the course of the year, this will be compensated. But in the first quarter, due to the model cycle we have this effect because the newer models doing the joint venture, they have to ramp up and this won’t be until over the course of the year that import volumes will increase. So these are the main effects that have contributed to this development. However, the price development is not positive, we must say. As I’ve already mentioned. The effect sort of puts pressure on the margin too, and this (inaudible) to the economic situation in Europe. Thank you. Next question please.
(Inaudible) Good morning. I’ve got three questions if I may. I’d like to know, if you noted growth figures and sales figures, can you really say this is balanced growth, as you all have emphasized because this is mainly happening in China and in United States, whereas Europe is pretty weak. Will that be a long-term shift? Second question, investment and the research and development ratio are both above the target range. Will that be the same next year or will that go back to original levels and have Reithofer, you mentioned at the beginning that possibly the EU will lower the C02 limits again. Do you feel that German government is representing your interest sufficiently well or do you expect more support for them and if that were actually to come true, which amount of additional investment would that require if you could already say that at this point or would you have to adjust your margins?
Unidentified Company Representative
Thank you Mr. (inaudible), I propose Mr. Reithofer begins with answering the third question; C02 and balance growth, shift in the world.
Okay, on balance growth, yes or no; I’d like to begin with the first quarter. In Asia, we had 130,000 sold vehicles that supplies 9.5%. But that wasn’t only China; of course, it was also China. But at the beginning of the year, it was 86,000 vehicles. That’s plus 7.5%. But for example, there was Asian market such as Japan. That was involved with the growth of 7.2% to 15% vehicle. South Korea was involved, 8900 vehicles which corresponded to a growth 16.9% that is – even in Asia, the South Korea with Japan or Malaysia, Thailand and so on. We’re trying to make sure that we can pull up other markets as well and but those two examples, I wanted to just demonstrate that there’s two digits growth rates in these countries.
In the United States in the first quarter in total, we sold 96,000 vehicles which is plus 5%. On the U.S. market, it was 4.2% to about 79,000 vehicles. And looking at Europe, in Europe, the major part – 7000 was sold here and the growth was still 3.1%. And if I pick out one of the promising countries Russia, sales increased by 21% in the first three months of the year to almost 9400 vehicles. Then Great Britain, Great Britain also, positive development, 17.4 plus. And if I look at the figures in 2012 for BMW Group, it was still the U.S. which was the most important market in 2012.
Second place came China and more than 15% is still Germany and then almost 10%, that was already Great Britain. I would still say that this is a very balanced market distribution. Now the EU and the CO2 limits, I’m not talking about 2020. I’m talking about the next step beyond, 2025. Let me emphasize this by development cycle for seven years. And it will be very hard to achieve the goal of 2020. It is not going to be easy. We will have to fight to achieve this. We’ll have to make a lot of investments in order to achieve this goal.
And then five years later, defining a bandwidth of between 68 grams of CO2 per kilometer and 78 grams – I mean I believe, I think with that next step, we need to be very careful when we’ll begin – when will they begin to ask too much of the industry. At a certain stage, it will get too much for the industry because 25 years later, if you already have to fight in order to achieve the goal for 2020 and then putting in another step like that just five years later, it maybe at a level that that exceeds the limits where the industry can longer follow.
I’d like to answer the question in that way. Thus federal government gives us enough support and I must really say yes. Now on the last part of the question is the (inaudible), you asked about investment ratios and about development costs. I mean ratio, it’s always we have to forecast those because sales, they just go into this as a part of the calculation and we’ve seen that market development is very volatile. And therefore the ratio, well we’re also subject to certain volatilities. But one thing is clear. In absolute terms, we will invest more money. We’ll spend more money for research and development in order to meet our targets for 2020 in particular and that’s a phase that is now beginning in 2013 and 2014. And after that we expect that investment will weaken somewhat, but this year, next year, we’ll certainly be affected by that development. Next question please?
Good morning, gentlemen. I want to get back to Europe, your statements are becoming more pessimistic all the time. Now is there anywhere this year that’s a bit of silver lining there is a light at the end of the tunnel. Second half of the year, you said you are not expecting short-term recovery, not even the base effect seems to catch on. Is there a country anywhere, is there any hope in what are your expectations for 2014. Also with respect to Europe, does that make introduction of the i3 more difficult or more taxing and the other topic is motorbikes, could you explain what’s the strategy now with the new Indian partnership mass markets in Asia that’s a price where we wouldn’t really see you as a premium manufacturer?
Thank you. Just passing to Reithofer.
Well, I just really thought about how should I answer your question about Europe. For pricing, I think Europe is something that will keep us busy for the next few years. See we have to talk about a period of at least five years here. I don’t think that issues in Europe can be resolved in just one year’s time. I think we must be talking about at least five years here and we are not pessimistic. But I would call that realistic. You’ve asked what are the consequences that this will have for the introduction of the i3, I mean, the i3 is not just a product for Europe, the i3 is a product also for the U.S,, it’s a product also for China and for other countries. We build the i3 mainly for growing metropolitan regions of the world.
As you know, we did intensive field test with the MINI and these went pretty positively. We are not just focused on Europe with this than motorbikes. Yes, it’s right what you are saying, we are about to start (inaudible) realign this segment. And at the moment we are about to enter into the segment below 125 cubic centimeters and that’s for this very reason that TVS Motor Company and BMW have concluded a long-term corporation agreement and it’s the target of this corporation to jointly develop and produce motorbikes in the segment below the 500 cubic meters.
The individual steps up to the finished motorbikes will be planned by both partners together and we’ll be implemented with different focus each that much that I can say. BMW Motorrad is a segment where we are considering which motorbikes concepts do we need for an urban environment and here too we are considering independent of that partnership. We are considering of how can such concepts look like and how will we develop our core business BMW Motorrad. I think this is how I can answer your question now and everything beyond that I mean that will be too much to explain right now.
So can I ask does that mean you are developing this jointly and one will sell the same motorbike at a cheaper price and the other at a higher price?
No it won’t be like that. What I say is our corporation agreement if I may ask provides the best companies, each produce their own or offer their own vehicle derivatives and they distribute them worldwide using their own dealerships and BMW motorbikes will be BMW motorbikes.
Okay, thank you as far as I know there is no further questions. Is that true or is there any other? There is no further questions. Good and I would like to thank you all colleagues. I know must be a very hard day for you today. Thank you for still having taken time to participate in our conference call. All the best for you thank you and see you next time around.
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