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BMW, the world's largest premium carmaker, expects record vehicle sales and greater efficiency to help boost its pretax profit in 2007 beyond last year's underlying result, it said on March 14.
"The current year should be the best year in the company's history in operating terms," Norbert Reithofer said at his first annual news conference as chief executive of the Munich-based maker of BMW, Mini and Rolls-Royce cars.
The former head of group production emphasised management under his stewardship would continue to pursue a long-term strategy that has paid off for shareholders through stock price gains of more than 150 percent over the past 10 years.
"The BMW Group's business activities do not focus on short-term profit maximisation," said the engineer, who received his doctoral degree in Munich studying under Joachim Milberg, former group chief executive and the current chairman.
BMW posted a pretax profit of 4.12 billion euros ($5.43 billion) in 2006 that included extraordinary income of 372 million euros from a Rolls-Royce convertible bond.
"To what extent we will be able to improve our performance compared with the previous year will strongly depend on the impact of currency effects, raw material prices, the development of interest rates and the competitive environment," he said.
BMW expects external headwinds to lessen in 2007 after it took hits of 666 million euros for currency swings and 178 million for raw materials last year.
"Overall for 2007, we expect a sales volume growth in the higher single-digit percentage range," Reithofer added.
Thanks in part to continued streamlining and estimated unit sales of over 1.4 million vehicles this year, BMW forecast pretax earnings at its core car business to increase in 2007. Shares in BMW fell 2.1 percent to 40.92 euros by 1450 GMT, underperforming Germany's blue chip DAX index.
"I can live well with the outlook for a moderate growth in earnings this year, but the profit development at Mercedes is considerably more dynamic and Daimler shares are more interesting from a valuation perspective were the company to actually sell Chrysler," HVB analyst Georg Stuerzer said.
After achieving efficiency gains of 178 million euros last year and 900 million in total over the past three years, Chief Financial Officer Stefan Krause warned that BMW was running out of low-hanging fruit to achieve such big gains.
"It is obvious that it will be impossible to realise additional efficiency-related effects of this magnitude on top of this," he said.
Krause added a decision would come at a later date if and to what extent BMW may buy back up to 10 percent of its shares.
Investors have been clamouring for BMW to release its grip on 5.4 billion euros in net industrial cash, but management insists on channelling funds to spur future growth and has had the backing of BMW's dominant shareholders, the Quandt family.
Without giving any official guidance on its dividend, Krause told Reuters one couldn't automatically assume BMW would cut the payout simply because absolute earnings might slip this year.
"BMW has always had the policy of a steady dividend development," Krause said on the sidelines of the event. "Just mathematically, I don't think that we would be under pressure in any way that we couldn't afford to pay the same or a higher dividend," he continued.
Production boss Frank Peter Arndt said BMW's plans to grow in China might force it to build new capacity since the Shenyang plant it shares with joint venture partner Brilliance can only expand to 40,000 units from its current 30,000. "At some point Shenyang will become too small for two ambitious partners, so right now we are conducting feasibility studies about what that means for the future, and I think that in the course of the year we will also know more and then inform you about it," Arndt told the news conference.
Final results for 2006 showed industrial free cash flow adjusted for a one-off plunged 65 percent to 956 million euros, while BMW's primary benchmark for monitoring the operational performance of its car business, the return on capital employed, dropped to 21.7 percent from 23.2 percent in 2005.

Copyright Reuters, 2007

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