Chairman of the Supervisory Board
Dear Shareholders and Shareholder Representatives,
Despite the persisting sovereign debt crisis in the eurozone and the volatile economic conditions prevailing in several of our major markets, the BMW Group finished yet another financial year with an outstanding overall result.
In our capacity as Supervisory Board, we closely monitored the performance of the BMW Group and developments on specific markets throughout the financial year 2012. We duly advised the Board of Management in matters of governance and continuously supervised its running of the business with great diligence. In this endeavour we laid great store on an open, trusting and constructive exchange of information and opinions.
Main emphases of the Supervisory Board’s monitoring and advisory activities
We deliberated regularly on the current performance and financial position of the BMW Group in a total of five meetings. Other areas reported on and discussed extensively during the year were corporate strategy and planning, risk provision and risk management, and corporate governance. We also made decisions with respect to the composition of the Board of Management and the allocation of duties to Board of Management members. The Board of Management informed us regularly and promptly of sales performance, workforce developments and other significant matters, both at scheduled meetings and at other times as the need arose. In addition, the Chairman of the Board of Management, Dr. Reithofer, informed me directly about major business transactions and projects. Dr. Kley, the Chairman of the Supervisory Board’s Audit Committee, regularly exchanged information with Dr. Eichiner, the Board of Management member responsible for Finance and Financial Reporting.
In its regular reports on the financial condition of the Group, the Board of Management provided us with detailed descriptions of sales volume performance and market developments for each of the Automotive and Motorcycles segments as well as the performance of Financial Services, including new business volumes and the development of vehicle residual values on key markets. The Board of Management also regularly reported on the Group’s business activities in China, in particular on the sales situation there, the further expansion of production capacities at the BMW Brilliance joint venture’s manufacturing sites in Dadong and Tiexi, and on engine production at the Foresight engine plant opened in Shenyang in April 2012. Furthermore, the Board of Management reported to us regularly on current earnings, profitability and major changes in the workforce size. Its business status reports also dealt with major current activities and projects, such as ongoing developments in the BMW Peugeot Citroën Electrification joint venture, the status of cooperation negotiations and agreements with Toyota in the fields of fuel cells, lightweight-construction, development of sports cars as well as in the field of battery technology research. After presentation of reports by the Board of Management, the two boards also discussed current challenges such as current economic developments and the increasing degree of regulation on a number of markets.
We again gave careful consideration to matters concerning the performance, management and future prospects of the Financial Services segment. One of the main focuses of reporting and discussion was the segment’s financing model. The Board of Management described the current status of projects and the various measures employed to ensure access to financial resources, including, for example, the use of asset-backed securities and the expansion of BMW Bank GmbH in Europe.
One of the 2012 Supervisory Board meetings was held at the BMW plant in Leipzig, where we took the opportunity to obtain information on the use of carbon-fibre-reinforced plastics (CFRP) in the BMW i family of electrically powered vehicles and enquire into the state of preparations for production start-up later this year. In the new pressing plant specially constructed for this work, we were treated to a practical demonstration of how CFRP mats are processed to form CFRP components.
In preparation for our deliberations on the Long-term Business Forecast, the Board of Management explained the principles applied for planning global added value within the Group in the period up to 2024 as well as the targets set for the configuration and production capacities of the Group’s plants during this period. Additionally, a raft of measures was presented designed to help limit the scale of investment expenditure to be incurred in connection with the expansion of production capacities.
Again in 2012, in both the Personnel Committee and the full Supervisory Board, we examined the compensation of Board of Management members for appropriateness. In doing so, we also evaluated compensation studies for the DAX and sought the expertise of an external compensation advisor who was independent of both the BMW Group and the members of the Board of Management. Adopting a proposal of the Personnel Committee, no changes were made to the Board of Management compensation system in 2012. The rules governing the purchase of vehicles and other Group products and the use of vehicles by Board of Management members were brought into line with those already in place for top-level department heads. Detailed information on the compensation of Board of Management members can be found in the Compensation Report (page 170 et seq.).
In the second half of the year we again convened for a two-day meeting primarily devoted to corporate and product strategy on the one hand and to the Long-term Business Forecast on the other.
In the first part of the meeting we discussed with the Board of Management the findings of its annual review of the Group’s Strategy Number ONE. In light of current developments, this review included a renewed examination and assessment of the impact that could potentially arise from various crisis scenarios of varying intensity in regions significant for sales performance.
In its report, the Board of Management also considered the strategic planning of worldwide production capacities. In addition to the expansion of production capacities at the Spartanburg and Leipzig plants, the Board of Management also presented its plans for future production facility and capacity expansion at other locations. The Supervisory Board fully supports the Board of Management in its endeavours to exploit growth opportunities in specific regions, whilst at the same time maintaining a well-balanced distribution of sales and value added across the world’s markets.
In conjunction with our deliberations on product strategy, the Board of Management and the Head of Design for the BMW Group presented and elaborated on selected vehicle projects. Furthermore, in a discussion with the head of the i product line, we were informed of the Group’s current activities and the needs of customers in the field of electromobility and given an insight into some of the solutions arrived at so far, such as for the charging of batteries at home and on the road. At our request, other related service concepts currently being developed by the BMW Group were explained to us.
We also took a close look at the latest advances being made in the field of emission reduction and avidly discussed, together with the Board of Management both the technical and the entrepreneurial challenges that need to be mastered, particularly those ensuing from regulatory provisions or customer expectations with regard to urban mobility.
The Supervisory Board remains firm in its conviction that the strategic direction set by the Board of Management for the BMW Group is robust and sustainable.
In conjunction with vehicle presentations, Supervisory Board members also had the opportunity to drive a number of BMW, MINI and Rolls-Royce vehicles, including some BMW models equipped with hybrid and electric drive systems.
After concluding the Annual Strategy Review, the second part of the meeting included an in-depth discussion of the Long-term Business Forecast drawn up by the Board of Management for the years from 2013 to 2018 and, after thorough examination, we gave the required approval. The Board of Management elucidated changes in sales and financing volumes compared with the previous year’s forecast and also explained the potential impact of volume and earnings risks associated with specific scenarios. We encouraged the Board of Management in its strategy of maintaining flexibility in terms of cost planning.
We also thoroughly examined the Annual Budget presented by the Board of Management in November 2012 for the financial year 2013 and discussed the impact of potential economic developments.
We concurred with the decision of the Board of Management to raise the share capital of the Company in accordance with Article 4 no. 5 of the Articles of Incorporation (Authorised Capital 2009) by € 422,845 and to issue a corresponding number of new non-voting bearer shares of preferred stock, each with a par value of € 1, at favourable conditions to employees.
The Board of Management and Supervisory Board jointly examined corporate governance within the BMW Group and issued a new Declaration of Compliance, the wording of which is included in the Corporate Governance Report (page 153). The BMW Group currently complies with the recommendations of the Government Commission on the German Corporate Governance Code (code version dated 15 May 2012, “Code”) published on 15 June 2012 with one exception, namely the revised recommendation on the structure of supervisory board compensation contained in section 5.4.6 paragraph 2 sentence 2 of the Code (“If members of the Supervisory Board are promised performance-related compensation, it shall be oriented toward sustainable growth of the enterprise”). In this context, and following preparatory work carried out by the Presiding Board, we examined various models with the Board of Management with respect to the future compensation of the Supervisory Board. A proposed change to the Articles of Incorporation will be put to the shareholders at the 2013 Annual General Meeting.
With regard to its own composition, based on a detailed composition profile, the Supervisory Board decided upon specific appointment goals in 2010, which are discussed in detail in the Corporate Governance Report (page 164 et seq.). In 2012, in line with section 5.4.1 paragraph 2 of the Code, we set what we consider to be an appropriate target for the number of independent members in the Supervisory Board (at least twelve of which at least six should represent the shareholders). On the basis of a self-assessment of the full Supervisory Board and its individual members, we were able to conclude that the composition of the Supervisory Board at 31 December 2012 meets that target. No conflicts of interest arose during the year under report on the part of members of either the Supervisory Board or the Board of Management. Significant transactions with Supervisory Board members and other related parties as defined by IAS 24, including close relatives and intermediary entities, are scrutinised on a quarterly basis.
In conjunction with the joint examination of corporate governance, the Board of Management informed us (both in the Personnel Committee and in the full Supervisory Board) of the progress made in implementing the BMW Group’s diversity concept, with its focus on gender, cultural background and age / experience. In this context, we obtained information from the Board of Management with regard to the proportion of, and changes in, management positions held by women, in particular at senior management level and at executive level below the Board of Management. We concluded that the Code’s requirements for the promotion of diversity are also being complied with in terms of management functions, and concur with the Board of Management that, in addition to the efforts to improve gender diversity, even more should be done to promote cultural diversity and the international character of the workforce.
We endeavour to assess and improve continuously on the effectiveness of the work performed in the Supervisory Board and its committees, not least in consideration of the broader range of tasks for which the Supervisory Board now finds itself responsible. The Chairman of the Audit Committee and myself are therefore always pleased to receive comments and suggestions for improvement from Supervisory Board members. The formal examination of the Supervisory Board’s efficiency is also treated once each year as a separate agenda point which is prepared by means of a questionnaire required to be completed by all Supervisory Board members.
Each of the five Supervisory Board meetings in 2012 was attended on average by over 90 % of its members, a fact that can be tied in to the analysis of attendance fees for individual members disclosed in the Compensation Report. No member of the Supervisory Board missed more than two meetings in his / her period of office during the year. Presiding Board and committee meetings were fully attended in the vast majority of cases (see Corporate Governance Report, page 163).
Description of Presiding Board activities and committee work
In order to work more efficiently and prepare complex issues and decisions more thoroughly, the Supervisory Board has established a Presiding Board and several committees. A description of the duties, composition and work procedures of these committees is provided in the Corporate Governance Report (page 160 et seq.).
The relevant committee chairmen provided timely and comprehensive accounts of the work of the Presiding Board and other committees to the full Supervisory Board, as did the chairman of the Nomination Committee to the shareholder representatives on the full Supervisory Board.
In a total of four meetings, the Presiding Board focused mainly on the preparation of topics for the meetings of the full Supervisory Board unless this fell under the remit of one of the committees. Complex issues, such as the Long-term Business Forecast and the Annual Strategic Review, were dealt with on the basis of written and oral reports provided by Board of Management members and senior department heads. In the case of financial planning, for example, we arranged for the Board of Management member responsible for Finances to brief us in advance on detailed aspects of the Long-term Business Forecast. The Head of Group Strategy and Planning, Environment provided us with facts, assumptions and principles relevant for global value added within the Group in the period up to 2024, including the targets and distribution of production capacities built into the forecasts, and discussed analyses from the Annual Strategy Review with us. The Presiding Board selected further topics for Supervisory Board meetings and made suggestions to the Board of Management regarding items to be included in its reports to the full Supervisory Board.
Two telephone conference calls were also conducted by the Presiding Board in conjunction with current activities and projects. In one of those conference calls, the Board of Management and the Head of Product and Brand Strategy reported on the current status of cooperation arrangements, in particular the planned extension of collaboration with Toyota Motor Corporation. In another telephone conference call, the Board of Management explained the plans to sell Husqvarna Motorcycles.
The Audit Committee held three meetings and three telephone conference calls during 2012. In accordance with the recommendation of the German Corporate Governance Code, we discussed each of the interim financial reports with the Board of Management prior to publication. Representatives of the external auditors were present for part of the time during the telephone conference call held to present the Interim Financial Report for the six-month period to 30 June 2012. The report had been subjected to review by the external auditors.
One meeting of the Audit Committee was primarily dedicated to preparing the Supervisory Board’s meeting in spring 2012 at which the financial statements were examined. In order to prepare its recommendation to the full Supervisory Board regarding the proposed election of external auditors at the Annual General Meeting 2012, the Audit Committee obtained a Declaration of Independence from the proposed external auditor. The Audit Committee also considered the scope and composition of non-audit services, including tax advisory services, provided by KPMG entities to the BMW Group. There were no indications of conflicts of interest or grounds for exclusion or lack of independence on the part of the auditor. The fee proposals for the audit of the year-end Company and Group Financial Statements 2012 and the review of the six-month Interim Financial Report were deemed appropriate by the Audit Committee. Subsequent to the Annual General Meeting 2012 the Audit Committee appointed the external auditor for the relevant engagements and, with due consideration to the suggestions made by the full Supervisory Board, specified audit focus areas. In relation to the audit of the Company Financial Statements, for example, this included the accounting treatment of commodity derivatives and in relation to the audit of the Group Financial Statements this included the measurement of interest rate derivatives.
The Head of Group Financial Reporting reported to the Audit Committee on risk management processes in place throughout the BMW Group, focusing on the internal control system (ICS) as the basis for financial reporting. We were also provided with a description of planned areas of action and further developments in this field.
The Audit Committee considered the set of measures undertaken by the Board of Management in 2012 to ensure that “compliance” as a concept is fully embedded in the principles of conduct valid for all Group employees. The Chairman of the BMW Group Compliance Committee reported to the Audit Committee on the current compliance situation, which, as in the previous year, was deemed satisfactory. The Audit Committee also enquired into the implementation of anti-corruption measures resolved in the previous year, the enlargement of the BMW Group Compliance Organisation -- in particular within the Financial Services segment -- and the results of sample testing carried out in Germany and abroad.
The Head of Group Internal Audit reported to us in the Audit Committee on the significant findings of audits conducted by Group Internal Audit and on the planned areas of focus on the industrial and financial services sides of the business.
The Personnel Committee convened four times during the financial year 2012. In preparation for a meeting of the full Supervisory Board, the Personnel Committee reviewed the compensation of Board of Management members (including pension benefits) for appropriateness in comparison with other DAX companies. Other specific issues relating to employment contracts were also addressed by the Personnel Committee. The Personnel Committee gave its approval in one case for a member of the Board of Management to accept a mandate for membership of the supervisory board of a non-BMW Group entity.
The Nomination Committee convened once during the financial year 2012, on which occasion it deliberated on proposals for candidates for the Supervisory Board elections at the 2013 Annual General Meeting, taking account of the composition objectives stipulated for the Supervisory Board.
The statutory Mediation Committee (§ 27 (3) of the Law on Worker Participation) was not required to convene during the financial year 2012.
Composition and organisation of the Board of Management
We deliberated with the Board of Management on changes to the structure and allocation of portfolio responsibilities with the objective of making the best use of individual members’ expertise and strengthening the overall responsibility of the Board of Management. In this context, it was decided to establish separate areas of responsibility for the BMW brand on the one hand and for the MINI brand, Rolls-Royce Motor Cars and motorcycles business on the other. The new structure and allocation of responsibilities resolved by the Board of Management in agreement with the Supervisory Board is depicted in detail in the Corporate Governance Report (page 154). In view of the fact that Mr. Krüger was set to take over responsibility for the newly created board portfolio comprising MINI, Motorcycles, Rolls-Royce and Aftersales BMW Group, we appointed Milagros Caiña Carreiro-Andree as member of the Board of Management and as successor to Mr. Krüger with responsibility for Human Resources and as Industrial Relations Director with effect from 1 July 2012. The composition of the Board of Management team was otherwise unchanged during the financial year 2012. No decisions needed to be made in 2012 with respect to the reappointment of Board of Management members.
Composition of the Supervisory Board, the Presiding Board and Supervisory Board committees
The mandate of Franz Oberländer as employee representative on the Supervisory Board ended on 31 May 2012 when he entered into retirement. On 1 June 2012 the Munich District Court appointed Dr. Dominique Mohabeer, member of the Works Council of BMW AG at the Munich site, to the position of employee representative on the Supervisory Board for the remaining term of office. As a result, the proportion of women in the Supervisory Board increased to 20 %, in line with the composition objectives set by the Supervisory Board.
Anton Ruf, executive staff representative on the Supervisory Board, retired on 31 October 2012, at which date he also ceased to be a member of the Supervisory Board. He was succeeded on 1 November 2012 by Oliver Zipse, Head of Brand and Product Strategies, who took over the role of executive staff representative on the Supervisory Board for the remaining term of office as elected substitute member. In view of a new management position he will have within the BMW Group from 1 April 2013 onwards, Mr. Zipse has resigned his mandate on the Supervisory Board with effect from 31 March 2013.
On 29 November 2012 the shareholder representatives in the Supervisory Board elected Susanne Klatten as a further member of the Nomination Committee. The composition of the Presiding Board and other committees of the Supervisory Board remained unchanged during the financial year 2012. The Corporate Governance Report includes an overview of the composition of the Supervisory Board and its committees (see Corporate Governance Report, page 155 et seq., page 163).
Examination of financial statements and the profit distribution proposal
KPMG AG Wirtschaftsprüfungs gesellschaft conducted a review of the abridged Interim Group Financial Statements and Interim Group Management Report for the six-month period ended 30 June 2012. The results of the review were also reported orally to the Audit Committee. No issues were identified that might indicate that the abridged Interim Group Financial Statements and Interim Group Management Report had not been prepared, in all material respects, in accordance with the applicable provisions.
The Group and Company Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the year ended 31 December 2012 and the Combined Group and Company Management Report – as authorised for issue by the Board of Management on 19 February 2013 – were audited by KPMG AG Wirtschafts prüfungsgesell schaft and given an unqualified audit opinion.
The Financial Statements and Combined Group and Company Management Report, the long-form audit reports of the external auditors and the Board of Management’s profit distribution proposal were made available to all members of the Supervisory Board in good time. At the meeting held on 1 March 2013 these documents were examined and discussed in detail by the Audit Committee. The Supervisory Board subsequently examined these documents at its meeting on 14 March 2013, after hearing the committee chairman’s report on the meeting of the Audit Committee. In both meetings, the Board of Management gave a detailed explanation of the financial reports it had prepared. Representatives from KPMG attended both meetings, reported on significant audit findings and answered any additional questions raised by the members of the Supervisory Board. The representatives of the external auditors confirmed that the risk management system established by the Board of Management is capable of identifying events or developments that might impair the going-concern status of the Company and that no material weaknesses in the internal control system and risk management system were found with regard to the financial reporting process. Similarly, the external auditors confirmed that they had not identified any facts in the course of their work that were inconsistent with the contents of the Declaration of Compliance issued jointly by the two boards. Based on own thorough examination by the Audit Committee and the full Supervisory Board, we concurred with the results of the external audit.
In accordance with the conclusion reached as a result of the examination by the Audit Committee and Supervisory Board, no objections were raised.
The Group and Company Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the financial year 2012 prepared by the Board of Management were approved at the Supervisory Board Meeting held on 14 March 2013. The separate financial statements have thus been adopted.
Both in the Audit Committee and in the full Supervisory Board, we 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. Taking account of the financial condition of the BMW Group, we consider the proposal appropriate and concur with it.
Expression of thanks by the Supervisory Board
We would like to express our gratitude to the members of the Board of Management and all employees worldwide for their commitment and contribution to another set of excellent financial statements for the year ended 31 December 2012.
We also wish to extend a special word of thanks to Mr. Oberländer and Mr. Ruf, both of whom left the Supervisory Board in 2012 after many years of dedicated and constructive work in the Supervisory Board. In addition to achieving success in their chosen fields of activity, they spent most of their working lives diligently serving both the Company and the employees they represented.
Munich, 14 March 2013
On behalf of the Supervisory Board
Chairman of the Supervisory Board
Updated March 13, 2012