At year-end 2011, adjusted free funds from operations (FFO) to debt (adjusted
according to our captive finance methodology) jumped to more than 500% from
230% in 2010. This arose not only from the improvement in the group’s results,
but also from the twofold impact, after adjusted according to our captive
finance methodology, of the acquisition of ICL (a leasing company) and a
change in the company’s accounting policy for leased vehicles.
In 2011, reported free operating cash generation in the industrial division
was EUR3.5 billion, including EUR1.7 billion of negative working capital partly
because of higher than usual inventories needed for the launch of the new BMW
3 Series. For 2012, we expect BMW to be able to generate about EUR3 billion of
free operating cash flow and to maintain the ratio of FFO to debt in the three
digits and well above the 50%-60% target. We assume that BMW will maintain the
dividend distribution at about a 30% payout ratio, even though the carmarker
targets a 40% payout, which it plans to gradually attain but only apply in
case of an extremely solid operating performance and cash generation. We do
not factor in any significant acquisitions during the year.
We continue to view BMW’s business risk profile as “strong,” supported by the
company’s solid competitive position and improved profitability. We classify
its financial risk profile as “modest.” This is primarily due to the
carmaker’s solid cash generation and the moderate financial policy that it has
maintained over time.
Liquidity
The short-term rating on BMW is ‘A-1’. We view the company’s liquidity as
“strong” under our criteria. The coverage ratio of sources to uses in the next
12 months for the automotive division is above 2x. BMW’s financial flexibility
and liquidity are underpinned by:
— Cash and cash equivalents of EUR5.8 billion in the industrial division
on Dec. 31, 2011. Of this, we view EUR2 billion as necessary to maintain ongoing
operations and therefore exclude this amount from our calculation. Short-term
maturities in the industrial division were EUR1.5 billion on the same date.
— Unused group credit lines, notably a EUR6 billion committed syndicated
bank line that backs up a multicurrency commercial paper (CP) program due in
2016. This credit line is free from financial covenants and material adverse
change clauses. The credit line serves as collateral for a CP program
comprising a $7 billion U.S. program, a EUR5 billion European program, and a EUR2
billion French program. It can also be used for general corporate purposes. By
December 2011, CP usage was more than EUR5 billion.
Continued…
