PracticeConsultingRover profits hit by German depreciation

Rover profits hit by German depreciation

Call for international standards as car maker slams BMW's methods. Chris Quick reports.

Beleaguered Rover Group, under fire over its profit levels and productivity, this week defended its reputation saying its bottom-line profit figure was hit by conservative German accounting rules.

The problem strengthened the case for the use of international acounting standards by multinationals, experts said.

Under German rules, used by its parent company BMW, Rover last year made a loss of #91m. But Vincent Hammersley, Rover?s corporate communications manager, said that using UK rules Rover made a profit of around #20m.

?I don?t think the fact that Rover is a healthy company comes over well enough,? he said, adding, ?BMW has not bought a lame duck.?

The difference in the profit figures was due to the rate at which investments were written off. BMW has invested more than #2.5bn in Rover, which last week launched its new 75 model, since the end of 1994. The sums have been heavily written off against profits using depreciation rules which analysts say are conservative even for Germany.

Under UK rules, investments are written off over a longer time period, with less impact on profit figures.

Hammersley said that, although the accounting methods used were perfectly correct and accepted in Germany, it was important to point out the differences.

But he admitted Rover was heading for a loss this year whether it was audited under German or UK rules. Again, though, German rules would make the loss appear greater.

He said the strength of sterling was contributing significantly to Rover?s problems and negotiations were underway with the workforce over how to achieve #150m annual savings in employee costs over the next three years.

Rumours have circulated that BMW is considering a move to international accounting standards.

Liesel Knorr, International Accounting Standards Committee technical director, refused to speculate but said Rover was a good example of why MNCs should adopt international standards.

She said IAS rules on depreciation of assets would reflect their useful life, and were therefore likely to impact more favourably on Rover?s bottom line than German rules.

Klaus Melzer, a motor industry analyst with Deutsche Morgan Grenfell in Frankfurt, said: ?In UK accounting you get higher results on the bottom line than in Germany.?

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