As comebacks go, it's remarkable. Twelve months ago BMW reached a low ebb in its history with the sell-off of Rover, its troubled British subsidiary. Exactly one year on, BMW's chairman Prof Joachim Milberg was proudly showing off the new Mini and a set of record-breaking accounts last week. This summer's return of one of the greatest - and smallest - icons of motoring mirrors the return to form of one of the world's smallest, but most profitable, car makers.

While its rivals, notably Daimler-Chrysler and Ford, are struggling to reorganise their high-volume businesses, BMW is proud to be the only car manufacturer in the world not operating in the mass market.

"The BMW brand is stronger than ever. Our reorientation has been successful and we have more than set off the drop in sales resulting from the sale of Rover last year," said Prof Milberg, speaking to The Irish Times after the presentation of company accounts in Munich. BMW group sales grew by over 8 per cent to a record €35.4 billion (£27.9 billion) last year, with an annual profit of just over €1 billion. Worldwide deliveries of BMW cars were up 9.4 per cent to over 822,000 units, also a new record.

Despite the high-polish PR, however, the ghost of Rover lurks in the corners of BMW's headquarters, a striking cylindrical tower block in Munich. One grumpy journalist at the company press conference last week accused BMW management of trying to airbrush what is now known as the Rover adventure out of the official company history.

"We won't delete Rover from our company history. We learned a lot from the experience," said Prof Milberg. His predecessor as chairman Bernd Pischetsrieder decided to buy Rover in 1994. The BMW board was worried about the firm's survival as a niche company making only 600,000 cars a year, but the decision to enter the mass-market cost Mr Pischetsrieder his job.

Five years later the British firm was an expensive millstone around BMW's neck, Pischetsrieder was fired and Prof Milberg was brought in to sort out the mess. He joined the board of BMW in 1993 and until his appointment as chairman headed the company's engineering and production division.

The Rover debacle cost the company an estimated €4.1 billion until it was sold for £10 sterling to the Phoenix consortium last year. BMW sold its Land Rover business separately to Ford last June. In hindsight, the biggest lesson the company learned was that BMW should stick to the market it knows best and stay out of the mass market.

"We overestimated the strength of the Rover brand. The product substance was simply not there," says Prof Milberg. "You can target the mass market or the premium market. With Rover we tried to do both but didn't succeed."

Matters were not helped by currency fluctuations that cost the company DM700 million (€357.9 million) in 1999 alone. The Bavarian car maker says it is now firmly refocused on the premium end of the market and has the products to back up that assertion. The BMW stable will grow this autumn with the launch of the new 7 series, and again in 2004, when production starts on a new 1 series targeted at the lower end of the market.

BMW hopes this new model will rival the Volkswagen Golf and the Mercedes A-class, and will announce the location of the new model's production facility later this year.

The feather in BMW's cap as a reborn luxury car maker is the return of the Rolls-Royce in 2003 after the resolution of a complicated brand-ownership deal with Volkswagen.

But it's the launch of a far more modest car that had BMW executives last week spouting buzzwords like chic, excitement and extroverted: next July the new Mini goes on sale for £9,999 sterling. The name might be the same but this will not be your parents' mini, the company says. It will be a premium product with all the frills of a BMW without being a BMW.

That has earned the wrath of some loyal Mini-owners who have already given the new model the thumbs down without even driving it. By souping up the car BMW has missed the point of the Mini, they say, something the company chairman says is nonsense.

Public awareness of the Mini is very different around the world. We know the image the Mini has in the UK but in Japan, for instance, and many other markets, the Mini is a luxury car. That's what we're after, says Prof Milberg. With his successful turnaround of the Bavarian carmaker complete, Milberg's optimism for the future is unshakeable.

Sales in North America jumped by almost 40 per cent last year and he says the predicted slowdown in the US economy will only affect sales in the next 12 months. Getting the company on a firm footing has given Prof Milberg time to focus on other BMW projects.

Last month he travelled to South Africa to meet former president Nelson Mandela. Together the two men opened a new secondary school and clinic in the town of Ndonga, near Pretoria, where BMW's South African plant is located. The new facility cost more than five million rand and was financed by BMW as part of its social project in the town.

"We realise that we are part of the economy and part of the society. That means we have part responsibility for what happens in that society," says Prof Milberg. BMW's other main project these days can be explained by the one buzzword floating around the company's Munich headquarters: sustainability. Last year BMW showcased a small fleet of hydrogen vehicles at the EXPO world fair in Hanover and is already leading the pack in next-generation car research and development.

By the end of the decade the company says it will have added a hydrogen-based model to its high-end 7 series and by 2020 the company envisages that more than a third of all BMW vehicles sold in Europe and Japan will be powered by hydrogen.

"We have to think of the future of energy, when the supply of fossil fuels ends," says Prof Milberg. "We have developed the use of hydrogen as an absolutely pollution-free automobile fuel. We now need public discussion of the use of hydrogen in cars," he says.

The future of the automobile is the subject Prof Milberg will address when he comes to Dublin on Monday to deliver the McLaughlin Lecture at the National Gallery. The lecture has been organised by the president of the Institution of Engineers of Ireland Prof Gerry Byrne. He has known Prof Milberg since the late 1960s when they both studied in the same engineering institute at the Technical University in Berlin.

In his speech Prof Milberg will draw attention to the parallels he sees between BMW and Ireland's economic success in the recent years.

"The recent development in the Irish economy is remarkable, particularly because it is development through innovation and research, which mirrors our own approach to development here at BMW," says Prof Milberg.

He attributes BMW's business success to two core values: differentiation and innovation If you can't offer a different product you can only offer a similar product at a lower price, he says.

The competitive edge comes from innovation, and innovation comes from investment in research and development.