Porsche%20Exposed

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Porsche Exposed

• Shahin Tehranchi
• Zhuoting Liao
• Mark Strickland
• Nima Vahdat

Fin 570 Greco May 7, 2009
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Company Background

• Ferdinand Porsche, 1930
• Development Consulting
• Long term Relationship with VW
• During WWII designed for military tanks
• 356 production designed in 1948
• Porsche AG and Porsche SE
• CEO Dr. Wendelin Wiedeking

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Porsches Expanding Platforms and Growing Sales
3 Porsche Models
Units
Source Thunderbird
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Case Summary

• 40 of sales in the United States
• 2.2B Euros at risk
• Purchased put options in 2000
• Expected US to depreciate
• Hedging profits increasing
• Cash 1.76 Billion Euros

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Porsche Foreign Exchange Rate Exposure
2002
United Kingdom United Kingdom United States United States
Automaker Sales Production Sales Production
BMW 11 15 26 11
Fiat 6 0 0 0
Mercedes 9 0 19 7
Peugeot 12 6 0 0
Porsche 11 0 42 0
Renault 9 0 1 1
Volkswagen 7 0 13 7
Source Thunderbird
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Financial Statement

• Consolidated Income Statement (millions of Euros)

2000/01 2001/02 2002/03
Net Sales 4,441 4,857 5,582
Gross Profit 1,347 1,822 2,451
EBITDA 680 1,077 1,297
Op Profit 547 798 905
Net Income 271 463 565
EPS 15.51 26.47 32.29
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Comparative Hedging
Automaker 2003 (estimate) 2004 (estimate) 2005 (estimate)
BMW 90 70 35
Mercedes 90 60 30
Porsche 100 100 100
Volkswagen 40 70 30
Source Thunderbird
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Historical Exchange Rates
Source www.economagic.com
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911 - Break Even Analysis
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Euro Price 85,900 85,900 85,900 85,900
Euro Margin 15.7 15.7 15.7 15.7
Euro Cost 72,414 72,414 72,414 72,414

USD/EURO Spot rate 1.0862 1.1676 1.287 1.391

Target USD Price 93,200 93,200 93,200 93,200

Euro Rev 85,804 79,822 72,414 67,002
Euro Cost 72,414 72,414 72,414 72,414
Euro Margin 15.6 9.3 0 -8.1
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Current Hedging Strategy

• 100 hedged against USD depreciation
• Forecast sales and exposures out three years
• Three-year rolling portfolio of put options

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Financial Effects
Year EBIT margin Treasury margin
1995/96 3.5 -2.6
1996/97 6.5 -3.0
1997/98 7.4 -.9
1998/99 9.6 2.2
1999/00 9.6 1.7
2000/01 7.4 3.9
2001/02 7.0 5.2
2002/03 9.6 6.5
2003/04 10.0 6.5
Source Thunderbird
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Issue
Is there a better long-term currency exposure
management strategy out there for Porsche?
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Issue Importance and Urgency Matrix
Low
Importance
High
Urgency
Low
High
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Cause and Effect Diagram
Hedging Strategy
Profitability
Corporate Focus
BASIC
Product Mix
Transparency
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Issue Importance and Urgency Matrix
Low
Importance
High
Urgency
Low
High
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Cause and Effect Diagram
Transaction Exposure
Currency Fluctuation
Exchange Rate Risk
IMMEDIATE
Pricing Strategy
Profitability
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Decision Criteria

• Currency Risk
• Cost
• Management Style
• Market Share
• Cash Flow
• Flexibility

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Alternative Hedging Strategies
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Assumptions

• USD will depreciate
• Porsche is debt averse
• Hedge to mitigate risk
• Pricing strategy
• Foreign sales expected to increase

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Natural Hedge
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Exchange Rate Pass-Through
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Currency Swaps
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Forward Contract
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Put Options
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Recommendation
Hybrid Strategy
Put Option
Forward Contract
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Rationale

• Forward Contract
• Purchase high percentage of forecasted US sales
  (85 95)
• Lower cost
• Put Option
• Purchase remainder of forecasted US Sales
• Flexible

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Resolution

• Currency risk mitigated
• Cost minimized from current hedging strategy
• Continued potential for profit if USD continues
  to depreciate

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Porsche Today

• Has 20 Billion in capital
• 12 Profits are from cars
• Net profit of 11.6 Billion is higher than Total
  Car Sales of 10.2 Billion
• Owns 50 of VW stock and plans to own 74 by end
  of 2009
• Produces 100,000 cars per year
• Bankers and Hedge fund managers

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Thank You!
Questions?