Porsche Exposed

Shahin TehranchiZhuoting Liao

Mark StricklandNima Vahdat

Fin 570 – GrecoMay 7, 2009

2

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

3

Porsche’s Expanding Platforms and Growing Sales

1994 1995 1996 1997 1998 1999 2000 2001 20020

10000

20000

30000

40000

50000

60000

Cayenne

Boxster

911

Source: Thunderbird

Uni

ts

3 Porsche Models

4

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

5

Porsche Foreign Exchange Rate Exposure

United Kingdom 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

2002

6

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

7

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

8

Historical Exchange Rates

Source: www.economagic.com

9

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%

10

Current Hedging Strategy

• 100% hedged against USD depreciation

• Forecast sales and exposures out three years

• Three-year rolling portfolio of put options

11

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

12

Issue

Is there a better long-term currency exposure management strategy out there for Porsche?

13

Issue Importance and Urgency Matrix

I.Pricing Pressures

II.Quality

III.Market Share

IV.Corporate Focus

B A S I C

Low

High

Low HighUrgency

Importance

14

Cause and Effect Diagram

BASIC

Profitability Hedging Strategy

Product Mix Transparency

Corporate Focus

15

Issue Importance and Urgency Matrix

I.Production

II.Financing Strategy

III.Product Mix

IV.Exchange Rate Risk

I M M E D I AT E

Low

High

Low HighUrgency

Importance

16

Cause and Effect Diagram

IMMEDIATE

TransactionExposure

Currency Fluctuation

Pricing Strategy

Profitability

Exchange Rate Risk

17

Decision Criteria

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

18

Alternative Hedging Strategies

Natural Hedge

Exchange Rate Pass-

Through

Currency Swaps

Forward Contract

Put Options (current strategy)

19

Assumptions

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

20

Natural Hedge

Best • Costs Match Sales

Most Likely • Initial Investment

Worst • Sales Decline

21

Exchange Rate Pass-Through

Best • Constant Demand

Most Likely • Market Share Loss

Worst • Customer Rejection

22

Currency Swaps

Best• US sales match US

debt

Most Likely• Slight Principal

Variance

Worst • Counterparty Default

23

Forward Contract

Best• USD Significantly

Depreciates

Most Likely • Slight Variance

Worst • USD Appreciates

24

Put Options

Best • Significant Variance

Most Likely • Slight Variance

Worst • F = S

25

Recommendation

Hybrid Strategy

Put OptionForward 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

28

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

29

Thank You!

QUESTIONS?