Transcript Porsche Exposed Shahin Tehranchi Zhuoting Liao – Greco

Porsche Exposed
Fin 570 – Greco
May 7, 2009
Shahin Tehranchi
Zhuoting Liao
Mark Strickland
Nima Vahdat
Company Background
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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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Porsche’s Expanding Platforms
and Growing Sales
3 Porsche Models
60000
Units
50000
40000
Cayenne
Boxster
30000
911
20000
10000
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
Source:
Thunderbird
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Case Summary
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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
Automaker
United States
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
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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
2004
2005
(estimate) (estimate) (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
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
EBIT margin Treasury margin
3.5%
-2.6%
6.5%
-3.0%
7.4%
-.9%
9.6%
2.2%
9.6%
1.7%
7.4%
3.9%
7.0%
5.2%
9.6%
6.5%
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
Importance
Low
High
I.
Pricing Pressures
II.
Quality
Urgency
Low
BASIC
High
III.
Market Share
IV.
Corporate Focus
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Cause and Effect Diagram
Profitability
Hedging Strategy
Corporate
Focus
BASIC
Product Mix
Transparency
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Issue Importance and
Urgency Matrix
Importance
Low
High
I.
Production
II.
Financing Strategy
Urgency
Low
I M M E D I AT E
High
III.
Product Mix
IV.
Exchange Rate Risk
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Cause and Effect Diagram
Transaction
Exposure
Currency
Fluctuation
IMMEDIATE
Pricing
Strategy
Exchange
Rate Risk
Profitability
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Decision Criteria
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Currency Risk
Cost
Management Style
Market Share
Cash Flow
Flexibility
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Alternative Hedging
Strategies
Natural
Hedge
Exchange
Rate PassThrough
Currency
Swaps
Forward
Contract
Put Options
(current strategy)
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Assumptions
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USD will depreciate
Porsche is debt averse
Hedge to mitigate risk
Pricing strategy
Foreign sales expected to increase
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Natural Hedge
Best
Most Likely
Worst
• Costs Match Sales
• Initial Investment
• Sales Decline
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Exchange Rate Pass-Through
Best
Most Likely
Worst
• Constant Demand
• Market Share Loss
• Customer Rejection
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Currency Swaps
Best
Most Likely
Worst
• US sales match US debt
• Slight Principal Variance
• Counterparty Default
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Forward Contract
Best
Most Likely
Worst
• USD Significantly Depreciates
• Slight Variance
• USD Appreciates
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Put Options
Best
Most Likely
Worst
• Significant Variance
• Slight Variance
• F=S
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Recommendation
Hybrid Strategy
Forward Contract
Put Option
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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!
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