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
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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
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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
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
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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
I.Pricing Pressures
II.Quality
III.Market Share
IV.Corporate Focus
B A S I C
Low
High
Low HighUrgency
Importance
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Cause and Effect Diagram
BASIC
Profitability Hedging Strategy
Product Mix Transparency
Corporate Focus
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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
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Cause and Effect Diagram
IMMEDIATE
TransactionExposure
Currency Fluctuation
Pricing Strategy
Profitability
Exchange Rate Risk
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Decision Criteria
• Currency Risk• Cost• Management Style• Market Share• Cash Flow• Flexibility
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Alternative Hedging Strategies
Natural Hedge
Exchange Rate Pass-
Through
Currency Swaps
Forward Contract
Put Options (current strategy)
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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
Best • Costs Match Sales
Most Likely • Initial Investment
Worst • Sales Decline
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Exchange Rate Pass-Through
Best • Constant Demand
Most Likely • Market Share Loss
Worst • Customer Rejection
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Currency Swaps
Best• US sales match US
debt
Most Likely• Slight Principal
Variance
Worst • Counterparty Default
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Forward Contract
Best• USD Significantly
Depreciates
Most Likely • Slight Variance
Worst • USD Appreciates
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Put Options
Best • Significant Variance
Most Likely • Slight Variance
Worst • F = S
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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
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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?