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Porsche Exposed

Porsche Exposed. Shahin Tehranchi Zhuoting Liao Mark Strickland Nima Vahdat. Fin 570 – Greco May 7, 2009. Company Background. Ferdinand Porsche, 1930 Development & Consulting Long term Relationship with VW During WWII designed for military tanks 356 production designed in 1948

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Porsche Exposed

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  1. Porsche Exposed ShahinTehranchi ZhuotingLiao Mark Strickland Nima Vahdat Fin 570 – Greco May 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 3 Porsche Models Units Source: Thunderbird

  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 2002 Source: Thunderbird

  6. Financial Statement • Consolidated Income Statement (millions of Euros)

  7. Comparative Hedging Source: Thunderbird

  8. Historical Exchange Rates Source: www.economagic.com

  9. 911 - Break Even Analysis

  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 Source: Thunderbird

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

  13. Issue Importance and Urgency Matrix Importance Low High Urgency Low High

  14. Cause and Effect Diagram Hedging Strategy Profitability Corporate Focus BASIC Product Mix Transparency

  15. Issue Importance and Urgency Matrix Importance Low High Urgency Low High

  16. Cause and Effect Diagram Transaction Exposure Currency Fluctuation Exchange Rate Risk IMMEDIATE Pricing Strategy Profitability

  17. Decision Criteria • Currency Risk • Cost • Management Style • Market Share • Cash Flow • Flexibility

  18. Alternative Hedging Strategies

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

  20. Natural Hedge

  21. Exchange Rate Pass-Through

  22. Currency Swaps

  23. Forward Contract

  24. Put Options

  25. Recommendation Hybrid Strategy Put Option Forward Contract

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

  27. 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?

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