1. Shahin Tehranchi Zhuoting Liao Mark Strickland Nima Vahdat
Porsche Exposed
Fin 570 – Greco
May 7, 2009
Shahin Tehranchi
Zhuoting Liao
Mark Strickland
Nima Vahdat

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
United Kingdom
United States
Automaker
Sales
Production
BMW
11%
15%
26%
Fiat 6% 0%
Mercedes 9%
19% 7%
Peugeot
12%
Porsche
42%
Renault 1%
Volkswagen
13%
Source:
Thunderbird

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)
BMW
90%
70%
35%
Mercedes
60%
30%
Porsche
100%
Volkswagen
40%
Source: Thunderbird

8. Historical Exchange Rates
Source:

9. 911 - Break Even Analysis Quarter 1 Quarter 2 Quarter 3 Quarter 4
Euro Price
85,900
Euro Margin
15.7%
Euro Cost
72,414
USD/EURO
Spot rate
1.0862
1.1676
1.287
1.391
Target USD Price
93,200
Euro Rev
85,804
79,822
67,002
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
1.7%
2000/01
3.9%
2001/02
7.0%
5.2%
2002/03
2003/04
10.0%
Source: Thunderbird

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

13. Issue Importance and Urgency Matrix
Low
High
Urgency
BASIC
Pricing Pressures I.
Quality
II.
Market Share
III.
Corporate Focus
IV.
Low
High

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

15. Issue Importance and Urgency Matrix
Low
High
Urgency
IMMEDIATE
Production I.
Financing Strategy
II.
Product Mix
III.
Exchange Rate Risk
IV.
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
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 Costs Match Sales Initial Investment Sales Decline Best
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 US sales match US debt Slight Principal Variance
Best
US sales match US debt
Most Likely
Slight Principal Variance
Worst
Counterparty Default

23. Forward Contract USD Significantly Depreciates USD Appreciates
Best
USD Significantly Depreciates
Most Likely
Slight Variance
Worst
USD Appreciates

24. Put Options Significant Variance Slight Variance F = S Best
Most Likely
Slight Variance
Worst
F = S

25. Recommendation
Hybrid Strategy
Forward Contract
Put Option

26. Rationale Forward Contract Put Option
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?