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

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

Porsche’s Expanding Platforms and Growing Sales 3 Porsche Models Units Source: Thunderbird

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

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

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

Comparative Hedging Automaker 2003 (estimate) 2004 (estimate) BMW 90% 70% 35% Mercedes 60% 30% Porsche 100% Volkswagen 40% Source: Thunderbird

Historical Exchange Rates Source: www.economagic.com

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%

Current Hedging Strategy 100% hedged against USD depreciation Forecast sales and exposures out three years Three-year rolling portfolio of put options

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

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

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

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

Issue Importance and Urgency Matrix Low High Urgency IMMEDIATE Production I. Financing Strategy II. Product Mix III. Exchange Rate Risk IV. Low High

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

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

Alternative Hedging Strategies Natural Hedge Exchange Rate Pass-Through Currency Swaps Forward Contract Put Options (current strategy)

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

Natural Hedge Costs Match Sales Initial Investment Sales Decline Best Most Likely Initial Investment Worst Sales Decline

Exchange Rate Pass-Through Best Constant Demand Most Likely Market Share Loss Worst Customer Rejection

Currency Swaps US sales match US debt Slight Principal Variance Best US sales match US debt Most Likely Slight Principal Variance Worst Counterparty Default

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

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

Recommendation Hybrid Strategy Forward Contract Put Option

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

Resolution Currency risk mitigated Cost minimized from current hedging strategy Continued potential for profit if USD continues to depreciate

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

Thank You! Questions?