IHS Global Insight Perspective | |
Significance | Porsche Automobil Holding SE has posted a better-than-expected result for its financial year which ended in July, recording a net loss of 454 million euro. |
Implications | This was a significantly better result than the low-single-digit billion-euro loss forecast after the first-half results. However, the financials have to be split into the holding company, which is affected by the machinations of the reverse takeover by VW, and the actual car manufacturing unit Porsche AG, which recorded a healthy operating profit of 1.185 billion euro. |
Outlook | Porsche's financial results are set to normalise going forward at the effects as the ongoing fallout from the failed takeover of VW and the subsequent reverse takeover process decrease. As a result, Porsche SE expects to break even for the current calendar year with a return to outright profit in 2011. |
Porsche Automobil Holding SE has recorded a net loss of 454 million euro (US$633.9 million) for the financial year which runs from August and ended on 31 July 2010, according to a company press release. This result was significantly better than the low-single-digit billion-euro loss that it had been anticipating when it announced its first-half financial results. It also contrasts starkly with the 3.563-billion-euro loss that the Porsche holding company posted last year as it lost billions of euro in shares and cash-settled Volkswagen (VW) options and the audacious takeover bid for Europe's biggest carmaker collapsed. The company's financial outlook is expected to continue its rapid recovery and normalisation following the collapse of the VW bid, with Porsche SE stating that the company expects to break even over the current calendar year. However, Porsche SE also stated that its financial results will continue to be affected by its holdings in VW in the foreseeable future, with the write-down in VW stock the biggest influence on Porsche Automobil Holding SE's overall financial result. The improving situation on the equity markets, and the fact that the financial restructuring process required to pave the way for Porsche's inclusion in the VW Group has been largely completed, mean that the effects of its equity holdings will be less pronounced going forward. On this subject the statement from Porsche SE said, "The results from Porsche SE's investments accounted for at equity will continue to include effects of amortization of the purchase price allocations for Porsche Zwischenholding GmbH and Volkswagen AG which commenced in December 2009. These burdens will, however, decrease in future. Above all, the associated interest payments will have a negative impact on the group's profit/loss until the existing syndicated loan has been repaid."
Porsche AG FY 2009/10 Results (Bil. Euro) | ||
2009/10 | % Change | |
Operating Profit | 1,185 | - |
Revenue | 7,792 | 17.9 |
However, when the complexities of the financial process that will see Porsche effect a merger with VW in 2011 and become the tenth brand in the VW Group are taken out of the equation, then the financial performance of Porsche AG is actually extremely positive. hPorsche's carmaking business recorded an operating profit of 1.185 billion euro during the financial year, while revenue leapt to a record figure of 7.792 billion euro, an increase of 17.9%. This was the result of a higher value model mix, including sales of the high-end variants of the Porsche Panamera, which was launched in October last year, and the new Cayenne sport utility vehicle (SUV), which was officially launched at this year's Geneva Motor Show. Sales of the Cayenne and Panamera should continue to bolster operating profits moving into 2011. In addition the company also stated that Porsche AG generated a return on sales on profit before tax of 16%, which represents an impressive margin for a company that had developed a reputation as the world's most profitable car company in the decade prior to the financial crisis and the failed VW takeover attempt.
Outlook and Implications
The complex machinations of Porsche's financial results since the company embarked on its ambitious but ultimately futile bid to take over Europe's largest passenger car maker are now beginning to unwind. The company's recorded massive profits of 6.392 billion euro from increases in the value of VW share options in 2008, and subsequent massive losses as the company unwound its position in 2009 of 3.563 billion euro as it abandoned its takeover bid. It has to be remembered that these wild extremes of profit and loss have little to do with the company's actual car making business and everything to do with spike in share price and option values and the subsequent unwinding of those positions, as well as other costs incurred as a result of the collapsed VW takeover bid and the agreement for Porsche to become a full member of the VW Group. An example of this was a write down in the company's equities as a result of Porsche SE not taking any part in the VW capital increase that took place in March 2010 (see Germany: 24 March 2010: VW Announces Details of 4 bil.-Euro Capital Increase).
Going forward, Porsche is planning its own 5-billion-euro capital increase for early next year as it looks to pay back a syndicated loan that matures at the end of the first half of 2011. This capital increase was to help pay back the syndicated loan that was originally taken out to finance Porsche's borrowings in acquiring VW shares and cash-settled share options. Instead, the company is now looking to become a full member of the VW Group following the collapse of its audacious VW takeover bid last year. However, there are some concerns that the full merger may be further delayed as a result of ongoing legal disputes over Porsche's takeover attempt of VW, with U.S. hedge funds attempting to sue Porsche SE for alleged share price manipulation (see United States: 30 April 2010: Further Hedge Funds Join Porsche Lawsuit).