IHS Global Insight Perspective | |
Significance | The Porsche holding company which still holds a 32.2% stake in Volkswagen (VW) ahead of the integration of the two companies in 2011, has posted a better-than-expected net loss of 0.7 billion euro in the first nine months of the company's financial year between August 2009 and April 2010. |
Implications | Porsche SE is still including VW's financial and sales performance in its own results due to regulatory requirements, despite an effective reverse takeover taking place with Porsche becoming part of the VW group from next year, The combined company posted an operating profit of 1.5 billion euro during the period and sold just over 5 million units. |
Outlook | These results show that the financial and sales performance of Porsche AG, the actual carmaking unit of the company, is stabilising following massive profits and losses that were artificially created in recent financial reported periods by increases and right downs in cash-settled options that Porsche held in VW shares. |
The Porsche SE holding company claims that it has witnessed an uptick after posting a less-than–expected decline in net profits during the first nine months of the company's financial year to 700 million euro (US$864.1 million). The period covered the first three quarters of Porsche's financial year (FY), running between August 2009 and April 2010. This spell covered a difficult business environment for the sales operations of the Porsche AG sports car business but also encompassed the enormous changes to the financial structure of the Porsche Automobil Holding SE holding company following the failed takeover of Volkswagen (VW). The company's net loss of 700 million euro included all the non-recurring effects, one-off charges and special items that occurred as a result of Porsche SE relinquishing significant holdings in VW in exchange for the underwriting the financial restructuring of the company. Porsche incurred over 10 billion euro in debt in its attempt to take over VW and the net result of its failure is that the sports carmaker will be effectively subsumed into the VW Group in 2011 as the tenth brand of the group. The result also included the effects of the capital increase that VW had undertaken to part-finance the restructuring and acquisition of Porsche. The company also posted an operating profit of 0.6 billion euro during the period as Porsche's core car business at least stabilised in a difficult market environment, while the launch of the new Panamera improved the model mix. Revenue increased by 11.8% y/y during the period to 5.2 billion euro, although the actual number of units sales during the nine months was nearly identical to the figure of 53,635 units recorded during the same period last year at 53,605 units. These figures further confirmed the higher value model mix that Porsche has sold during the period as a result of the launch of the Panamera.
In terms of individual model sales during the period, Porsche saw strong interest in the Panamera following its launch in September 2009, with the model selling 13,900 units during the period, although it was not rolled out in some markets until December 2009. The best-selling model remained the Cayenne sport utility vehicle (SUV), despite the period corresponding almost exactly with the final few months of sales of the outgoing first-generation model. The Cayenne sold 18,932 units, a reduction of 23.35 y/y which was expected given the model lifecycle issues involved. The Porsche 911 achieved sales of 13,137 units during the nine-month period, disappointing given the 35,1% y/y fall in volumes to which it equated. Unit sales of vehicles from the Boxster model series, including the Cayman models, dropped 12.2% to 7,630 vehicles. On a regional basis Porsche's sales declined by 5.1% y/y in Europe to 18,607 units, while there was an even greater fall of 17.8% y/y in North America to 15,592 units reflecting the economic environment during the period in Porsche's traditional key markets. However, the combined sales volume for all the other regions of the world actually rose by 28.9% y/y to 19,406 units, with China driving this increase, as was expected. A total of 60,043 vehicles were produced in the reporting period, up 0.7% y/y.
Because Porsche SE still owns a 32.2% stake in VW following the recent capital increase, and 50.7% of the company's ordinary shares, it also published some selected financial and market data for the VW Group for the period in question as a regulatory requirement. It showed that VW is still performing strongly after posting robust sales and financial result throughout the financial crisis. It posted an operating profit of 1.5 billion euro from revenues of 82.6 billion euro. The group also recorded strong sales of 5,004,745 units for the nine month period between August 2009 and April 2010.
Outlook and Implications
To put into context the massively distorting effect that the gains and losses that Porsche's cash-settled option in VW had on the financial results, Porsche SE posted a net profit of 4.2 billion euro for the equivalent nine-month period in 2009. Indeed for the full-year the company actually posted a higher net profit than the turnover of the actual carmaking business. But while Porsche was making enormous paper financial gains, its liquidity had been fatally compromised by its attempt to gain full control of VW and the collapse of lending on the international credit markets forced it into the arms of its erstwhile takeover target. In effect, analysis of Porsche's financial performance in recent years has been rendered somewhat meaningless by the hugely distorting effect of Porsche's takeover attempt of VW. While the prior year was above all influenced by positive effects from cash-settled options relating to VW shares, the result for the reporting period has been strongly affected by the structural changes that have been applied to Porsche SE, including the deconsolidation of VW Group and Porsche, as well as the inclusion of both groups in the consolidated financial statements of Porsche SE using the equity method.
The capital increase undertaken by VW saw 65 million new preference shares issued, which in turn generated proceeds of 4.1 billion euro in the March/April period when the share offer was taken to the markets. Consequently Porsche's net liquidity was vastly improved at the end of the period, showing a cash balance -6 billion euro, a substantial improvement on the -10-billion-euro figure that the balance sheet showed around the same time last year as it struggled to refinance its syndicated debt that had been incurred in the Porsche takeover. This was primarily attributable to the cash received in connection with the capital increase, with 3.9 billion euro used to pay down bank debt. Going forward, Porsche is anticipating a net loss for the full financial year of around one billion euro, which is an improvement on the company's own forecast made at the six-month period for the financial year. Both Porsche SE and the VW Group are forging ahead with the plan to become a fully integrated automotive group in 2011, and with the former planning a further capital increase next year to pay down extra debt and pave the way for the final integration between the two companies. Eventually Porsche's financial results will become fully consolidated into the VW Group's, and the two companies' financial reporting will align to the calendar year reporting system used by VW. Both companies are bullish about the chances of the two firms as an integrated group, but despite how VW and Porsche may try to present the situation as an "integration" of the two companies, there can be little doubt that Porsche is being swallowed whole by VW and will effectively lose any remaining autonomy within the new structure.