May 8th, 2014
Contents
0 History of the company
0 Financial Statistics
0 Product Portfolio
0 Question 1
0 Question 2
0 Question 3
Porsche´s History
0 1931: Ferdinand Porsche founds
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”Dr.Ing.h.cF.Porsche GmbH” in
Stuttgart, Deutschland. Focus on
motor vehicle development and
consulting
First assignment concerned
creating a ”Volkswagen”, a car for
the people. Lead to the creation of
Volkswagen Beetle.
WOII: Porsche produces military
versions of the beetle and designs
heavy tanks.
End of WOII:Ferdinand was
arrested for war crimes, Ferry
Porsche takes over.
Post war, parts in short supply, the
porsche 356 used many parts from
the Volkswagen Beetle. In the
following years, many Volkswagen
parts were replaced by Porschemade parts.
0 1964: introduction of the
Porsche 911
0 1972:
Kommanditgesellschaft
(limited partnership) to
Aktiengesellschaft (public
limited company)
0 First Executive board with
members from outside the
Porsche family
0 Supervisory board,
consisting of family
members
0 Ferdinand Piech leaves
coPorsche AG, later
becomes chairman of
Volkswagen Group
0 1993:Wendelin Wiedeking
becomes CEO
0 publicly traded, family
controlled company
Financial Statistics
Product Portfolio (2005)
Three existing and one newly proposed product:
911
• Only model
produced and
assembled
entirely in-house
• Aging, in need of
replacement
• 2001/02:sales
peak
• 2002/2003:
sales fell by15%
• Prices high;
highest margin
• Not price elastic
Boxster
• 1996: Introduced
as low-price sports
car
• Licensed
manufacturing
with Valmet of
Finland
• Less sensitive for
business cycle
• 2000/01: Sales
peak
• 2003/04: Sales fall
to less than half
the peak
• Competitive
market: BMW
Cayenne
• comanufactured
with
Volkswagen of
Germany
• Entering sports
utility vehicle
(SUV)
• Very quick
success
• Criticism;
Comparable to
VW Touareg
Panamera
• To be completely
in-house
• Premium class,
four door, fourseats coup
sportscar
• Price between
$125.000 –
$175.000
• Premium product
market segment
Question 1
What strategic decisions made by Porsche over recent years had given rise to its extremely high
return on invested capital?
ROIC (return on invested capital)= operating margin*velocity
0 High operating margins
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low competition and premium value pricing
Critics: 40 percent of earnings by hedging
Porsche produces only in two countries,
Finland and Germany
0 Heavily exposed to fluctuations
euro/dollar.
0 High velocity or capital turnover
ratio
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licensing and outsourcing (“Using other
people´s money”)
Boxster: manufactured by Valmet of Finland, which
owns own factory and tools.
0 Cayenne: co-manufactured with Volkswagen.
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0 Very big liquidity
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Recent years: invested capital rises faster than
sales.
Porsche did not add fixed assets to its invested
capital basis, but cash (retained profits and
debt issuances).
Policy of minimal fixed-asset capital base.
Question 2
Vesi wondered if her position on Porsche might have to distinguish between the company’s
ability to generate results for stockholders versus its willingness to do so. What do you think?
Porsche´s contradictions:
Question 2
• Management needs to share the same motivations, rewards, and risks as
stockholders do, to overcome problems like moral hazard or conflicts of
interests (agency theory)
• Porsche tries to achieve family objectives. These objectives, however, are
strongly aligned with shareholders goals. (see question 3)
• Porsche rewards management on financial and operational results rather
than market valuation (share price)
• Porsche has seemingly focused on executing the business with the highest
of regard for the company’s long-term performance and profitability
(much like a family owned business)
Question 2
Big question: The use of 3 billion euros to purchase a growing position in VW was motivated
by business needs or due to nepotism?
Pro
Contra
Avoid hostile takeover
Conflicts of interest with Piëch,
Cronyism
Opportunity to expand product
category
Strategic conflicts: competition,
wages policy
Question 3
Is pursuing the interests of Porsche’s controlling families different from maximizing the returns
to its public share owners?
Family ownership
• aligned interest between sustainability
and control; and in rapid growth
• the returns for the family are derived
from
• distributed profits (dividends)
• salary and compensation
• financial support (family members
often enjoy company - owned assets
and expenditures)
Public ownership
• profitable growth in bottom- and
top-line of income statement
• returns for the shareholder are
derived from
• dividends
• share price appreciation (capital
gains)
Conclusion: Focus on growth is different, the managers and the owners of the company have
different interests. However, as the Porsch-Piech family owns 100% of the voting shares (ordinary
shares), the family´s interests are followed.
Thank you for your attention
Questions?