In Porsche's last full fiscal year they reported more profit than revenue. A fiscal impossibility you say? Not so, if you're playing in the world of high finance and derivatives. Then, as early as this past April it looked like Porsche was poised to do it again. In a statement released this spring, Porsche posted profits before taxes of EUR 7.34 billion (for the period of August 1, 2009 to January 31, 2009). In a feat of uncanny and liability lightening foreshadowing, Porsche said the following in that same statement:
"Porsche SE wishes to point out that this contribution to profits depends on the price of the VW shares. Thus, the amount could decrease again and could, by the end of the business year, be less than the half-year amount. The effect on the full-year results for the 2008/09 business year will depend on the development of the price of the VW shares in the period until July 31, 2009."
Today, in a huge reversal of fortunes, Porsche announced that they would indeed reverse these gains and do so to the point of a EUR 5.0 billion loss. While not directly related to the "share price of VW", the loss is a result of the overall derivative play put into motion by Wiedeking and eventually killed by VW's Piech and today's less than favorable market conditions.
Most interesting is a concept floated by Bertell Schmitt over at TTAC. He suggests a significant tax refund is due Porsche from monies paid on their "pornographic profits" from the previous year. This should only help to increase Porsche's liquidity even more than the €1b, that was used to secure the options, being returned to them from the various banks combined with the Qatar investment still being discussed.
The full release from Porsche is below for your reading pleasure.
An Idiot's Guide to Porsche's Financial Woes
Is Porsche Abandoning Their Plans to Take Over Volkswagen?
Porsche Exceeds Revenue Again from Volkswagen Profit
Porsche’s Profit Exceeds Revenue
[Source: PCNA, TTAC]
Stuttgart. Porsche Automobil Holding SE, Stuttgart, is in advanced talks on the sale of the cash settled options with respect to Volkswagen shares to one or several investors. Amongst these investors is especially Qatar Holding LLC (QH) with whom talks about an investment in Porsche SE also is underway.
The preparation for the sale of the options on Volkswagen shares leads to a devaluation resulting in a substantial book capital loss. Nevertheless Porsche improves its liquidity situation through the sale of the options structure as it would lead to an inflow of cash in a magnitude of more than one billion Euro, currently serving as cash collateral for the options structure.
Another non cash relevant book loss derives from the initial full consolidation of Volkswagen group. With the increase of the stake in VW to 50.76 percent on January 5 2009 Porsche was obliged to fully consolidate Volkswagen. This triggered a so called Purchase Price Allocation (PPA) under which all assets and liabilities of the part group Volkswagen had to be valued and compared with the price paid for the shares to get to the company’s valuation. This results in a substantial negative impact. Overall the two measures should lead to earnings before taxes for fiscal year 2008/09 of up to minus five billion Euro.
It is important, that the devaluation of the options and the consequences of the PPA are purely accounting related. They do not effect the valuation of the 50.76 percent stake in common shares in Volkswagen AG on Porsche’s balance sheet.
For Porsche SE the big advantage in the devaluation of the options lies in the improvement of liquidity available. Furthermore the equity ratio after these to steps still is a sound 23 percent.