The higher they fly, the deeper they drown: Last year, Porsche did the impossible and reported a gain on €8.5 billion before taxes on sales of €7.4 billion. The impossible was performed with derivatives. Now, those derivatives bite Porsche in the you-know-where: The Porsche Holding expects a loss of up to €5 billion before taxes for the 2008/2009 fiscal, which ends on July 31, Automobilwoche [sub] reports. This loss is “due to the planned sale of options on VW stock” (to the Sheik of Qatar). “Other losses are the result of the consolidation” of the Porsche books with Volkswagen. Says Porsche in a statement. Don’t worry, they’ll survive.
Amazingly, the liquidity of Porsche will actually improve. The banks will return approximately €1 billion that was used to secure the options. Then there will be money from Qatar. Not mentioned in Porsche’s statement, but clear for all who know German finances: A €5 billion loss will also result in a big refund of taxes paid in the prior year on the pornographic Porsche gains.
Nine days ago, Wendelin Wiedeking, under fire from all sides, pulled the last bogeyman out of his bag and threatened that that takeover by Volkswagen could cost €3 billion in additional taxes. BS, we said, “there are ways to circumvent this nasty detail.” You are looking at those ways. Looks like Volkswagen CFO Dieter Poetsch made some deft bookkeeping entries, resulting in the German government making a contribution to the deal.
Well I’m no accountant, but they can use the “gain on €8.5b before taxes” to cover the “loss of up to €5b”. They’re still €3.5b ahead – on paper. Maybe they should get back to automobiles instead of financial games or empire building.
tced2,
This is an oversimplification, but I think the issue is that the 8.5b euro “gain” was in large part due to unrealized, paper profits on their derivative and option contracts. When those contracts turned south, the options were exercised and the unrealized, paper gain turned into (part of) a realized 5b euro loss. Thus, the 8.5b “gain” can’t be set against a separate 5b loss b/c 1) the gain was not real, and 2) at least some of the realized loss was generated from the sale of the same assets that the “gain” came from in the first place.
talkstoanimals,
Thank you. You couldn’t see my tongue-in-cheek while making the comment.
I realize they didn’t have the 8.5b euro gain sitting in a briefcase in hard money.
In any event they need to get back to their business and end the financial engineering and ego building. I think that has happened (good-bye Mr. Wiedeking).
How are they actually doing as a car company? As long as their product is good, all this other mucking around isn’t really all that relevant, unless you are on the owner or creditor side. Assuming continued product excellence, someone will rescue P the car company from P the Ibank, should the latter fail; and let the former keep doing what it knows how to do.
Just a microcosm of the world in general; making stuff doesn’t make as much money any more as making money, without making stuff does. And a little thought will show that has got to clash with reality at some point.
Let’s see. How does this game work?
Year 1. Creative accounting results in reporting huge profit. Buying frenzy drives stock up — company is doing great. Executives exercise stock options and sell into the buying frenzy making oodles of money.
Year 2. Creative accounting results in reporting huge loss. Selling frenzy drives stock down — company is having profit problems. Executives see huge opportunity to buy discounted stock at cheap prices.
Year 3. Repeat year 1.
Or perhaps I’m being a little too cynical of these things.
Color me a pessimist, but I’m getting concerned that maybe I should sell my beloved GTI before Porsche ownership sinks the entire (previously profitable) VW ship, and with it all dealer and parts support. [Cue avalanche of snarky comments about the supposed current lack of VW dealer and parts support.] Does anyone else think that swallowing POrsche may be a very bad idea on VW’s part? They already own 4 premium brands with Audi, Bentley, Bugatti and Lamborghini. Do they really need a fifth premium brand in an era where the premium brands look like they may be headed for a long sales slump?
Well, that depends on the German Tax law and whether actually the profits posted in the last two years are in fact taxable. If they were, then Porsche would have paid huge amounts of taxes just on book gains. That seems unlikely. So, I would assume that the loss basically eats into the prior profits – without any tax effects then and now.