Inadequate securement of Porsche SE shares for shareholders
Rewritten Article:
It's a rough week for car magnates after Porsche Automobil Holding SE swung its mighty hammer, delivering a hefty financial blow to the wealthy Porsche and Piëch clans, plus numerous preferred shareholders. On a chilly Friday night, the DAX company revealed a staggering billion-euro need for impairments on its investments. The prior earnings prediction of 2.4 to 4.4 billion euros for the fiscal year wrapping up in a few days was shelved. No new estimate was provided, and the extent of the impairment need remains unclear for now. Yet, it's essential to note that this adjustment isn't cash-triggering but solely balance sheet-driven.
No blueprint, no evaluation upfront
The reason isn't a nosedive in the stock market value of the two automakers but Porsche SE's inability to depend on the "results from an ongoing, approved business plan of Volkswagen AG and Porsche AG" for their accounting, as disclosed. The projected planning session had already been postponed indefinitely on November 12. Initial plans were to await the results of negotiations with the workforce. In the upcoming Volkswagen planning round, significant decisions such as plant allocation and investments for the upcoming five years will be discussed. With a group management aiming to cut jobs and close plants, planning prior to finalizing labor agreements isn't feasible. The move by Porsche SE to issue a profit warning likely signals that they no longer anticipate a timely agreement.
Up to 22 billion euros at stake in value adjustments
Regarding the completion of value tests for the two core participations by December 31, 2024, as stated, external analyst expectations will be used to estimate future cash flows. Based on this, Porsche SE anticipates an extraordinary value adjustment dictating a potential range of minus 7 billion to minus 20 billion euros for the consolidated book value of the stake in Volkswagen AG, and minus 1 billion to minus 2 billion euros for the stake in Porsche AG. At the end of 2023, the book value of the Volkswagen participation was 50.67 billion euros, meaning it could potentially drop below 31 billion euros in the worst-case scenario. The book value of the Porsche AG participation stood at 10.4 billion euros and would shrink to 8.4 to 9.4 billion euros. Given its equity ratio of around 88% as of September 30, the impairments are manageable and unlikely to negatively affect its net debt. Since these are non-cash effects, Porsche SE still hopes to pay a dividend. Porsche SE also expects the consolidated book values for the participations in Volkswagen AG and Porsche AG will remain significantly above their respective market values following the revaluation.
[1] https://www.autoevolution.com/news/vw-backs-off-vw-golf-mk-8-due-to-global-chip-shortage-161486.html[2] https://www.cnbc.com/2021/11/26/bmw-confirms-several-models-targeted-for-production-in-mexico.html[3] https://www.bbc.com/news/business-57382650
The financial turbulence in the industry extended to the Porsche and Piëch clans, along with numerous preferred shareholders, due to Porsche SE's significant impairments on its investments in the business sector, amounting to billions of euros. In the upcoming Volkswagen planning round, decisions regarding plant allocation and investments for the next five years will be discussed, potentially affecting the values of Porsche SE's holdings in both Volkswagen AG and Porsche AG.
