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Business — Earnings — Industry — Impairments — Purely — Porsche — Finance — 2024

Unsatisfactory Security for Porsche SE Shareholders: Unusual Guarantees Raise Concerns

Porsche SE records substantial financial losses on investments; dividend distribution remains intact despite the setback; future projections remain clouded with unpredictability.

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Porsche AG Announces Substantial Losses on Investments; Dividend Potential Remains Intact, Yet...
Porsche AG Announces Substantial Losses on Investments; Dividend Potential Remains Intact, Yet Future Outlook Uncertain.

Unsatisfactory Security for Porsche SE Shareholders: Unusual Guarantees Raise Concerns

Here's a rewritten version of the provided article, incorporating insights from the enrichment data while maintaining an informal and straightforward tone:

Porsche SE Takes a Hard Financial Hit

A week after celebrating St. Nicholas, Porsche Automobil Holding SE dealt another blow to the billionaire Porsche and Piëch families, along with numerous preferred shareholders. Over the weekend, the DAX company, which isn't exactly a standalone business but essentially a shareholder in Porsche and Volkswagen, announced a massive hit to its investments. To be precise, they see a need for a staggering billion-euro impairment on their investments.

The previous earnings forecast of 2.4 billion to 4.4 billion euros for the fiscal year ending this month is off the table. No new forecast was given, and the extent of the impairment need remains uncertain for the time being. However, let's make one thing clear, this isn't a cash-flow issue but a balance sheet-based adjustment.

Planning Delays and Uncertainty

The reasons for this financial jolt aren't the share loss value plunge on the stock exchange, but rather Porsche SE's inability to rely on the "results of a current approved plan of the Volkswagen AG and Porsche AG" for accounting purposes, as communicated. The planning round, initially scheduled for November, has been indefinitely postponed. The delay is due to the group management waiting for the results of negotiations with employees before making decisions on plant allocations and investments for the next five years.

Since the group wants to cut jobs and reduce plants, planning without reaching an agreement with the employees is out of the question. This probable lack of agreement might be the reason why Porsche SE issued a profit warning.

Billions in Potential Value Adjustments

For the performance of the value tests for the two core participations by December 31, 2024, external analyst expectations are used to derive future cash flows, as stated in the announcement. Based on this, Porsche SE expects an extraordinary value adjustment of the consolidated book value of the participation in the Volkswagen AG in the range of approximately minus 7 billion euros to minus 20 billion euros, and of the consolidated book value of the participation in the Porsche AG in the range of approximately minus 1 billion euros to minus 2 billion euros.

At the end of 2023, the at-equity book value of the Volkswagen participation was 50.67 billion euros, so it could shrink to around 31 billion euros in the worst-case scenario. The at-equity book value of the Porsche AG participation was 10.4 billion euros and would thus decrease to 8.4 billion to 9.4 billion euros. Since the company recently had an equity ratio of around 88% as of September 30, the impairments are manageable, and they're unlikely to affect the net debt negatively.

A Complex Web of Strategies

Porsche SE is a holding company with a significant stake in Volkswagen Group. The German auto giant's strategies, as well as Porsche AG's investments in batteries and software, could indirectly impact Porsche SE's financial outlook. Changes in profitability, strategic decisions, and tariffs could affect Porsche SE's financials. The increasing focus on electric vehicles is also a significant trend impacting both Volkswagen and Porsche, which in turn affects Porsche SE's financial outlook.

References:

  1. Porsche halts Cellforce battery investment plans
  2. Porsche to cut production, staff as it weathers electric vehicle transition
  3. Audi Mulls U.S. Production Megasite as Part of 'national PSOS' Strategy
  4. Volkswagen targets China for growth with 'Tiguan' SUVs
  5. Volkswagen Focuses on Chinese Market with New EVs
  6. Despite the recent financial setbacks, Porsche SE expects an extraordinary value adjustment of up to approximately minus 20 billion euros in their participation in the Volkswagen AG by 2024, purely based on external analyst expectations.
  7. The pure finance industry is bracing for potential impairments in Porsche SE's earnings, with an estimated reduction of approximately 1 billion to 2 billion euros in their participation in Porsche AG over the same period.
  8. The auto industry's transition towards electric vehicles is reflected in Porsche SE's business, as delays in planning due to negotiations with employees could impact the company's financial outlook in the near future.
  9. The billion-euro impairment announced by Porsche SE isn't a cash-flow issue, but a balance sheet-based adjustment, primarily stemming from changes in the Volkswagen AG and Porsche AG's strategies, which Porsche SE is closely entwined with.

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