Porsche hits record results on the back of VW shares

Porsche hits record results on the back of VW shares
by Lenaig Bredoux Lenaig Bredoux Sat Nov 8, 9:54 pm ET
FRANKFURT, (AFP) – In the midst of an international financial crisis, the German group Porsche has made record profits not from its luxury sports cars but because a carefully planned takeover of Volkswagen earned it almost eight billion euros (10.3 billion dollars).

Porsche nonetheless warned that its current year to July 2009 will be much tougher and that it would not reach the same level of sales as last year.

And owing to "the US mortgage crisis and the financial market crisis," Porsche couched its outlook in very cautious terms.

"It is very difficult to make reliable statements on the course of the current business year as a whole because of the current economic situation which is extremely tense," Porsche said.

In recent weeks, Porsche has said it would curtail production and extend the year-end holiday pause for staff.

It has seen sales fall sharply, with a drop of 39 percent in North America alone last month.

And the results published on Friday do not take account of market turmoil that erupted in mid September.

But as German rivals BMW and Daimler release profit warnings and the auto sector in general heads into a major slump, Porsche's results stand in sharp contrast.

That is mainly because the company's profit does not really depend on sector results.

Run by Wendelin Wiedeking, said to be the highest paid boss in Germany, and owned in large part by the Porsche-Piech family, Porsche earns a lot more money from investments and other financial transactions than from the sale of 911 sports cars and Cayenne sports utility vehicles.

In its fiscal year that ended on July 31, Porsche earned a total of 7.8 billion euros as a result of VW holdings and transactions, a spokesman told AFP.

Next to that, operating profit of one billion euros looks like small change.

In the end, Porsche's net profit leapt by 51 percent to 6.4 billion euros, while the pre-tax figure gained 46 percent to 8.6 billion.

That was more than the company's total sales of 7.5 billion euros, the first time a major German company has acheived such a result, media reports said.

Full details of the company's results are to be released on November 26.

At present, Porsche owns a direct VW stake of 42 percent and controls stock options that cover another 32 percent.

Porsche plans to increase its direct stake to more than 50 percent by the end of the year.

That has pushed VW's share price much higher in the past few months, and not only during the most recent stock market explosion that saw them hit 1,005 euros in midday trading on October 28.

That briefly made VW the biggest company in the world by market value.

On Friday, the shares traded for around 400 euros apiece.

Porsche holds stock options which require banks to buy VW shares on Porsche's behalf, with Porsche earning money when they rise, or losing when they fall, without actually owning them itself.

Such transactions alone earned 6.8 billion euros for Porsche in its last fiscal year.

As a result, it will once again invite shareholders to the feast, proposing in January a normal dividend of 0.694 euros per ordinary share and an exceptional dividend of 2.0 euros, an increase of 30 percent from the previous year.

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