Porsche Leaves Market Guessing on Plans for VW

German sports car maker Porsche Automobil Holding unveiled sharp gains in four-month unit sales and revenue on Wednesday but left investors guessing about its plans for Volkswagen.

Chief Financial Officer Holger Haerter said he expected profits in the 2007/08 fiscal year ending in July to be "very good" after a "very satisfying" performance from August to the end of November.


Porsche shares, up 11 percent in the last 6 months, jumped 8.2 percent to 1,519 euros, outpacing a 2.1 percent gain in the DJ Stoxx European autos index.

"Porsche looks to have options in place to increase its stake in VW to well over 50 percent at a share price below 70 euros," Swiss bank UBS wrote, adding this implied its VW stake was worth so much that at Porsche's current share price its own core car business was valued at zero.

Chief Executive Wendelin Wiedeking, referring once again to developments at Europe's biggest automaker as a chess game, said opposition from VW's workforce meant visibility remained opaque.

"Even now, none of the players involved knows how many moves will still be required and how long it will take until the game is finally over," he said.

At Porsche's annual media conference Wiedeking went so far as to accuse German trade union IG Metall and the Volkswagen works council of "trying to take out at least a rook or a knight on our side."

VW's labor leaders, for years a major power in the group, fear their influence will shrink dramatically should Porsche expand its nearly 31 percent stake in Volkswagen to a majority now that a law capping voting rights at VW was overturned.

"It is only together, in a fair partnership among equals with Volkswagen, that we will be able to write a new chapter in the history of industry," Wiedeking said.

Conservative Accounting

Porsche expects revenues to grow by nearly 15 percent to 2.36 billion euros ($3.48 billion) in the first four months of fiscal 2007/08, it said.

Sales of its four model lines increased even faster than turnover, rising by more than 18 percent in the period to about 30,700 vehicles thanks almost entirely to higher demand for its revamped Cayenne offroader.

"When looking at the current 2007/08 fiscal year, Porsche is confident that it will be able to emulate the record revenue and sales figures achieved in the past fiscal year," it said in its annual report, reaffirming that its first real surge in growth would come with the four-door Panamera GT launch in 2009.

Porsche said it was more worried than before about foreign exchange rates and forecast the euro could rise as far as $1.60 due mainly to the U.S. subprime crisis and central banks looking to shift currency reserves away from the greenback.

Porsche only publishes detailed accounts on an annual basis, and revealed key details on Wednesday about its underlying performance in the fiscal year that ended in July.

Net liquidity plummeted to 283 million euros from close to 2 billion a year earlier, after it spent 2.68 billion euros to raise its voting stake in VW to 30.6 percent by the end of July.

This brought its overall VW investment to 5.8 billion euros.

In mid-November, Porsche said pretax profit nearly tripled to a record 5.86 billion euros in the year to end-July with the overwhelming bulk of the gains coming from its Volkswagen stake.

Porsche has adroitly used financial derivative contracts to boost profits, first through hedging foreign exchange rates and later its 31 percent voting stake in VW, leading some to call Porsche a hedge fund with a captive automotive business.

Profits could have risen to even loftier heights had the group not done its best to book them as conservatively as possible, Haerter said, citing the extremely low ratio of development costs capitalized.

Thanks to the strong earnings performance in 2006/07, Wiedeking and the other six management board members received total pay of nearly 113 million euros.