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Case Facts
Porsche is a publicly traded family controlled company
Porsche is a relatively simple company by product line, having three existing and
one newly proposed products:
911 The only model produced and assembled completely by Porsche
Boxster Licensed manufacturing with Valmet of Finland
Cayenne Co-manufactured with Volkswagen of Germany
Panamera To be manufactured & assembled by Porsche (Euro 1 Billion
Investment)
Close to 7000 million Euro sales in 2005.
Special dividend of Euro 14 per share declared in 2002, in addition to the regular
dividend.
Porsche has followed a strategy with both the Boxster and the Cayenne (out
sourcing & in sourcing) to leverage other companys capital & resources.
Porsche enjoyed an industry leading return on invested capital (ROIC), poorest in
03-04, but still far ahead of others.
Major announcements in 2005 indicated that Porsche was changing directions:
Q.1. What strategic decisions made by Porsche over recent years had
given rise to its extremely high return on invested capital?
All three Porsche product lines the 911, the Boxster & Cayenne enjoyed high operating margins
compared to nearly any other major European automobile manufacturer.
The Porsche Cayenne was co-manufactured with Volkswagen. The Cayenne chassis was assembled
on the same production line as the Volkswagen Touareg in Bratislava in the Slovak Republic, again
greatly reducing the required capital to support Porsches business.
The Boxster was produced in a similar fashion by using some other companys capital & resources.
40% of Operating Earnings by currency hedging. It may be noted that in 2004, Porsche has the
lowest sales, but the highest ROIC. This may be a result of an income generated from the currency
hedge.
Porsche did not add fixed assets to its invested capital basis, but cash (retained profits and debt
issuances).
Policy of minimal fixed-asset capital base.