Porsche 2011 Annual Report Download - page 110

and monitoring it daily contribute to reducing the risk
of default for the group.
Procurement risk
The prices of raw materials and oil were a-
gain marked by massive volatility in the reporting
period and influenced by greater demand. This led in
some cases to significant increases in prices for raw
materials and supplies. These effects were especially
evident for rare earth metals, where various mining
and export limitations in Asia drove up prices consid-
erably. Conditions eased slightly toward the end of
the reporting period, although the market remains
very unstable. In the case of primary materials de-
rived from oil, the price increase seen in 2010 initially
continued into the reporting period. Prices stabilized
at a high level in the second half of the year. Thanks
to the permanent monitoring and analysis of com-
modities markets combined with long-term supplier
agreements it was possible to largely avoid adverse
effects on the operating activities.
The global financial crisis weakened the fi-
nancial position of the supplier industry. This resulted
in a large number of financially unstable companies in
the reporting period. A comprehensive supplier risk
management system, however, permits the early
detection of potentially critical suppliers and the
timely adoption of appropriate measures for mitigat-
ing supply risks. This systematic approach has pre-
vented supply bottlenecks.
The reporting period also saw the earthquake
and the resulting tsunami catastrophe in Japan, which
entailed substantial supply risks. To avoid production
outages, a working group was established tasked with
identifying risks along the supply chain, assessing
these and taking appropriate measures in cooperation
with suppliers. The impact on the group was limited.
Liquidity risk
The Porsche Zwischenholding GmbH group is
reliant on adequate refinancing to meet its capital
requirements. The terms of the refinancing depend
not only on general market conditions, but also on the
assessment of Porsche’s credit rating. If the general
market conditions were to deteriorate, or if the banks
rated the credit-worthiness lower, this could nega-
tively impact refinancing options and thus liquidity.
When it comes to safeguarding liquidity, Por-
sche pursues a policy of maximum financial security.
To secure its credit rating and liquidity, Porsche AG
renegotiated its existing syndicated line of credit of
2.5 billion euro with a syndicate of banks in June
2011. The maximum term, including two unilateral
prolongation options of Porsche AG, expires in March
2015. The line of credit had not been used as of 31
December 2011.
In November 2011, the option was exercised
to prolong the bridge financing that had been ob-
tained in the prior year to refinance an expiring bond
of 1 billion euro. The line of credit had been used in
full as of 31 December 2011. It expires at the end of
2012 (we refer to our explanations in the section
“New loan agreements” under Porsche Zwischenhold-
ing GmbH group's “Significant events” in this man-
agement report).
In conjunction with the loan agreements, it
was arranged with the banks involved that the group
will deliver and comply with two financial covenants.
The group satisfied these covenants in the fiscal year.
The first covenant relates to a rolling 12-month EBIT-
DA (earnings before tax, financial result, depreciation
and amortization) in relation to the net debt of the
group’s automotive division, the second to the finan-
cial service division’s total assets, adjusted to elimi-
nate intangible assets, in relation to its overall finan-
cial liabilities. The covenants are reviewed internally in
the group on a monthly basis and reported to the
banking syndicate on a quarterly basis. The loan
agreements are deemed to have been infringed if
either of the covenants is breached. In that case, the
banking syndicate is entitled to terminate and imme-
diately call the syndicated loans. The risk of non-
compliance is deemed by Porsche Zwischenholding
GmbH's management to be low.
To further secure future growth, a debenture
bond of 500 billion euro was issued through Porsche
GROUP MANAGEMENT REPORT110