Grenke : Presentation Conference Call Q3 2020

EARNINGS PRESENTATION Q3 2020

OCTOBER 29, 2020

Disclaimer

This presentation contains forward-looking statements. Forward-looking statements are statements that are neither facts nor a description of past events; they comprise statements relating to our assumptions and expectations. Each statement made in this presentation that reflects our intentions, assumptions, expectations or forecasts as well as the underlying presumptions is a forward-looking statement. These statements are based on planning figures, estimates and forecasts currently available to the Board of Directors of GRENKE AG. Accordingly, forward-looking statements refer exclusively to planning data, estimates and forecasts at the time at which they are made. We assume no responsibility to further develop or modify such statements in the event of fresh information being available or future events occurring. By their very nature, forward-looking statements imply risks and uncertainty factors. A large number of key factors can contribute towards actual events varying quite substantially from forward-looking statements. Such factors include the condition of the financial markets and the regional focal points of our investment activities.

This document is not for publication or distribution, directly or indirectly, in or into the United States. This document does not constitute or form part of an offer of securities or subscription rights for sale or solicitation of an offer to purchase securities or subscription rights in the United States, Canada, Australia, Japan or in any other jurisdiction where such offer may be restricted. The securities and subscription rights referred to in this document have not been, and will not be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States or to or for the account or benefit of US persons (as such term is defined in Regulation S under the Securities Act), except on the basis of an applicable exemption from registration or in a transaction not subject to the registration requirements of the Securities Act. There will be no public offering of securities and subscription rights in the United States or anywhere else, except for Germany.

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Executive Summary

Antje Leminsky |

Chair of Board of Directors

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Well Underway Despite Unforeseeable Circumstances

SUMMARY ON Q3-2020

Solid Q3 business performance given the COVID-19 pandemic

• Profitable quarter finished
• Good new business momentum
• Improved but volatile customer demand
• Increased CM2 margin
• Risk provisions on expected level
• Solid liquidity and equity position

Good progress with rebutting short seller accusations

• Task Force established
• Professional support mandated
• Auditors well under way
• Exchange with many stakeholders
• Employees strongly supportive
• Frequent alignment with Supervisory Board and decision on next steps

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GRENKE AG Strengthens Board of Directors and Integrates Franchise System

INTEGRATE FRANCHISE COMPANIES	01

	REINFORCE BOARD OF DIRECTORS	02

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01 | Integrate Franchise Companies

ACQUISITION OF REMAINING FRANCHISE COMPANIES; FUTURE EXPANSION VIA START-UPS

• GRENKE AG intends to integrate existing 16 franchise companies not yet acquired - Board of Directors to initiate talks immediately with these companies' prior owners
• Any transactions to be based on independent value assessments
• Acquisitions of financial investors' interests to be completed in stages over next 12 to 18 months
• GRENKE AG to carry out pro-formaconsolidation as early as the 2020 annual financial statements and show anticipated expected effects on the balance sheet
• Continued successful expansion through GRENKE start-ups without external financial investors

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02 | Reinforce Board of Directors

CRO POSITION CREATED; A. LEMINSKY RESPONSIBLE FOR INTERNAL AUDIT; S. HIRSCH APPOINTED AS CFO

• Supervisory Board creates new position of Chief Risk Officer (CRO) on Board of Directors level
• • Group-wideresponsibility for Risk Controlling, Legal Affairs and Compliance
  • Search for suitable candidates has begun
  • GRENKE AG to review key compliance guidelines as well as secondary employment and roles of employees within and outside Consolidated Group
• Antje Leminsky, Chair of Board of Directors, becomes responsible for Internal Audit, effective immediately
• Sebastian Hirsch appointed as Chief Financial Officer (CFO), effective immediately
• Further adjustments in departmental responsibilities to be implemented following expansion of
  Board of Directors

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Q3 2020: Executive Summary

FOCUS ON PROFITABILITY WHILE MAINTAINING CONSERVATIVE FUNDING PROFILE

• Sequential recovery in new business across all regions despite COVID-19 pandemic (EUR 704m, -19.2%yoy, +17.7% qoq)
• Managed to increase CM2 margin through focus on profitable small-ticket business (18.4%, +1.3pp yoy, +0.9pp qoq)
• Operating income impacted by COVID-induced risk provisions (EUR 25.9m, -40.0%yoy, +28.2% qoq)
• Current business fully financed with diversified mix
  (57% unsecured funding, 28% GRENKE Bank, 15% asset-based funding)
• Solid equity ratio

(17.1% as of September 30, 2020 vs. 16.9% as of September 30, 2019)

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Guidance Q4 / FY2020

AS OF OCTOBER 28, 2020

Guidance as of February 11, 2020	Current view
(without the impact of the COVID-19 pandemic)
Net profit EUR 153m - 165m
	 FY 2020 loss rate up to 2.3%
Cost/income ratio < 46%
 Equity ratio above 16%
	 Q4 new business at 60%
Loss rate between 1.5% - 1.6%	of last year's Q4 level
Equity ratio above 16%
New business leasing growth 14 - 18%

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Financials

Sebastian Hirsch | Chief Financial Officer

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Development of Profitability

GROWTH IN PERCENTAGE CONTRIBUTION MARGIN 2 IN Q3 2020

New business in EUR millions

+1.6%		-45.2%
670.3	681.3	734.6

-24.6%

686.8

517.6

 Q3 2020 with growth in

CM2 percentage margin

16.6

12.0

18.2

12.9

16.6

12.4

402.3

17.5

12.1

17.1

18.4

12.6

12.7

despite decline in new

business

 Improvement primarily

attributable to the profitable

small-ticket business

Q1 2019	Q1 2020	Q2 2019	Q2 2020	Q3 2019	Q3 2020
New business leasing	CM1* margin in %	CM2** margin in %

*CM1 is calculated as the present value of the interest margin net of commissions paid to third parties

**CM2 is calculated as the present value of the operating income from a lease contract including cost of risk, profit from service business and gains/losses from disposals

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Q3 2020: Key P&L Figures

ENHANDCED RISK PROVISIONING MAIN SWING FACTOR ON EARNINGS

Key figures		Q3 2020	Q3 2019
Net interest income		EUR 96.0m	EUR 93.6m	+ 2.5 %
Settlement of claims & risk provisioning		EUR 48.8m	EUR 32.2m	+ 51.7 %
Operating result		EUR 25.9m	EUR 43.2m	- 40.0 %
Net profit		EUR 17.7m	EUR 35.6m	- 50.3 %
EPS		EUR 0.38	EUR 0.77	- 50.6 %

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Settlement of Claims and Risk Provisions for Lease Receivables

AS OF SEPTEMBER 30, 2020

Gross Lease Receivables by Country and Stage of Impairment

In EUR	5.042	516	539	6.096
millions

100%

80%

60%

40%

20%

0%

Stage 1		Stage 2	Stage 3	Sum
Germany		France		Italy		Other countries

Risk Provisions on Balance Sheet by Stage of Impairment

In EUR	80.872	61.828	324.772	467.472
millions

400.000

300.000

200.000

100.000

0

Stage 1

Stage 2

Stage 3

Impairment for non-performing loans

Risk provisions for deferrals

Risk provisions for performing loans (without deferrals)

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Funding Mix as of September 30, 2020

STRONG DIVERSIFICATION − SOLID EQUITY RATIO OF 17.1%

Approx.		Approx.		Approx.
EUR 3,384m		EUR 1,667m		EUR 884m
57%		28%		15%

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Cash Flow Q1-Q3 2020

12% OF NEW BUSINESS FUNDED BY OWN CASH FLOW

LIQUDITY GROWTH BASED ON STRONG CASH FLOW OF EXISTING PORTFOLIO

Net investment for new business leasing

EURk	2020
Q1-Q3
- Investments in new lease receivables	-1,595,206
+ Addition of new refinancing (excl. deposit business)	986,858
+ Net addition to deposit business	413,594
(I) Cash flow from investments in new business	-194,754
+ Payments by lessees	1,572,038
- Repayments of refinancing (excl. deposit business)	-1,039,408
(II) Cash flow from existing business	532,630
(III) Other cash flow from operating activities	95,212
Cash flow from operating activities	433,088
(I) + (II) + (III)

	own cash:										Cash flows for
	194.754			new funding (ex.		new net deposits:
						new business?
				Deposits): 986.858		413.594

0 € 250.000 € 500.000 € 750.000 € 1.000.000 € 1.250.000 € 1.500.000 € 1.750.000 €

									Cash flows for
own cash: 532.630		repayment funding:		existing
1.039.408				business?

Cash in from running leasing contracts

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Q & A Session

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Appendix

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Q3 2020: Group New Business Development

NEW BUSINESS WITH GOOD MOMENTUM DESPITE COVID-19 PANDEMIC

New business development GRENKE Group 2019 - 2020, in EUR millions

		-19.2%
1.000	961.7
	871.0
870.9		+17.7%
800				704.1
600			598.1
400
200
0
Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020

New business by share of segment Q3 2020

4.6%

21.9%

LEASING

IS OUR

CORE

BUSINESS

73.5%

Leasing		Factoring		SME lending business

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Q3 2020: New Business by Segment

CORE LEASING BUSINESS PRIMARY DRIVER OF SEQUENTIAL NEW BUSINESS GROWTH

Quarterly comparison of new business by segment in EUR millions

GRENKE GROUP LEASING	GRENKE BANK*
-24.6%

686.8	+28.7%
		517.6	+130.6%
		402.3
				-40.8%
						54.2

32.1

13.9

Q3 2019

Q2 2020

Q3 2020

Q3 2019

Q2 2020

Q3 2020

GRENKE GROUP FACTORING

-9.3%

	+9.0%
170.2	141.7	154.4

Q3 2019

Q2 2020

Q3 2020

*GRENKE Bank New Business only includes SME lending business

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Q3 2020: Leasing New Business by Region

DACH REGION AGAIN MOST RESISTANT TO COVID-19 PANDEMIC

Leasing new business Q3 2019/2020 by core market, in EUR millions

				-30.8%
-11.8%	-26.3%	198.2
165.6		170.7
					-30.6%
	146.0				137.3
			125.8
					119.2
							82.7	-22.0%
GER	GER	FR	FR	IT	IT			33.2
								25.9
Q3 2019	Q3 2020	Q3 2019	Q3 2020	Q3 2019	Q3 2020	Q3 2019	Q3 2020	Q3 2019	Q3 2020
DACH	Western Europe	Southern	North/East	Other
(without DACH)	Europe	Europe	regions

Q3 YoY COMPARSION:

Leasing new business in total: -24.6%

Thereof:

• Germany: -12.5%
• France: -28.8%
• Italy: -34.5%

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Q1-Q3 2020: Leasing Object Categories

YEARLY DEVELOPMENT

Object portfolio in % of NAV

IT equipment (incl. notebooks)

Machinery and other equipment

Photocopying equipment

Medical equipment

Telecommunications

General office 3.3%

technology 3.7%

Security 3.4%

equipment 3.7%

8.8%

8.6%

7.7%

7.7%

34.1%

34.7%

21.2%

22.5%

18.3%

18.4%

KEY FIGURES

• New contracts Q1-Q3 2020: 190,328
• Average duration: 48 months
• Average ticket size: EUR 8,413

Others

3.2%

As of September 30, 2020

1.9%

As of September 30, 2019

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CM2 Reconciliation

Reconciliation of CM2 calculation of Leasing new business Q3 2020 (total lifetime) in EUR millions

29 24 24

66

CM1 Forecast Forecast Forecast

for forfor

subsequent losses service

business*business

95

CM2

of operating result Q3	the period) in EUR
Reconciliation	2020, P&L (for	millions

0

18

49

29

26

14

96

8

84

26

NET

Settlement

Profit from

Profit from

Gains/los-

OPER- Staff costs

Selling

Depre-

OPER-

INTEREST

of

service

new

ses from

ATING

and

ciation and

ATING

INCOME

claims/risk

business**

business

disposals

INCOME

admin.

impairment

RESULT

provision

expenses

* In the income statement, the expected residual value is reflected in the interest income for the period. **Corresponding items for the CM2 calculation are not relevant as the diagram reflects the lifetime period.

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CM2 Reconciliation

Reconciliation of CM2 calculation of Leasing new business Q1-Q3 2020 (total lifetime) in EUR millions

of operating result Q3	the period) in EUR
Reconciliation	2020, P&L (for	millions

92

78

73

203

290

CM1

Forecast

Forecast

Forecast

CM2

for

for

for

subsequent losses

service

business*

business

2

162

53

85

84

34

295

32

248

77

NET

Settlement

Profit from

Profit from

Gains/los-

OPER- Staff costs

Selling

Depre-

OPER-

INTEREST

of

service

new

ses from

ATING

and

ciation and

ATING

INCOME

claims/risk

business**

business

disposals

INCOME

admin.

impairment

RESULT

provision

expenses

* In the income statement, the expected residual value is reflected in the interest income for the period. **Corresponding items for the CM2 calculation are not relevant as the diagram reflects the lifetime period.

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Development of Equity/RoE

STABLE DEVELOPMENT OF KEY RATIOS

Development of equity and RoE 2016 - 2019

20%			17.7%	18.5%
17.4%	17.5%	16.9%	17.1%
15%

10%

5%

	15.0%		14.6%		12.1%			11.4%		12.0%		5.9%
0%
2016	2017	2018		2019	Q3 2019	Q3 2020
Equity ratio (balance sheet)	ROE after tax		Total capital ratio acc. to CRR

Capital ratios as of September 30, 2020

as a % of total assets (risk-weighted assets)

22.2%

17.1%16,6%

16.0%*
	11.5%**

Balance sheet equity	Economic capital (embedded value)
Regulatory capital	* Long-term minimum set by management
	** Minimum set by regulatory body

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2008 Post-Crisis Business Development

SCENARIO MODELING

New business leasing 2008 - 2011

900	18.5%	9

80043.3%

700 -16.5%

600			8
500
400
300			7
200
100
0			6
2008	2009	2010	2011

New business leasing (left scale, in EUR millions) Avg. ticket size (right scale, in EUR thousands)

	Net profit 2008 - 2011
50	41.4%	5%
40	-25.7%				4%
13.0%
30						3%
20						2%
10						1%
0						0%

2008 2009 2010 2011

Net profit (left scale, in EUR millions)

Loss rate (right scale)

LARGE VARIETY OF ADVANCEMENTS SINCE CRISIS IN 2008

• Acquisition of
  GRENKE BANK
• Strong increase in diversification of object categories
• Further increase in digitalisation
• Strong expansion: Today in 153 branches and 33 countries

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Q3 2020: Cost/Income Ratio

AS OF DECEMBER 31, 2019

48%

AVERAGE: 44.6 %

47%

46%

45%

44%

43%

42%

41%

40%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

CIR

COST/INCOME RATIO

Q3 2020: 45.5%

Q2 2020: 40.2%

Q1 2020: 43.5%

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Development of Losses (1/2)

12-YEAR VIEW OF LOSS RATE DEVELOPMENT

		Loss rate* (left column)
3%		600%
	PEAK AT 1.9%	500%
2%		400%

300%

AVERAGE: 1.5%

1%																				200%
																					100%
0%																						0%
2007	2008	2009	2010	2011	2012	2013	2014	2015	2016			2017	2018	2019
	Volume of leased assets (2007 = 100%)				Loss rate (left column)
* Losses p.a. (of historical asset values, factored in) *** New calculation of CM2 margin

• Loss rate averaging 1.5% over the last 12 years
• Volume of leased assets reached roughly 5.5x in 2019 compared to base year 2007
• Proven scalability of business while keeping losses on low levels

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Development of Losses (2/2)

12-YEAR VIEW OF LOSS EXPECTATIONS

Loss Expectations

8%

7%

6%

5%

4%

3%

2%

1%

0%

2007

2008

2009

2010

2011

2012*

2013

2014

2015*

2016

2017*

2018

2019

Calculated loss expectations at contract start

Calculated actual loss expectations per end of period

*New calculation of CM2 margin

• Portfolio loss expectations for the total contract duration (on average 48 months) typically ranged between 4 - 6%
  (total contract duration view)
• Low deviation between calculated loss expectations at contract start versus actual losses

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GRENKE Group Uses Matched Funding

TREASURY IS STRONGLY FOCUSED ON FINANCING THE CORE BUSINESS

MATURITY BY FUNDING TYPE

1000										∑ 997						∑ 851			567			∑ 871
800									466			528												415		∑ 503
600			∑ 306					338								205					227
400
200		120	150	25				95		98					50		68				37			40				77
	11																		0	11
0
		2020				2021			2022				2023						2024
		Medium term notes (MTN)				Promissory notes (Schuldscheindarlehen)				Term deposits GRENKE Bank				Global loans

MATCHED FUNDING STRUCTURE AS OF AUGUST 2020

8.000,00
4.000,00
-
-4.000,00
-8.000,00
31/08/2020	31/08/2021	31/08/2022	31/08/2023	31/08/2024	31/08/2025
Assets	Cash	Debt
				Leasing - Banking - Factoring | Investor Relations //	GRENKE //	29

Reminder: Restated Financial Statements for IFRS 16 Lessor Accounting

SPECIFIED STANDARD REQUIRED ADJUSTMENT OF INITIAL DIRECT COSTS (IDC)

• IFRS 16 standards had specified the definition of IDCs
• Since then, IDCs include only variable costs that occur in direct connection to a lease contract, thus excluding imputed fixed costs
• Restatement mainly shifted positions within the income statement and had marginal bottom-line effect
• Balance sheet was affected by a slight decrease in equity (below 1% of total equity)
• Profitability and operational business were unaffected

IMPACT ON KPIs

CIR		CM1		Positive
		-		Negative
				None -
CM2		EPS/Net
	profit
-

Equity ratio		Loss ratio
		-

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Contact

INVESTOR RELATIONS TEAM

Phone:	+49	7221 5007-204
Fax:	+49	7221 5007-4218
Email:	[e-mail]
Internet:	www.grenke.com

GRENKE AG

Neuer Markt 2

76532 Baden-Baden

Germany

Reports are available at:

www.grenke.com/investor-relations/reports-downloads

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Capability

Scalability SME focus Growth Diversification Awareness

Digitalisation