2020
QUARTERLY REPORT
FOR THE 3RD QUARTER AND THE FIRST NINE MONTHS OF 2020 GRENKE CONSOLIDATED GROUP
KEY FIGURES
GRENKE GROUP
UNIT | Q3 2020 | Q3 2019 | ∆ (%) | Q1-Q3 2020 | Q1-Q3 2019 | ∆ (%) | |
NEW BUSINESS GRENKE GROUP LEASING | EURk | 517,645 | 686,821 | −24.6 | 1,601,230 | 2,091,692 | −23.5 |
of which international | EURk | 354,993 | 500,390 | −29.1 | 1,115,167 | 1,569,171 | −28.9 |
of which franchise international | EURk | 16,637 | 20,843 | −20.2 | 50,190 | 60,395 | −16.9 |
of which DACH * | EURk | 146,015 | 165,588 | −11.8 | 435,872 | 462,126 | −5.7 |
Western Europe (without DACH) * | EURk | 125,831 | 170,696 | −26.3 | 389,011 | 543,614 | −28.4 |
Southern Europe * | EURk | 137,250 | 198,214 | −30.8 | 438,121 | 640,814 | −31.6 |
Northern / Eastern Europe * | EURk | 82,680 | 119,167 | −30.6 | 265,267 | 352,581 | −24.8 |
Other regions * | EURk | 25,869 | 33,155 | −22.0 | 72,958 | 92,557 | −21.2 |
NEW BUSINESS GRENKE GROUP | |||||||
FACTORING | |||||||
(INCL. COLLECTION SERVICES) | EURk | 154,358 | 170,200 | −9.3 | 467,750 | 475,654 | −1.7 |
of which Germany | EURk | 40,636 | 44,533 | −8.8 | 132,166 | 129,406 | 2.1 |
of which international | EURk | 31,228 | 43,250 | −27.8 | 103,139 | 124,558 | −17.2 |
of which franchise international | EURk | 82,494 | 82,417 | 0.1 | 232,445 | 221,690 | 4.9 |
GRENKE BANK | |||||||
Deposits** | EURk | 1,300,037 | 799,252 | 62.7 | 1,300,037 | 799,252 | 62.7 |
New business SME lending business incl. | |||||||
business start-up financing | EURk | 32,093 | 13,919 | 130.6 | 104,273 | 37,595 | 177.4 |
CONTRIBUTION MARGIN 2 (DB2) ON NEW | |||||||
BUSINESS | |||||||
GRENKE GROUP LEASING | EURk | 95,230 | 117,347 | −18.9 | 289,544 | 350,347 | −17.4 |
of which international | EURk | 70,666 | 89,893 | −21.4 | 215,226 | 273,876 | −21.4 |
of which franchise international | EURk | 3,558 | 4,610 | −22.8 | 10,855 | 12,900 | −15.9 |
of which DACH * | EURk | 21,006 | 22,844 | −8.0 | 63,462 | 63,570 | −0.2 |
Western Europe (without DACH) * | EURk | 25,187 | 30,342 | −17.0 | 75,206 | 95,283 | −21.1 |
Southern Europe * | EURk | 26,659 | 35,230 | −24.3 | 83,464 | 107,888 | −22.6 |
Northern / Eastern Europe * | EURk | 16,465 | 21,386 | −23.0 | 51,007 | 63,437 | −19.6 |
Other regions * | EURk | 5,912 | 7,545 | −21.6 | 16,403 | 20,169 | −18.7 |
FURTHER INFORMATION LEASING BUSINESS | |||||||
Number of new contracts | units | 64,293 | 74,039 | −13.2 | 190,328 | 231,852 | −17.9 |
Mean acquisition value | EURk | 8.1 | 9.3 | −13.2 | 8.4 | 9.0 | −6.8 |
Mean term of contract** | months | 48 | 49 | −1.2 | 48 | 49 | −1.2 |
Volume of leased assets** | EURm | 9,031 | 8,068 | 11.9 | 9,031 | 8,068 | 11.9 |
Number of current contracts** | units | 989,896 | 901,869 | 9.8 | 989,896 | 901,869 | 9.8 |
* Regions: DACH: Germany, Austria, Switzerland
Western Europe (without DACH): Belgium, France, Luxembourg, the Netherlands
Southern Europe: Italy, Croatia, Malta, Portugal, Slovenia, Spain
Northern / Eastern Europe: Denmark, Finland, United Kingdom, Ireland, Latvia, Norway, Sweden / Poland, Romania, Slovakia, Czechia, Hungary
Other regions: Australia, Brazil, Chile, Canada, Singapore, Turkey, USA, VAE ** At the end of period
GRENKE Group = GRENKE Consolidated Group including franchise partners
GRENKE Consolidated Group = GRENKE AG and all consolidated subsidiaries and structured entities according to IFRS
GRENKE CONSOLIDATED GROUP
UNIT | Q3 2020 | Q3 2019 | ∆ (%) | Q1-Q3 2020 | Q1-Q3 2019 | ∆ (%) | |
KEY FIGURES INCOME STATEMENT | |||||||
Net interest income | EURk | 95,958 | 93,641 | 2.5 | 295,071 | 270,953 | 8.9 |
Settlement of claims and risk provision | EURk | 48,812 | 32,170 | 51.7 | 161,849 | 92,854 | 74.3 |
Total operating expenses | EURk | 58,671 | 55,246 | 6.2 | 166,181 | 162,275 | 2.4 |
Operating result | EURk | 25,918 | 43,159 | −39.9 | 77,457 | 126,638 | −38.8 |
Earnings before taxes (EBT) | EURk | 22,920 | 42,686 | −46.3 | 69,491 | 123,745 | −43.8 |
Net profit | EURk | 17,706 | 35,612 | −50.3 | 55,676 | 103,764 | −46.3 |
Net profit attributable to ordinary shareholders | |||||||
of GRENKE AG | EURk | 17,706 | 35,612 | −50.3 | 48,248 | 97,233 | −50.4 |
Net profit attributable to hybrid capital holders | |||||||
(interest on hybrid capital) | EURk | 0 | 0 | n,a, | 7,428 | 6,531 | 13.7 |
Earnings per share | |||||||
(ordinary shareholders of GRENKE AG) | EUR | 0.38 | 0.77 | −50.6 | 1.04 | 2.10 | −50.5 |
Adjusted earnings per share | |||||||
(ordinary shareholders of GRENKE AG)* | EUR | 0.33 | 0.73 | −54.8 | 1.05 | 2.13 | −50.7 |
Cost / income ratio | percent | 45.5 | 43.8 | 3.8 | 43.1 | 44.0 | −2.0 |
Staff costs | EURk | 25,974 | 28,527 | −8.9 | 84,215 | 84,917 | −0.8 |
of which total remuneration | EURk | 21,103 | 23,290 | −9.4 | 68,863 | 69,699 | −1.2 |
of which fixed remuneration | EURk | 17,450 | 17,233 | 1.3 | 53,272 | 50,671 | 5.1 |
of which variable remuneration | EURk | 3,653 | 6,057 | −39.7 | 15,591 | 19,028 | −18.1 |
Average number of employees | |||||||
in full-time equivalent | employees | 1,761 | 1,710 | 3.0 | 1,753 | 1,649 | 6.3 |
UNIT | SEP. 30. 2020 | DEC. 31.2019 | ∆ (%) | ||||
STATEMENT OF FINANCIAL POSITION | |||||||
Total assets | EURm | 7,387 | 7,147 | 3.4 | |||
Lease receivables | EURm | 5,629 | 5,646 | −0.3 | |||
Equity persuant to statement | |||||||
of financial position | EURm | 1,260 | 1,249 | 0.9 | |||
Equity persuant to CRR | EURm | 1,066 | 941 | 13.3 | |||
Equity ratio | percent | 17,1 | 17,5 | −2.3 | |||
Embedded value. leasing contract portfolio | |||||||
(excl. equity before taxes) | EURm | 611 | 662 | −7.7 | |||
Embedded value. leasing contract portfolio | |||||||
(incl. equity after taxes) | EURm | 1,749 | 1,791 | −2.3 | |||
* For the calculation of adjusted earnings per share, the hypothetical interest expenses on hybrid capital are deferred over the fiscal year.
GRENKE Group = GRENKE Consolidated Group including franchise partners
GRENKE Consolidated Group = GRENKE AG and all consolidated subsidiaries and structured entities according to IFRS
AT A GLANCE
LEASING NEW BUSINESS PORTFOLIO | IT PRODUCTS (IN DETAIL) | DIVERSIFIED | ||||
6.6 | Security devices | Copying | 28.8 | |||
and others | technology | |||||
8.8 | Medical technology | % | % | |||
Telecommuni- | 12.2 | BROADLY | ||||
cation | ||||||
31,12,2019 | equipment | |||||
21.2 | Machines / systems | Q1-Q3 2020 | ||||
General office | 5.2 | |||||
63.4 | IT Products | equipment | ||||
IT equipment | 53.8 |
"By matching the incoming and outgoing payments in the coming quarters, we can handle both higher and lower levels of new business," explains Sebastian Hirsch, CFO of the GRENKE AG
"With the risk-adjusted management of our new business, a sufficiently high level of liquidity and appropriate cost savings, we are well equipped for the months ahead," explains
Antje Leminsky, Chairman of the Board of the GRENKE AG
GRENKE SHARE PRICE PERFORMANCE (OCTOBER 1, 2019 TO SEPTEMBER 30, 2020) | |||||||||||
GRENKE AG (Xetra) | DAXsector Financial Services (indexed) | MDAX (indexed) | INFORMATION | ||||||||
130 | |||||||||||
115 | |||||||||||
100 | |||||||||||
85 | |||||||||||
70 | COURSE | ||||||||||
55 | |||||||||||
40 | |||||||||||
25 | |||||||||||
Oct. '19 | Nov. | Dec. | Jan. | Feb. | Mar. | Apr. | May. | Jun. | Jul. | Aug. | Sep.'20 |
CONTENT
- KEY FIGURES
6 // CONDENSED INTERIM GROUP MANAGEMENT REPORT
6 // Business Performance
11 // Net Assets, Financial Position and Results of Operations 15 // Report on Risks, Opportunities and Forecast
18 // CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
18 // Consolidated Income Statement
19 // Consolidated Statement of Comprehensive Income
20 // Consolidated Statement of Financial Position
22 // Consolidated Statement of Cash Flows
24 // Consolidated Statement of Changes in Equity
25 // NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 // INFORMATION AND CONTACT
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CONDENSED INTERIM GROUP MANAGEMENT REPORT
1 . BUSINESS PERFORMANCE
- Leasing new business reaches EUR 517.6 million in the third quarter of 2020 compared to EUR 402.3 million in the second quarter of 2020
- Contribution margin 2 of leasing new business increases to 18.4% (Q3 2019: 17.1%)
- Corona pandemic makes it difficult to forecast business for Q4 and FY 2020
1.1 S H O R T - S E LLE R ATTACK
On September 15, 2020, Viceroy Research published a report in which numerous claims and accusations were made against GRENKE AG. According to its own statement, Viceroy Research has sold short shares in GRENKE AG in the run-up to the report's publication and bet on a drop in the share price. In a 64-page report, the acquisition and value of franchise companies, the disclosure of related parties, the existence of cash and cash equivalents reported in the 2020 Half-Year Financial Report, the value of the business model and the composition of the Supervisory Board were among the topics discussed.
At the suggestion of the Board of Directors, the Supervisory Board of GRENKE AG commissioned the Company's auditor, KPMG, to expand its audit activities within the scope of its role as the Company's auditor. Within the scope of this activity, the focus of KMPG's audit is to acknowledge the negative statements made by Viceroy Research with regard to their effects on the annual and consolidated financial statements and the combined management report to be audited by KPMG. Additionally, the auditing company Warth & Klein Grant Thornton (has been mandated to review the market conformity of past franchise acquisitions and the advantageousness of these acquisitions for GRENKE AG. Moreover, GRENKE AG assured the German Federal Financial Supervisory Authority (BaFin) of its full cooperation in the Authority's examination and welcomed the commissioning of the globally active auditing and consulting company Mazars by BaFin in this context for a special audit pursuant to Section 44 of the German Banking Act.
Key allegations, especially those concerning the liquidity of the GRENKE Consolidated Group, have been resolved. Specifically, KPMG has received responses from the banks confirming 99.4 percent (EUR 1.07 bil- lion) of the bank balances as of June 30, 2020 and 99.2 percent (EUR 0.96 billion) of the bank balances as of September 15, 2020.
Warth & Klein Grant Thornton is involved in reviewing the customary nature and advantageousness of the franchise acquisitions.
Warth & Klein Grant Thornton received information on all franchise acquisitions and carried out an examination of four selected transactions that took place from 2008 to 2018. No further acquisitions were made after 2018. These four takeovers were the largest acquisitions, together accounting for around 60 percent of the purchase prices paid for all franchises acquired to date. Evidence of the purchase price payments for the franchise acquisitions under review has been provided and are being reviewed conclusively.
Warth & Klein Grant Thornton provided preliminary interim findings to the Company's Supervisory Board, showing that the four franchise companies under review contribute as a whole to the Consolidated Group's earnings. These earnings contributions are generated directly by the individual local franchises and other Consolidated Group companies. In the opinion of the Board of Directors, these contributions are overall in line with the earnings expectations justifying an investment in participations. From the Board of Directors' perspective, the acquisitions could therefore be deemed as positive for the GRENKE Consolidated Group.
KPMG is also examining the lease contract portfolio using random samples and reconciling the payments received from lessees as of July 1, 2020, August 1, 2020 and October 1, 2020 for the economically largest markets of Germany, Italy, France, Great Britain, Spain and Portugal. KPMG is also analysing the existence of lease contacts by random sample on a case-by-case basis, as well as selected key contractual documents and payments within the sample are being examined. KPMG also contacted selected lessees directly to confirm the lease contracts and outstanding lease payments.
6
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
Since 2003, the expansion of the GRENKE Consolidated Group into new markets has been carried out, among others, through franchise companies in which the managing partners of these companies hold a substantial minority interest. The majority of capital is held by various financial investors, including CTP Handels- und Beteiligungs GmbH (CTP). In the past, GRENKE has typically been able to acquire the franchise companies after a period of four to six years.
GRENKE plans to integrate the existing 16 franchise companies, that have not yet been acquired by the Consolidated Group. The GRENKE Board of Directors will initiate talks immediately with these companies' prior owners. In September, company founder and the indirect owner of CTP, Wolfgang Grenke, had offered to sell his interests to GRENKE AG ahead of schedule. The same is true for Garuna AG, which also holds interests.
Any transactions in this context are to be based on independent value assessments. The Consolidated Group plans to complete the acquisition of interests from all financial investors in stages over the next 12 to 18 months.
Irrespective of the future obligation under IFRS to consolidate the franchise companies in the consolidated financial statements, GRENKE AG intends to carry out a pro forma consolidation as early as the 2020 annual financial statements and show the anticipated effects on the balance sheet.
Wolfgang Grenke suspended his Supervisory Board mandate at GRENKE AG on September 21, 2020, and will continue to do so until the allegations of possible conflicts of interest have been completely clarified. Mr Grenke has also suspended his Supervisory Board mandate at GRENKE Bank AG, as well as his Executive Board mandate at Gren- keleasing AG in Switzerland. On October 1, 2020, the Supervisory Board of GRENKE AG elected Jens Rönnberg as the interim deputy chairman of the Supervisory Board. Mr Rönnberg was also appointed as a member of the Personnel Committee.
GRENKE AG is examining the option of taking legal action against Viceroy Research.
Further information on this issue and GRENKE's statements are available at www.grenke.de/shortattack.
1.2 IMPACT OF THE CORONA PANDEMIC
In the third quarter of 2020, the economic environment of the GRENKE Group continued to be largely dominated by the effects of the corona pan- demic. After the severe slump caused by the restrictions on public life and economic activity (e.g. lockdowns) in the first half of 2020, most economies had shown signs of a recovery during the third quarter. The number of new infections in many countries however rose again at the end of the third quarter with a negative trend at the beginning of the fourth quarter.
Major European economies were hit particularly hard by the corona pan- demic. The ifo Institute expects economic output in 2020 to fall by 9.6 percent each in France and Italy, by 10.7 percent in Great Britain, and by
11.4 percent in Spain. The anticipated slump can be explained not only by the duration and scope of the lockdown measures imposed but also by the relatively high dependence of these countries on tourism, as well as on the structural challenges that had already existed prior to the crisis (e.g. the upcoming Brexit, among others). In Germany, (ifo forecast: -5.5 percent), the economy has proved comparatively resilient so far and has benefited from the early measures taken to contain the pandemic, as well as from extensive government aid programmes.
New business at GRENKE Group Leasing in the reporting period largely reflected the overall economic development. Although new business in the first two months of the year remained within the range forecast at the beginning of the year, business in the months of March to May 2020 was at a significantly lower level compared to the previous year. In June, there was an initial pick-up, which continued throughout the months of July to September. With a year-on-year decline of 24.6 percent, new leasing business in the third quarter of 2020 was slightly above the level communicated by the Board of Directors at the end of July 2020 of around 70 percent of the previous year. GRENKE has entered into deferral agreements with leasing customers providing these customers with support in dealing with the current corona pandemic and its consequences. Under the deferral agreements, individual payments for lease instalments are deferred without interest for a set period of time and therefore not due until a later date.
For some countries, the longer-term outlook and planning parameters have changed as a result of the corona pandemic. This has led to extraordinary impairment on the goodwill of the leasing companies in Poland, Turkey and Brazil, and the factoring company in Switzerland.
7
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
GRENKE has adapted to the changed economic environment in the first nine months of 2020. The management of the business has been centred on the quality of contracted new business and balanced risk-taking. In doing so, GRENKE deliberately accepted a lower volume of new busi- ness. However, at the same time, it achieves higher CM2 margins, which can be used to cushion any potentially higher risks. In addition, the greater level of general uncertainty had already prompted the GRENKE Consolidated Group in the first half-year to deliberately maintain liquidity at a significantly higher level than in prior years. Liquidity as of the reporting date was EUR 796.7 million. Liquid funds serve to reduce potential liquidity risk and increase financial independence.
1.3 NEW BUSINESS OF THE GRENKE GROUP
The new business volume of the GRENKE Group comprises the newly financed business volume of the Consolidated Group and non-consolidated franchise partners. The pick-up in new business that began at the end of the second quarter continued during the third quarter of 2020. New business declined year-on-year by 19.2 percent to EUR 704.1 million (Q3 2019: EUR 870.9 million) due to the aforementioned economic environ- ment. In the second quarter of 2020 (EUR 598.1 million), however, the year-on-year decline in new business was still 34.2 percent. In the first nine months of 2020, new business at the Group fell 16.6 percent to EUR 2,173.3 million (Q1-Q3 2019: EUR 2,604.9 million).
In the leasing business (GRENKE Group Leasing), the volume of new business - defined as the total acquisition costs of newly acquired leased assets - reached EUR 517.6 million in the third quarter of 2020, representing a year-on-year decline of 24.6 percent (Q3 2019: EUR 686.8 mil- lion). In the first nine months of 2020, the volume of new business recorded an overall decline of 23.4 percent to EUR 1,601.2 million (Q1-Q3 2019: EUR 2,091.7 million). Of the Group's reporting regions, the DACH region, comprising Germany, Austria and Switzerland, saw the smallest decline at 5.7 percent to EUR 435.9 million in the first nine months of the year (Q1-Q3 2019: EUR 462.1 million). The development in Germany, where new business fell a mere 5.5 percent in the first nine months of the year, contributed significantly to the relative stability of new business in the region. In its home market, GRENKE benefited from its extensive and longstanding reseller and customer relationships. Germany was also less affected by the corona pandemic than other European countries. In Western Europe without DACH, new business in the first nine months of the year fell by 28.4 percent to EUR 389.0 million (Q1-Q3 2019: EUR
543.6 million). In France, the most important individual market in the Western Europe region, the volume of new business fell by 31.4 percent. Southern Europe saw a decline of 31.6 percent to EUR 438.1 million (Q1- Q3 2019: EUR 640.8 million), with new business in Italy, the most im- portant market in the region, falling by 36.4 percent. In the Northern/East- ern Europe region, new business fell by 24.8 percent to EUR 265.3 million (Q1-Q3 2019: EUR 352.6 million). In Great Britain, new business declined by 35.9 percent. Coming from a relatively low base, the other regions saw a 21.2 percent decline in the volume of new business to EUR 73.0 million
(Q1-Q32019: EUR 92.6 million). ¦ SEE DIAGRAM "GRENKE GROUP LEASING
NEW BUSINESS BY REGION"
NE W B U S I N E S S G RE N K E G RO UP L E A S I NG 1
Q1-Q3 2020, in EUR millions | ||||
435.9 | 389.0 | 438.1 | ||
265.3 | ||||
GER | FR | IT | 73.0 | |
DACH | Western Europe | Southern | Northern-/ | Other |
without DACH | Europe | Eastern Europe | regions |
1 See the following page for a regional description.
The structure of the leasing portfolio was unchanged in the January to September 2020 period. Medical technology products, small machinery and systems, security devices and other objects accounted for a combined share of 36.6 percent of new business in the reporting period (Q1- Q3 2019: 36.7 percent).
In the first nine months of 2020, the GRENKE Group registered 398,174 lease applications (Q1-Q3 2019: 454,937), resulting in 190,328 newly concluded lease contracts (Q1-Q3 2019: 231,852). This corresponded to a decline in the conversion rate (applications into contracts) of 47.8 percent (Q1-Q3 2019: 51.0 percent). International markets accounted for 321,311 applications (Q1-Q3 2019: 376,642), which led to 142,199 new contracts (Q1-Q3 2019: 185,964). As a result, the conversion rate in the international markets fell to 44.3 percent (Q1-Q3 2019: 49.4 percent). In the DACH region, in contrast, the conversion rate increased to 62.6 percent (Q1-Q3 2019: 58.6 percent). The mean acquisition value per lease contract in the first nine months of the year fell to EUR 8,413 (Q1-Q3 2019: EUR 9,022). The slightly lower conversion rate at the Group level, as well as the lower mean acquisition value per lease contract, reflect a stricter approach to the acceptance of lease applications. The focus here was on contracts with low volumes from industries or with companies with good to very good credit ratings.
The share of contracts concluded via eSignature rose in the reporting period to 29.2 percent (Q1-Q3 2019: 24.3 percent). The eSignature offer is currently available in 20 markets and makes it possible to process lease contracts entirely digitally.
8
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
The contribution margin 2 (CM2) of new leasing business, defined as the present value of the operating income of a lease contract less cost of risk, profit from service business and gains/losses from disposals, declined on an absolute basis in the first nine months of 2020 to EUR 289.5 million (Q1-Q3 2019: EUR 350.3 million) but increased in percentage terms to
18.1 percent (Q1-Q3 2019: 16.7 percent). The margin increase was pri- marily a result of the greater proportion of highly profitable small-ticket business and was recorded across all regions. The CM2 margin in the third quarter of 2020 was 18.4 percent, marking a further improvement over the first half of 2020 (17.9 percent).
The strongest margin improvement in the first nine months was achieved in the Southern Europe region. In the same period of the prior year, the CM2 margin in that region was negatively affected by the expiration of tax incentives for lease financing in Italy ("super ammortamento"). The tax incentives for lessors enabled GRENKE to offer its customers better contract conditions. GRENKE adjusted its conditions at the beginning of 2019 after the programme had ended, which resulted in an initially lower CM2 margin in early 2019. During the quarters that followed, the CM2 margin gradually rose again. The CM1 margin of the leasing business (contribu- tion margin 1 at acquisition values) was slightly better in the first nine months of 2020 at 12.7 percent, reaching EUR 202.6 million (Q1-Q3 2019: 12.3 percent and EUR 258.1 million).
The explanations above relate to new business at all subsidiaries and franchise companies. New leasing business at the franchisees amounted to EUR 50.2 million in the first nine months of 2020 (Q1-Q3 2019: EUR 60.4 million), of which EUR 44.0 million was attributable to Other regions (Q1-Q3 2019: EUR 54.6 million) and EUR 6.2 million to the region of Northern Europe (Q1-Q3 2019: EUR 5.8 million). The contribution margin 2 of the franchise operations totalled EUR 10.9 million compared to EUR 12.9 million in the prior-year period. Of that amount, EUR
- million is attributable to Other regions (Q1-Q3 2019: EUR
- million).
The new business volume (the total of purchased receivables) in the factoring business (GRENKE Group Factoring) fell in the first nine months of 2020 by 1.7 percent to EUR 467.7 million (Q1-Q3 2019: EUR
- million). New business in Germany grew slightly by 2.1 percent, reaching a volume of EUR 132.2 million (Q1-Q3 2019: EUR
- million). The significantly higher proportion of receivables management (excluding financing) of 24.0 percent (Q1-Q3 2019:
- percent) resulted in a decline in the gross margin in Germany to
- percent (Q1-Q3 2019: 1.57 percent). The international business of GRENKE Group Factoring was down 3.1 percent to EUR 335.6 million (Q1-Q3 2019: EUR 346.2 million). The share of receivables management (excluding financing) at the international level, which assumes no default risk, rose to 26.9 percent (Q1-Q3 2019: 22.2 percent). The gross margin in the international markets fell slightly to 1.41 percent (Q1-Q3 2019:
- percent). The gross margin is based on an average period for a fac- toring transaction of approx. 26 days in Germany (Q1-Q3 2019: approx. 28 days) and approx. 48 days at an international level (Q1-Q3 2019: ap- prox. 42 days).
In the nine-month period of 2020, GRENKE Bank expanded its new business in the area of lending to SMEs to a level of EUR 104.3 million (Q1- Q3 2019: EUR 37.6 million), benefitting above all from higher demand for KFW development loans. The deposit volume of GRENKE Bank increased to EUR 1,300.0 million as of the September 30, 2020 reporting date, making it 47.0 percent higher than the level of EUR 884.2 million reported at the end of the 2019 financial year and 62.7 percent above the level at the end of the third quarter of 2019 (EUR 799.3 million). It declined slightly, however, compared to the very high level at the end of the first half of 2020 (EUR 1,312.3 million).
9
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
- G RE NK E G R O U P L E A S I N G NE W B US I N E S S B Y R E G I O N
GRENKE Group Leasing | 2020 | 2019 | |||
5 | (Share of new business in percent) | Q1-Q3 | Q1-Q3 | ||
¢ 1 | DACH | 27.2 | 22.1 | ||
4 | |||||
1 | ¢ 2 | Western Europe without DACH | 24.3 | 26.0 | |
¢ 3 | Southern Europe | 27.4 | 30.6 | ||
¢ 4 | Northern/Eastern Europe | 16.6 | 16.9 | ||
¢ 5 | Other regions | 4.6 | 4.4 | ||
GRENKE Group (in EUR millions) | 2020 | 2019 | |||
3 | Q1-Q3 | Q1-Q3 | |||
New business GRENKE Group Leasing | 1,601.2 | 2,091.7 | |||
2 | New business GRENKE Group Factoring | 467.8 | 475.7 | ||
Business start-up financing | |||||
GRENKE Bank (incl. microcredit business) | 104.3 | 37.6 | |||
Regions: | DACH: Germany, Austria, Switzerland | ||||
Western Europe without DACH: Belgium, France, Luxembourg, the Netherlands | |||||
Southern Europe: Croatia, Italy, Malta, Portugal, Slovenia, Spain |
Northern/Eastern Europe: Denmark, Finland, Great Britain, Ireland, Latvia*, Norway, Sweden / Czechia, Hungary, Poland, Romania, Slovakia
Other regions: Australia*, Brazil, Canada*, Chile*, Singapore*, Turkey, UAE, USA*
*Franchise
1.4 BUSINESS PERFORMANCE OF THE GRENKE CONSOLDATED GROUP
On August 6, 2020, GRENKE AG held its Annual General Meeting 2020, which was its first virtual ordinary annual general meeting. All agenda items were approved by the Annual General Meeting with a large major- ity. In addition to the discharge of the Board of Directors and Supervisory Board, Jens Rönnberg was elected to the Supervisory Board, KPMG AG
Wirtschaftsprüfungsgesellschaft was appointed as the auditor for the current financial year, an amendment to the Articles of Association was made to facilitate voting by mail and a resolution was passed authorising the purchase of the Company's own shares. The Annual General Meeting also resolved a scrip dividend for the 2019 financial year. Shareholders were given the choice to receive their dividend entitlement exclusively in cash or partly in cash and partly in the form of GRENKE AG shares.
S E L E CT E D I NF O RM A T I O N F RO M T HE CO NS O L I D A T E D I NC O M E S T A T E M E NT
2020 | 2019 | |
EURk | Q1-Q3 | Q1-Q31 |
Net interest income | 295,071 | 270,953 |
Settlement of claims and risk provision | 161,849 | 92,854 |
Net interest income after settlement of claims and risk provision | 133,222 | 178,099 |
Profit from service business | 85,303 | 72,813 |
Profit from new business | 31,881 | 41,450 |
Gains (+)/ losses (-) from disposals | -1,761 | -1,980 |
Income from operating business | 248,645 | 290,382 |
Staff costs | 84,215 | 84,917 |
of which total remuneration | 68,863 | 69,699 |
of which fixed remuneration | 53,272 | 50,671 |
of which variable remuneration | 15,591 | 19,028 |
Selling and administrative expenses (excluding staff costs) | 52,970 | 56,083 |
of which IT project costs | 2,148 | 3,872 |
Earnings before taxes | 69,491 | 123,745 |
Net profit | 55,676 | 103,764 |
Earnings per share (in EUR, basic/diluted) | 1.04 | 2.10 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements)
10
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
2 . NET ASSETS, FINANCIAL POSITION AND RESULTS OF OPERATIONS
2.1 RESULTS OF OPERATIONS
2 . 1 . 1 T HI R D Q U A RT E R CO M P A RI S O N 2 0 2 0 V E RS US 2 0 1 9
Interest and similar income from the financing business increased year- on-year by 4.1 percent in the third quarter of 2020. This marginal increase was primarily due to the low volume of new business in the first nine months of the year. Interest expenses on refinancing rose disproportion- ately, by 14.9 percent, so that net interest income in the third quarter rose by 2.5 percent to EUR 96.0 million (Q3 2019: EUR 93.6 million).
Expenses for the settlement of claims and risk provision rose in the third quarter of 2020 by 51.7 percent to EUR 48.8 million (Q3 2019: EUR
32.2 million) as a result of the corona pandemic. Compared to the previ- ous quarter (Q2 2020: EUR 62.2 million) however, there was a decline in losses of 21.6 percent as expected. It should be noted that the line item settlement of claims and risk provision includes two components: impair- ments for losses that have already occurred and expected losses re- flected as a risk provision. In accordance with IFRS 9, the calculation of expected credit losses is based on a three-step approach. If there is a significant deterioration in credit risk (Level 2) or impairment in creditwor- thiness (Level 3), a risk provision must be recognised in the amount of the expected losses over the entire remaining contractual term. As a re- sult of the effects of the corona pandemic, a significantly higher number of leases were identified that needed to be classified as Level 2 and Level 3 as of the reporting date than in the same prior-year period. This led to a corresponding increase in the risk provision. The vast majority of the leases affected, however, had not been terminated as of the end of the reporting period. Should these lease contracts improve in the future, they will be transferred back to their previous level, and the excess risk provi- sions will be reversed. In comparison to the June 30, 2020 reporting date, however, fewer lease contracts were allocated to Level 3.
Total risk provision in accordance with IFRS 9 for all three levels and unterminated lease contracts in the reporting quarter amounted to EUR
19.7 million. The risk provision related primarily to the markets in Italy and France. In the second quarter of 2020, the risk provision under IFRS 9 had still amounted to EUR 31.0 million. The deferrals granted by GRENKE resulted in impairments totalling EUR 53.7 million as of the re- porting date. The largest share of the total impairments - namely 72 per cent - is attributable to Level 1 under IFRS 9. For more detailed infor- mation on the settlement of claims and risk provision, please refer to sec- tion 3 on page 27 of the condensed notes to the consolidated financial statements.
The Consolidated Group's loss rate, which represents the ratio of expenses for the settlement of claims and risk provision (numerator) to the volume of leased assets (denominator), increased year-on-year to
2.2 percent (Q3 2019: 1.6 percent) but declined by 60 basis points com- pared to the previous quarter (Q2 2020: 2.8 percent). The year-on-year increase resulted from higher risk provisions, as well as a low increase in the volume of leased assets, which comprises the net acquisition values of all current lease contracts. Based on the level of new business in the first nine months, the volume of leased assets as of the September 30, 2020 reporting date (EUR 9,031 million) had increased 6.6 percent com- pared to the end of the 2019 financial year (December 31, 2019: EUR 8,474 million).
As a result of increased risk provisions, net interest income after settlement of clams and risk provision fell 23.3 percent to EUR 47.1 million in the third quarter of 2020 (Q3 2019: EUR 61.5 million).
Profit from service business rose by 7.3 percent to EUR 28.8 million in the reporting quarter (Q3 2019: EUR 26.9 million) and continued to benefit from the high volume of new business in prior years. Profits from new business, in contrast, fell 33.7 percent to EUR 8.6 million (Q3 2019: EUR
- million), reflecting the decline in new business in the third quarter of 2020. Net gains/losses from disposals improved to EUR -0.3 million (Q3 2019: EUR -1.7 million) but remained slightly negative. As a result, in- come from operating business in the third quarter of 2020 declined by
- percent to EUR 84.3 million (Q3 2019: EUR 99.6 million).
Staff costs in the third quarter fell by 8.9 percent to EUR 26.0 million (Q3 2019: EUR 28.5 million) primarily as a result of a lower level of variable compensation components. The average number of employees in- creased, in contrast, by 6.3 percent to 1,753 (based on full-time equiva- lents; Q1-Q3 2019: 1,649). Depreciation and amortisation nearly doubled in the reporting quarter to EUR 14.2 million (Q3 2019: EUR 7.4 million). The primary reason for the rise was impairments of goodwill for the leasing companies in Poland, Turkey and Brazil and the factoring company in Switzerland, totalling EUR 7.1 million. These impairments were based on the lower long-term planning figures for these companies, mainly as a result of the lower growth expectations caused by the corona pandemic. For further details, please refer to the notes to the condensed interim consolidated financial statements.
Despite additional legal, consultancy and auditing expenses of EUR
- million caused by the short seller attack, there was a decline of
- percent in selling and administrative expenses in the third quarter of 2020 to EUR 18.5 million (Q3 2019: EUR 19.3 million). This decrease resulted mainly from reduced marketing and travel expenses and lower IT project costs. The balance of other operating income and expenses in the reporting quarter was EUR 0.3 million (Q3 2019: EUR -1.2 million). This year-on-year improvement was due primarily to lower foreign cur- rency translation differences. The impairment of goodwill mentioned above led to an increase in the cost-income ratio to 45.5 percent in the
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GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
third quarter of 2020 (Q3 2019: 43.8 percent). Excluding impairments, the cost-income ratio would have declined to 40.1 percent. As explained in the Annual Report 2019, it is important to highlight that, starting with the 2020 financial year, GRENKE has been calculating the cost-income ratio in accordance with the calculation method customary in the financial sec- tor, without taking into account expenses for settlement of claims and risk provision.
As a result of the rise in risk provisions and impairments of goodwill, the operating result in the third quarter fell by 39.9 percent to EUR 25.9 million (Q3 2019: EUR 43.2 million) and earnings before taxes by 46.3 percent to EUR 22.9 million (Q3 2019: EUR 42.7 million). The comparatively sharper decline in earnings before taxes also resulted from other interest expenses, which increased to EUR 3.4 million (Q3 2019: EUR 1.2 million). The higher interest expenses were, among other things, the result of negative interest on credit balances at the Deutsche Bundesbank. As the goodwill impairment charges were not tax-deductible, there was a rise in the tax rate in the third quarter to 22.7 percent (Q3 2019: 16.6 percent). As a result, the net profit in the reporting quarter was down 50.3 percent to EUR 17.7 million (Q3 2019: EUR 35.6 million), corresponding to earnings per share of EUR 0.38 (Q3 2019: EUR 0.77).
In accordance with the contractual structure of the hybrid bonds, the net profit attributed to the hybrid bondholders (EUR 7.4 million after EUR 6.5 million in the same period of the previous year) was recognised in full in the calculation of earnings per share as of March 30, 2020. In economic terms and based on a periodic deferral of interest payments for hybrid capital, earnings per share for the third quarter of 2020 amounted to EUR 0.33 (Q3 2020: EUR 0.73).
2 . 1 . 2 N I N E - M O NT H C O M P A RI S O N 2 0 2 0 V E RS US 2 0 1 9
2.4 percent (Q1-Q3 2019: 1.6 percent). Net interest income after settle- ment of claims and risk provisions fell in the reporting period by 25.2 per- cent to EUR 133.2 million (Q1-Q3 2019: EUR 178.1 million).
The profit from service business grew 17.2 percent in the first nine months while the profit from new business fell by 23.1 percent. The net gains/losses from disposals improved slightly to EUR -1.8 million (Q1-Q3 2019: EUR -2.0 million). As a result, the income from operating business in the first nine months of 2020 fell year-on-year by 14.4 percent to EUR 248.6 million (Q1-Q3 2019: EUR 290.4 million).
At EUR 84.2 million, staff costs - the largest expense item - remained virtually unchanged in the first nine months of 2020 compared to the same prior-year period (Q1-Q3 2019: EUR 84.9 million). Selling and administrative expenses fell by 5.5 percent to EUR 53.0 million (Q1-Q3 2019: EUR 56.1 million) and benefited mainly from declining selling and IT project costs. Depreciation and amortisation, in contrast, increased by
36.3 percent to EUR 29.0 million (Q1-Q3 2019: EUR 21.3 million) as a result of the goodwill impairment. The balance of other operating income and expenses was EUR -5.0 million (Q1-Q3 2019: EUR -1.5 million) due to an increase in other operating expenses from higher foreign currency translation differences. These stemmed primarily from temporary differ- ences during the term of foreign currency hedging relationships that do not currently qualify for hedge accounting. The differences resulted from the translation of balance sheet items at the closing rate and the market valuation of forward exchange rates. This difference should decline over the term of the hedge relationship, so that at the end of the term, the contracted forward exchange rate at which the hedge was made is deci- sive and will be realised. The cost-income ratio in the first nine months of 2020 fell to 43.1 percent (Q1-Q3 2019: 44.0 percent).
Interest and similar income from financing business rose in the first nine months of 2020 by 9.7 percent to EUR 341.5 million (Q1-Q3 2019: EUR 311.2 million). Interest expenses on refinancing rose by 15.2 percent to EUR 46.4 million, compared to EUR 40.3 million in the same prior- year period. As a result, net interest income rose 8.9 percent to EUR 295.1 million (Q1-Q3 2019: EUR 271.0 million).
Risk provisions in accordance with IFRS 9 amounted to EUR 69.3 million in the first nine months of 2020, leading to a 74.3 percent increase in expenses for settlement of claims and risk provision to EUR 161.8 million (Q1-Q3 2019: EUR 92.9 million). The loss rate rose accordingly to
The operating result in the first nine months of the 2020 financial year declined 38.8 percent to EUR 77.5 million (Q1-Q3 2019: EUR 126.6 mil- lion). Earnings before taxes were 43.8 percent lower at EUR 69.5 million (Q1-Q3 2019: EUR 123.7 million). The tax rate for the reporting period rose to 19.9 percent, compared to 16.1 percent in the same prior-year period. As a result, net profit amounted to EUR 55.7 million (Q1-Q3 2019: EUR 103.8 million), for a decline of 46.3 percent, resulting in earnings per share of EUR 1.04 (Q1-Q3 2019: EUR 2.10).
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GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
S E L E CT E D I NF O RM A T I O N F RO M T HE CO NS O L I D A T E D S T A T E M E NT O F F I NA N C I A L P O S I T I O N
EURk | Sept. 30, 2020 | Dec. 31, 2019 |
Current assets | 3,314,176 | 2,972,450 |
of which cash and cash equivalents | 796,715 | 434,379 |
of which lease receivables | 1,999,267 | 1,901,181 |
Non-current assets | 4,072,440 | 4,175,032 |
of which lease receivables | 3,629,567 | 3,744,735 |
Total assets | 7,386,616 | 7,147,482 |
Current liabilities | 2,044,711 | 1,861,352 |
of which financial liabilities | 1,868,407 | 1,716,313 |
Non-current liabilities | 4,081,811 | 4,037,380 |
of which financial liabilities | 3,973,323 | 3,924,353 |
Equity | 1,260,094 | 1,248,750 |
Equity ratio (in percent) | 17.1 | 17.5 |
Total liabilities and equity | 7,386,616 | 7,147,482 |
Embedded value incl. equity and after taxes | 1,748,710 | 1,791,388 |
2.2 NET ASSETS AND FINANCIAL POSIT ION
2 . 2 . 1 NE T A S S E T S
As of September 30, 2020, total assets of the GRENKE Consolidated Group rose by 3.3 percent to EUR 7.4 billion in comparison to the end of the 2019 financial year (December 31, 2019: EUR 7.1 billion). A significant portion of this increase resulted from the rise in cash and cash equiv- alents, which amounted to EUR 796.7 million as of the reporting date (De- cember 31, 2019: EUR 434.4 million). In the current macroeconomic sit- uation, the GRENKE Consolidated Group is placing a special focus on maintaining sufficient liquidity reserves to have the flexibility to respond to market conditions. Overall, the Consolidated Group has significantly more cash and cash equivalents available than the current maturities of the GRENKE Consolidated Group's liabilities.
The Consolidated Group also has a regulatory obligation to maintain a liquidity buffer. As of the reporting date, EUR 597.3 million (December 31, 2019: EUR 212.2 million) were held in accounts at the Deutsche Bundes- bank, which, due to the negative interest rate on deposits in the amount of -0.5 percent, caused corresponding interest expenses. In comparison to their level at the end of the second quarter (June 30, 2020: EUR 1.1 bil- lion), cash and cash equivalents declined 26.1 percent, as expected, due to the pick-up in new business in the third quarter. Consequently, the high level of cash and cash equivalents and cash flow from operating activities made significant contributions to the financing of new business as planned.
The Consolidated Group's largest balance sheet item - current and non- current lease receivables - remained virtually unchanged at EUR 5.6 billion as of the reporting date (December 31, 2019: EUR 5.6 billion). This
development reflects the low volume of new business during the reporting period.
The decline in other current assets to EUR 203.8 million (December 31, 2019: EUR 322.7 million) resulted largely from a reporting date-related decline in VAT refund claims.
The decline in goodwill to EUR 94.0 million (December 31, 2019: EUR 106.6 million) resulted from currency effects and specifically the devaluation of the Brazilian real and the Turkish lira. In addition, the impairments identified resulted in extraordinary impairment losses totalling EUR 7.1 million on the leasing companies in Poland, Turkey and Brazil and the factoring company in Switzerland.
On the liabilities side of the balance sheet, current and non-current financial liabilities increased by a total of 3.6 percent to EUR 5.8 billion (De- cember 31, 2019: EUR 5.6 billion). The largest positions in this item were current and non-current liabilities from refinancing, which fell by 4.5 percent compared with the end of 2019 to EUR 4.5 billion (December 31, 2019: EUR 4.7 billion). Current and non-current liabilities from the deposit business, which make a significant contribution to refinancing the leasing business and therefore to lease receivables, in contrast, rose by 46.4 percent to EUR 1.3 billion (December 31, 2019: EUR 0.9 billion).
Consolidated Group equity increased 0.9 percent to EUR 1,260.1 million as of the September 30, 2020 reporting date (December 31, 2019: EUR 1,248.8 million). The Consolidated Group's net profit of EUR 55.7 million generated in the reporting period offset the distribution of a dividend totalling EUR 37.1 million, in addition to interest payments on hybrid capital of EUR 7.4 million and negative effects from currency translation of EUR 11.1 million. At the same time, there were positive effects of EUR 8.8 million from the issue of shares as part of the scrip dividend and EUR 2.8 million from the fair value measurement of hedging
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GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
instruments. As a result of the increase in total assets from the higher level of cash and cash equivalents, the equity ratio as of September 30, 2020 declined to 17.1 percent (December 31, 2019: 17.5 percent) but continued to remain above the Consolidated Group's long-term benchmark of at least 16.0 percent.
2 . 2 . 2 L I Q U I D I T Y
The high level of cash and cash equivalents and the broadly diversified refinancing structure ensured that the GRENKE Consolidated Group could meet its payment obligations at all times during the reporting period.
In the first nine months of 2020, three new fixed-interest bonds with a total gross volume of EUR 210 million and HKD 300 million were issued via the subsidiary Grenke Finance PLC. Further information about these bonds issued is provided in the notes to the condensed consolidated interim financial statements and is also available at www.grenke.com/in- vestor-relations/debt-capital/issued-bonds. In addition, three promissory notes were issued for a total of EUR 19 million and CHF 40 million. In the short-term debt segment, GRENKE completed eight commercial paper issues in the first nine months of the year amounting to EUR 70 million. Bonds in the amount of EUR 153 million and CHF 70 million were redeemed in the reporting period, as well as promissory notes totalling EUR 46.5 million, PLN 10 million, DKK 46 million and SEK 48 million.
As of September 30, 2020, the utilisation of the ABCP programmes was EUR 652.0 million and GBP 109.7 million (December 31, 2019: EUR 709.9 million and GBP 125 million). The total volume of these programmes was EUR 947.8 million and GBP 150.0 million (December 31, 2019: EUR 947.8 million and GBP 150.0 million).
The Consolidated Group's available credit lines (i.e. bank lines plus the available volume of bonds and commercial paper) amounted to EUR 3,197.5 million, PLN 36.0 million, HRK 40.0 million and CHF 10.0 million as of the September 30, 2020 reporting date (December 31, 2019: EUR 1,565.6 million, PLN 27.0 million, HRK 70.0 million and CHF 14.5 million).
The Consolidated Group also intensified its cooperation with development banks and expanded its existing programmes to provide further support to SMEs. As of September 30, 2020, development loans totalled EUR 364.0 million (December 31, 2019: EUR 260.9 million).
Refinancing via bank deposits at GRENKE Bank amounted to EUR 1,300.0 million as of September 30, 2020, compared to EUR 799.3 million at the same time last year, representing an increase of 62.7 percent.
2 . 2 . 3 F I N A NC I A L P O S I T I O N
S E L E CT E D I NF O R M A T I O N F R O M T HE CO NS O L I D A T E D S T A T E M E NT O F C A S H F L O W S
2020 | 2019 | |
EURk | Q1-Q3 | Q1-Q3 |
- Investments in new lease receivables | -1,595,206 | -2,083,177 |
+ Addition of new refinancing (excluding deposit | ||
business) | 986,858 | 1,834,344 |
+ Net addition to deposit business | 413,594 | 106,077 |
(I) Cash flow from investments in new busi- | ||
ness | -194,754 | -142,756 |
+ Payments by lessees | 1,572,038 | 1,448,001 |
- Repayments of refinancing (excluding deposit | -1,039,408 | -1,160,484 |
business) | ||
(II) Cash flow from existing business | 532,630 | 287,517 |
(III) Other cash flow from operating activities | 95,212 | 29,438 |
Cash flow from operating activities | ||
(I) + (II) + (III) | 433,088 | 174,199 |
Net cash flow from operating activities | 420,613 | 152,081 |
Cash flow from investing activities | -11,926 | -18,123 |
Cash flow from financing activities | -48,500 | -53,925 |
Total cash flow | 360,187 | 80,033 |
Cash flow from operating activities increased to EUR 433.1 million in the first nine months of 2020 (Q1-Q3 2019: EUR 174.2 million). As presented above, net cash flow from investments in new business consists of investments in new lease receivables, which include the net acquisition cost of the leased assets and the costs incurred directly upon the conclusion of the contract. These payments are offset by the cash inflows from the increase in refinancing and in the deposit business of the GRENKE Bank. The negative cash flow from investments in new business of EUR - 194.8 million shows that GRENKE generated a portion of the new business without undertaking new refinancing. The reason for this was the strong cash flow from the existing business of EUR 532.6 million, which made it possible to refinance new business from the Consolidated Group's own cash flow and the precautionary build-up of liquid funds.
After interest and taxes paid and received, net cash flow from operating activities in the reporting period amounted to EUR 420.6 million (Q1-Q3 2019: EUR 152.1 million).
Cash flow from investing activities amounted to EUR -11.9 million in the first nine months of 2020 (Q1-Q3 2019: EUR -18.1 million) and mainly included payments for the acquisition of property, plant and equipment and intangible assets of EUR 12.5 million (Q1-Q3 2019: EUR 18.6 mil- lion).
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GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
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Cash flow from financing activities amounted to EUR -48.5 million in the nine-month period (Q1-Q3 2019: EUR -53.9 million). This improvement was primarily due to the fact that the dividend payment has resulted in a cash outflow of only EUR 28.2 million (Q1-Q3 2019: EUR 37.1 million) as a result of the stock dividend resolved by the Annual General Meeting. Interest payment on hybrid capital amounted to EUR 10.7 million (Q1-Q3 2019: EUR 9.4 million). The repayment of lease liabilities also led to a cash outflow of EUR 8.8 million (Q1-Q3 2019: EUR 7.8 million).
Total cash flow in the first nine months therefore amounted to EUR 360.2 million (Q1-Q3 2019: EUR 80.0 million). Cash and cash equivalents increased accordingly to EUR 795.7 million as of September 30, 2020, up from EUR 434.3 million at the end of the 2019 financial year.
3 . REPORT ON RISKS, OPPORTUNITIES AND FORECAST
3.1 OPPORTUNITIES AND RISKS
Due to the restrictions on macroeconomic activity in 2020 resulting from the corona pandemic, uncertainty has increased significantly in comparison to the situation described in the 2019 Annual Report, especially with regard to credit and liquidity risks.
The International Monetary Fund (IMF) expects a noticeable slump in economic output in nearly all countries in 2020. Although many countries have launched extensive aid programmes in the form of loan commitments and guarantees to ensure the solvency of companies, a significant increase in corporate insolvencies is expected in the current financial year. Euler Hermes, for example, expects a 17 percent increase in the number of insolvencies worldwide. In the first nine months of 2020, the payment behaviour of GRENKE Consolidated Group's customers also changed as a result of macroeconomic effects, although an improvement in comparison to prior months could already be observed starting in June 2020. As a result of late or missed payment receipts, an increase in losses is to be expected in the current financial year, as reflected by the higher IFRS 9 risk provisions as of September 30, 2020. The GRENKE Consolidated Group has not yet adjusted the risk forecast model in accordance with IFRS 9 and has retained its previous method of determining the expected losses as of September 30, 2020. Since the initial assessment in the first quarter of 2020 of the impact of the pandemic, the GRENKE Consolidated Group continues to assume that the loss rate for the 2020 financial year as a whole could reach up to 2.3 percent. The GRENKE Consolidated Group believes it is well-prepared for the risks that could arise from a further spread of the corona pandemic based on its high level of cash and cash equivalents, which it has built up as a precautionary meas- ure. This liquidity gives the Consolidated Group the flexibility necessary to respond to the dynamic developments caused by the coronavirus, even in the event of a low volume of new business.
Nevertheless, the economic environment offers opportunities from the insights and observations that can be integrated into risk measurement at an early stage, enabling the risk-adjusted conclusion of contracts. GRENKE strives for the best possible balance between risk and contribution margin. In addition, the Company's relationship with its customers and partners is strengthened by the fact that GRENKE continues to support companies in the implementation of investment projects even during economically challenging times.
3.2 MACROECONOMIC AND INDUSTRY - SPECIFIC ENVIRONMENT
In its latest forecast of October 2020, the International Monetary Fund raised its estimates slightly for the current year. Although it still anticipates a deep recession, it now estimates a decline in the global economy of only 4.4 percent (June forecast: -4.9 percent). This somewhat more optimistic view is based primarily on the expectations for the advanced econ- omies, particularly the eurozone (-8.3 percent compared to -10.2 percent) and the United States (-4.3 percent compared to -8.0 percent), which are being supported by massive government stimulus programmes. The IMF expects the recovery to continue in the coming year, although there is considerable uncertainty due to risks about the further course of the pan- demic. Overall, the IMF is projecting global economic growth of 5.2 percent in 2021 and 5.2 percent growth for the eurozone economy.
3.3 COMPANY FORECAST
As previously announced in both April and July 2020, the impact of the corona pandemic on the further development of the business and earnings of the GRENKE Group can still not be assessed with any certainty and was not taken into consideration in the forecast for the 2020 financial year published on February 11, 2020. The development of new business for the current financial year as a whole remains dependent on the further course of the corona pandemic and the related economic restrictions. In light of the general economic situation resulting from the pandemic, the Board of Directors expects new business in the fourth quarter of 2020 to be approximately 60 percent of the previous year's Q4 level. At the beginning of the year, new business growth of between 14 and 18 percent had initially been targeted.
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GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
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Based on lower new business volumes and appropriate cost savings, the Consolidated Group is able to operate profitably, even in a crisis, although the net profit will be below the target range of EUR 153 to 165 million announced at the beginning of the year. Based on the solid liquidity situation and the stable number of employees - especially in sales - the GRENKE Consolidated Group is in a position to respond immediately to any respective easing or normalisation developments.
The Board of Directors and Supervisory Board are confident that GRENKE Group will be able to resume its multi-year growth course after the global corona pandemic has abated.
16
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
NEW BUSINESS GRENKE GROUP LEASING | ||
by regions. Q1-Q3 2020 | ||
72,958 | ||
Other regions | ||
265,267 | ||
389,011 | Northern / Eastern | |
Western Esurope | 1,601,230 | Europe |
(without DACH) | ||
total in EURk | ||
438,121 | 435,872 | |
DACH | ||
Southern Europe | ||
PROXIMITY TO THE CUSTOMER
Regions / Markets
33
New locations, Q1-Q3 2020
+5
LOCATIONS GRENKE GROUP
153
ON SITE WORLDWIDE
CONSOLIDATED | EARNINGS PER | ESIGNATURE QUOTE* | ||
GROUP NET PROFIT* | SHARE* | 17.1 | ||
17.7 | 0.38 | |||
EUR million | EUR | Percent | ||
THREE PILLARS: GRENKE CONSOLIDATED
GROUP'S REFINANCING MIX
GRENKE Bank 28
%
Sep. 30, 2020
Asset-based 15
Senior unsecured 57
SOLID KEY FIGURES
BROAD REFINANCING BASE
eSIGNATURE QUOTE
29.2
percent of all new leasing contracts were fully digitally completed.
eSIGNATURE
Number of countries
20
eSignature is used in 20 countries.
DIGITAL ALIGNMENT
* Reporting period: 3rd quarter 2020
G R E N K E C O N S O L I D A T E D G R O U P
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CO NS O L I D A T E D I N CO M E S T A T E M E NT | Q 3 | Q 1 - Q 3 | ||||||
Jul. 1, 2020 | Jul. 1, 2019 | Jan. 1, 2020 | Jan. 1, 2019 | |||||
EURk | to Sep. 30, 2020 | to Sep. 30, 2019 | to Sep. 30, 2020 | to Sep. 30, 20191 | ||||
Interest and similar income from financing business2 | 112,169 | 107,745 | 341,474 | 311,219 | ||||
Expenses from interest on refinancing and deposit business | 16,211 | 14,104 | 46,403 | 40,266 | ||||
Net interest income | 95,958 | 93,641 | 295,071 | 270,953 | ||||
Settlement of claims and risk provision | 48,812 | 32,170 | 161,849 | 92,854 | ||||
Thereof: impairment losses | 47,632 | 30,590 | 157,124 | 88,098 | ||||
Net interest income after settlement of claims and risk provision | 47,146 | 61,471 | 133,222 | 178,099 | ||||
Profit from service business | 28,839 | 26,866 | 85,303 | 72,813 | ||||
Profit from new business | 8,591 | 12,957 | 31,881 | 41,450 | ||||
Gains(+) / losses (-) from disposals | -299 | -1,651 | -1,761 | -1,980 | ||||
Income from operating business | 84,277 | 99,643 | 248,645 | 290,382 | ||||
Staff costs | 25,974 | 28,527 | 84,215 | 84,917 | ||||
Depreciation and impairment | 14,221 | 7,384 | 28,996 | 21,275 | ||||
Selling and administrative expenses (not including staff costs) | 18,476 | 19,335 | 52,970 | 56,083 | ||||
Other operating expenses | 1,183 | 3,108 | 9,960 | 8,300 | ||||
Other operating income | 1,495 | 1,870 | 4,953 | 6,831 | ||||
Operating result | 25,918 | 43,159 | 77,457 | 126,638 | ||||
Result from investments accounted for using the equity method | -36 | -66 | -254 | -155 | ||||
Expenses / income from fair value measurement | 127 | 168 | -1,186 | -633 | ||||
Other interest income | 325 | 619 | 1,433 | 1,291 | ||||
Other interest expenses | 3,414 | 1,194 | 7,959 | 3,396 | ||||
Earnings before taxes | 22,920 | 42,686 | 69,491 | 123,745 | ||||
Income taxes | 5,214 | 7,074 | 13,815 | 19,981 | ||||
Net profit | 17,706 | 35,612 | 55,676 | 103,764 | ||||
Ordinary shareholders and hybrid capital holders of GRENKE AG | 17,706 | 35,612 | 55,676 | 103,764 | ||||
Earnings per share (in EUR) | 0.38 | 0.77 | 1.04 | 2.10 | ||||
Average number of shares outstanding | 46,390,871 | 46,353,918 | 46,366,326 | 46,353,918 |
- Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements)
- Interest and similar income based on effective interest method: EUR 8,194k (previous year: EUR 6,512k).
18
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CO NS O L I D A T E D S T A T E M E NT O F CO M P RE H E N S I V E I N CO M E
EURk
Net profit
Items that may be reclassified to profit and loss in future periods
Appropriation to / reduction of hedging reserve
Thereof: income tax effects
Change in currency translation differences
Thereof: income tax effects
Items that will not be reclassified to profit and loss in future periods
Q 3 | Q 1 - Q 3 | ||||||
Jul. 1, 2020 | Jul. 1, 2019 | Jan. 1, 2020 | Jan. 1, 2019 | ||||
to Sep. 30, 2020 | to Sep. 30, 2019 | to Sep. 30, 2020 | to Sep. 30, 20191 | ||||
17,706 | 35,612 | 55,676 | 103,764 | ||||
329 | -7 | 2,436 | 4 | ||||
-47 | 1 | -348 | -1 | ||||
-2,206 | 808 | -11,106 | 1,329 | ||||
0 | 0 | 0 | 0 |
Change in value of equity instruments recognised in other comprehensive income (option under | 0 | 0 | 0 | 0 |
IFRS 9) | ||||
Thereof: income tax effects | 0 | 0 | 0 | 0 |
Appropriation to / reduction of reserve for actuarial gains and losses | 0 | 0 | 0 | 0 |
Thereof: income tax effects | 0 | 0 | 0 | 0 |
Other comprehensive income | -1,877 | 801 | -8,670 | 1,333 |
Total comprehensive income | 15,829 | 36,413 | 47,006 | 105,097 |
Ordinary shareholders and hybrid capital holders of GRENKE AG | 15,829 | 36,413 | 47,006 | 105,097 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
19
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CO NS O L I D A T E D S T A T E M E NT O F F I N A N C I A L P O S I T I O N
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Assets | ||
Current assets | ||
Cash and cash equivalents | 796,715 | 434,379 |
Derivative financial instruments that are assets | 5,124 | 946 |
Lease receivables | 1,999,267 | 1,901,181 |
Other current financial assets | 254,447 | 252,504 |
Trade receivables | 6,048 | 9,272 |
Lease assets for sale | 26,293 | 24,038 |
Tax assets | 22,453 | 27,450 |
Other current assets | 203,829 | 322,680 |
Total current assets
Non-current assets
Lease receivables
Derivative financial instruments that are assets
Other non-current financial assets
Investments accounted for using the equity method
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
3,314,176 | 2,972,450 |
3,629,567 | 3,744,735 |
4,911 | 1,492 |
120,390 | 96,650 |
4,669 | 4,923 |
115,002 | 109,092 |
47,575 | 50,315 |
93,964 | 106,555 |
34,502 | 37,899 |
20,502 | 21,967 |
1,358 | 1,404 |
4,072,440 | 4,175,032 |
7,386,616 | 7,147,482 |
20
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CO NS O L I D A T E D S T A T E M E NT O F F I N A N C I A L P O S I T I O N
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Liabilities and equity | ||
Liabilities | ||
Current liabilities | ||
Financial liabilities | 1,868,407 | 1,716,313 |
Lease liabilities | 11,514 | 12,148 |
Derivative liability financial instruments | 2,254 | 8,506 |
Trade payables | 37,313 | 35,890 |
Tax liabilities | 6,931 | 3,059 |
Deferred liabilities | 25,732 | 30,219 |
Other current liabilities | 49,350 | 31,583 |
Deferred lease payments | 43,210 | 23,634 |
Total current liabilities | 2,044,711 | 1,861,352 |
Non-current liabilities |
Financial liabilities
Lease liabilities
Derivative liability financial instruments
Deferred tax liabilities
Pensions
Non-current provisions
Total non-current liabilities
Equity
3,973,323 | 3,924,353 |
37,174 | 38,679 |
9,952 | 7,445 |
55,598 | 61,676 |
5,666 | 5,128 |
98 | 99 |
4,081,811 | 4,037,380 |
Share capital | 46,496 | 46,354 |
Capital reserves | 298,021 | 289,314 |
Retained earnings | 723,837 | 712,672 |
Other components of equity | -8,260 | 410 |
Total equity attributable to shareholders of GRENKE AG | 1,060,094 | 1,048,750 |
Additional equity components 1 | 200,000 | 200,000 |
Total equity | 1,260,094 | 1,248,750 |
Total liabilities and equity | 7,386,616 | 7,147,482 |
1 Including AT1 bonds (hybrid capital), which are reported as equity under IFRS.
21
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CO NS O L I D A T E D S T A T E M E NT O F CA S H F L O W S
2020 | 2019 | ||
EURk | Q1-Q3 | Q1-Q31 | |
Earnings before taxes | 69,491 | 123,745 | |
Non-cash items contained in earnings and reconciliation to cash flow from operating activities | |||
+ | Depreciation and impairment | 28,996 | 21,275 |
- / + | Profit / loss from the disposal of property, plant, and equipment and intangible assets | -46 | -25 |
- / + | Other interest income / interest expenses | 6,099 | 1,741 |
- / + | Other non-cash effective income / expenses | 1,171 | 5,400 |
+ / - | Increase / decrease in deferred liabilities, provisions, and pensions | -3,950 | 1,395 |
- | Additions to lease receivables | -1,595,206 | -2,083,177 |
+ | Payments by lessees | 1,572,038 | 1,448,001 |
+ | Disposals / reclassifications of lease receivables at residual carrying amounts | 276,791 | 261,895 |
- | Interest and similar income from leasing business | -329,979 | -301,287 |
+ / - | Decrease / increase in other receivables from lessees | 50,095 | 966 |
+ / - | Currency translation differences | 43,343 | -4,555 |
= | Change in lease receivables | 17,082 | -678,157 |
+ | Addition to liabilities from refinancing | 986,858 | 1,834,344 |
- | Payment of annuities to refinancers | -1,039,408 | -1,160,484 |
- | Disposal of liabilities from refinancing | -162,773 | -40,009 |
+ | Expenses from interest on refinancing | 40,119 | 36,894 |
+ / - | Currency translation differences | -37,445 | 3,865 |
= | Change in refinancing liabilities | -212,649 | 674,610 |
+ / - | Increase / decrease in liabilities from deposit business | 413,594 | 106,077 |
- / + | Increase / decrease in loans to franchisees | -2,567 | -42,097 |
Changes in other assets / liabilities | |||
- / + | Increase / decrease in other assets | 83,443 | -63,847 |
- / + | Increase / decrease in lease assets from operating leases | -2,597 | -12,344 |
+ / - | Increase / decrease in deferred lease payments | 19,576 | 14,321 |
+ / - | Increase / decrease in other liabilities | 15,445 | 22,105 |
= | Cash flow from operating activities | 433,088 | 174,199 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
continued on next page
22
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CO NS O L I D A T E D S T A T E M E NT O F CA S H F L O W S ( CO NT I N UE D)
2020 | 2019 | ||
EURk | Q1-Q3 | Q1-Q31 | |
- / + | Income taxes paid / received | -5,949 | -20,013 |
- | Interest paid | -7,959 | -3,396 |
+ | Interest received | 1,433 | 1,291 |
= | Net cash flow from operating activities | 420,613 | 152,081 |
- | Payments for the acquisition of property, plant and equipment and intangible assets | -12,487 | -18,591 |
- / + | Payments for / proceeds from the acquisition of subsidiaries | 0 | -390 |
- | Payments for the acquisition of associated entities | 0 | -250 |
+ | Proceeds from the sale of property, plant and equipment and intangible assets | 561 | 1,108 |
= | Cash flow from investing activities | -11,926 | -18,123 |
+ / - | Borrowing / repayment of bank liabilities | -813 | 345 |
- | Repayment of lease liabilities | -8,789 | -7,812 |
- | Interest coupon payments on hybrid capital | -10,664 | -9,375 |
- | Dividend payments | -28,234 | -37,083 |
= | Cash flow from financing activities | -48,500 | -53,925 |
Cash funds at beginning of period | |||
Cash in hand and bank balances | 434,379 | 333,626 | |
- | Bank liabilities from overdrafts | -73 | -3,112 |
= | Cash and cash equivalents at beginning of period | 434,306 | 330,514 |
+ / - | Change due to currency translation | 1,217 | -88 |
= | Cash funds after currency translation | 435,523 | 330,426 |
Cash funds at end of period | |||
Cash in hand and bank balances | 796,715 | 411,124 | |
- | Bank liabilities from overdrafts | -1,005 | -665 |
= | Cash and cash equivalents at end of period | 795,710 | 410,459 |
Change in cash and cash equivalents during the period (= total cash flow) | 360,187 | 80,033 | |
Net cash flow from operating activities | 420,613 | 152,081 | |
+ | Cash flow from investing activities | -11,926 | -18,123 |
+ | Cash flow from financing activities | -48,500 | -53,925 |
= | Total cash flow | 360,187 | 80,033 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
23
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
CO NS O L I D A T E D S T A T E M E NT O F C HA NG E S I N E Q UI T Y
Revaluation | |||||||||||
Retained | reserve for | Total equity | |||||||||
earnings / | Reserve for | equity | attributable to | Additional | |||||||
Share | Capital | Consolidated | Hedging | actuarial | Currency | instruments | shareholders | equity | Total | ||
EURk | capital | reserves | net profit | reserve | gains / losses | translation | (IFRS 9) of GRENKE AG | components | equity | ||
Equity as of | |||||||||||
Jan. 1, 2020 | 46,354 | 289,314 | 712,672 | -2,193 | -1,393 | 1,641 | 2,355 | 1,048,750 | 200,000 | 1,248,750 | |
(adjusted) | |||||||||||
Net profit | 55,676 | 55,676 | 55,676 | ||||||||
Other comprehensive | 2,436 | -11,106 | -8,670 | -8,670 | |||||||
income | |||||||||||
Dividend in 2020 for | -37,083 | -37,083 | -37,083 | ||||||||
2019 | |||||||||||
Capital increase | |||||||||||
(issuance of shares | 142 | 8,707 | 8,849 | 8,849 | |||||||
from scrip dividend) | |||||||||||
Interest coupon | |||||||||||
payment on | -7,428 | -7,428 | |||||||||
hybrid capital (net) | |||||||||||
Interest coupon for | -7,428 | -7,428 | 7,428 | 0 | |||||||
hybrid capital (net) | |||||||||||
Equity as of Sep. | 46,496 | 298,021 | 723,837 | 243 | -1,393 | -9,465 | 2,355 | 1,060,094 | 200,000 | 1,260,094 | |
30, 2020 | |||||||||||
Equity as of | |||||||||||
Jan. 1, 20191 | 46,354 | 289,314 | 616,257 | -7 | -828 | -731 | 2,295 | 952,654 | 125,000 | 1,077,654 | |
(as reported) | |||||||||||
Adjustment to | |||||||||||
IFRS 16 accounting | |||||||||||
standard (lessee) | -745 | 12 | -733 | -733 | |||||||
Equity as of | |||||||||||
Jan. 1, 2019 | 46,354 | 289,314 | 615,512 | -7 | -828 | -719 | 2,295 | 951,921 | 125,000 | 1,076,921 | |
(adjusted) | |||||||||||
Net profit1 | 103,764 | 103,764 | 103,764 | ||||||||
Other comprehensive | 4 | 1,329 | 1,333 | 1,333 | |||||||
income1 | |||||||||||
Dividend in 2019 | |||||||||||
for 2018 | -37,083 | -37,083 | -37,083 | ||||||||
Interest coupon | |||||||||||
payment on | -6,531 | -6,531 | |||||||||
hybrid capital (net)1 | |||||||||||
Interest coupon for | |||||||||||
hybrid capital (net)1 | -6,531 | -6,531 | 6,531 | ||||||||
Equity as of | 2,295 | ||||||||||
Sep. 30, 20191 | 46,354 | 289,314 | 675,662 | -3 | -828 | 610 | 1,013,404 | 125,000 | 1,138,404 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
24
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1 . ACCOUNTING POLICIES
This quarterly statement of GRENKE AG is a quarterly statement pursuant to Section 53 of the Exchange Rules for the Frankfurt Stock Exchange and does not constitute a complete interim financial statement within the meaning of International Accounting Standard (IAS) 34. The quarterly statement has been prepared in accordance with International Financial Reporting Standards (IFRS) as applicable in the EU. It should be read in conjunction with the IFRS consolidated financial statements as of Decem- ber 31, 2019. The accounting policies generally correspond to the methods used in the previous year. The impact of changes resulting from the mandatory application of new accounting standards was not material for the GRENKE Consolidated Group. An audit review as defined by Section 115 (5) WpHG was not conducted.
1.1 DEFERRAL AGREEMENTS
GRENKE has entered into deferral agreements with its leasing customers providing them with support in response to the current COVID-19 pandemic and its consequences. Under the deferral agreements, individual payments for lease instalments are deferred without interest for a set period of time and become due at a later date. Portions of these deferral agreements are based on statutory moratoria. In GRENKE's view, these agreed deferrals have not led to any changes in the scope or consideration of leases. Consequently, the changes in payments are treated as non-substantial contract changes (modifications). The interest rates underlying the leases are carried forward unchanged when calculating the
net investment in a lease. Deferral agreements have also been concluded with customers in the lending business. In these cases, the debtors were also granted deferrals for loan instalments for a set period of time, but with interest. These cases also constitute non-substantial contract changes, as neither the qualitative nor the quantitative indicators were met that would justify a modification. For more information, please refer to the accounting policies described in the notes to the consolidated financial statements as of December 31, 2019.
2 . ADJUSTMENTS
The retrospective amendment of IFRS 16 "Leases" for lessors in the previous year, which was applied to the consolidated financial statements only as of December 31, 2019, led to a corresponding change in the consolidated income statement as of September 30, 2019. Net interest income increased by EUR 31,038k and the settlement of claims and risk provision rose by EUR 611k. Conversely, profit from new business decreased by EUR 31,951k and gains(+)/losses(-) from disposals increased by EUR 2,404k. Overall, there was an increase in earnings before taxes of EUR 881k and net profit (after taxes) of EUR 728k. For further infor- mation, please refer to section "2.1.4 IFRS 16 Leases - The Consolidated Group as Lessor" in the consolidated financial statements as of Decem- ber 31, 2019 contained in the notes to the consolidated financial state- ments.
25
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
3 . LE ASE RECEIVABLES
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Changes in lease receivables from current contracts | ||
(performing lease receivables) | ||
Receivables at beginning of period | 5,588,109 | 4,645,971 |
+ Change during the period | 33,012 | 942,138 |
Lease receivables (current + non-current) from current contracts at end of period | 5,621,121 | 5,588,109 |
Changes in lease receivables from terminated contracts/contracts in arrears | ||
(non-performing lease receivables) | ||
Gross receivables at beginning of period | 411,490 | 331,048 |
+ Additions to gross receivables during the period | 102,206 | 133,647 |
- Disposals of gross receivables during the period | 38,511 | 53,205 |
Gross receivables at end of period | 475,185 | 411,490 |
Total gross receivables (terminated and current) | 6,096,306 | 5,999,599 |
Impairments at beginning of period | 353,683 | 279,480 |
+ Change in accumulated impairment during the period | 113,789 | 74,203 |
Impairments at end of period | 467,472 | 353,683 |
Lease receivables (carrying amount, current and non-current) at beginning of period | 5,645,916 | 4,697,539 |
Lease receivables (carrying amount, current and non-current) at end of period | 5,628,834 | 5,645,916 |
The following overview shows the gross amount of lease receivables and the impairment of lease receivables according to the IFRS 9 impairment level. The GRENKE Consolidated Group does not have any financial instruments classified as POCI as defined by IFRS 9.
Sep. 30, 2020 | Dec. 31, 2019 | ||||
EURk | Level 1 | Level 2 | Level 3 | Total | Total |
Gross lease receivables | |||||
Germany | 1,172,594 | 47,180 | 46,383 | 1,266,157 | 1,210,593 |
France | 1,100,614 | 120,189 | 121,654 | 1,342,457 | 1,351,940 |
Italy | 1,056,400 | 173,195 | 168,648 | 1,398,243 | 1,385,640 |
Other countries | 1,712,188 | 175,248 | 202,013 | 2,089,449 | 2,051,426 |
Total gross lease receivables | 5,041,796 | 515,812 | 538,698 | 6,096,306 | 5,999,599 |
Impairment | 80,872 | 61,828 | 324,772 | 467,472 | 353,683 |
Carrying amount | 4,960,924 | 453,984 | 213,926 | 5,628,834 | 5,645,916 |
26
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
The following overview shows changes in the impairment of current and non-current lease receivables.
Sep. 30, 2020 | Dec. 31, 2019 | ||||
EURk | Level 1 | Level 2 | Level 3 | Total | Total |
Impairment at start of period | 46,098 | 43,017 | 264,568 | 353,683 | 279,480 |
Newly extended or acquired financial assets | 14,118 | 9,195 | 10,611 | 33,924 | 68,029 |
Reclassifications | |||||
to Level 1 | 4,505 | -3,596 | -909 | 0 | 0 |
to Level 2 | -4,683 | 12,355 | -7,672 | 0 | 0 |
to Level 3 | -2,336 | -12,870 | 15,206 | 0 | 0 |
Change in risk provision due to change in level | -3,698 | 9,853 | 60,324 | 66,479 | 55,308 |
Mutual contract dissolution or payment for financial assets (without derecognition) | -15,273 | -12,303 | -13,315 | -40,891 | -41,276 |
Change in contractual cash flows due to modification (no derecognition) | 38,708 | 13,184 | 1,815 | 53,707 | 0 |
Change in category in processing losses | 0 | 0 | 13,008 | 13,008 | 13,988 |
Change in models/risk parameters used in ECL calculation | 0 | 0 | 12,309 | 12,309 | 5,219 |
Derecognition of financial assets | -18 | -173 | -29,106 | -29,297 | -35,484 |
Currency translation and other differences | -520 | -520 | -4,189 | -5,229 | 1,162 |
Accrued interest | 3,971 | 3,686 | 2,122 | 9,779 | 7,257 |
Impairment at end of period | 80,872 | 61,828 | 324,772 | 467,472 | 353,683 |
thereof impairment of non-performing lease receivables | 0 | 0 | 288,685 | 288,685 | 240,885 |
thereof impairment of performing lease receivables | 80,872 | 61,828 | 36,087 | 178,787 | 112,798 |
The item "Change in contractual cash flows due to modification (no derecognition)" contains the impairments of the deferral agreements from the leasing business described in Section 1 "Accounting Policies". Lease contracts with deferral agreements have been allocated to impairment Levels 1, 2 and 3 based on their payment history after the deferral has ended or due to an extension of the deferral period.
4 . FINANCIAL LIABILITIES
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Financial liabilities | ||
Current financial liabilities | ||
Asset-based | 326,835 | 403,975 |
Senior unsecured | 661,105 | 758,420 |
Committed development loans | 202,023 | 83,122 |
Liabilities from deposit business | 677,439 | 469,910 |
thereof bank liabilities | 5,600 | 6,300 |
Other bank liabilities | 1,005 | 886 |
thereof current account liabilities | 1,005 | 73 |
Total current financial liabilities | 1,868,407 | 1,716,313 |
Non-current financial liabilities | ||
Asset-based | 472,643 | 512,943 |
Senior unsecured | 2,712,137 | 2,813,124 |
Committed development loans | 161,954 | 177,761 |
Liabilities from deposit business | 626,589 | 420,525 |
Total non-current financial liabilities | 3,973,323 | 3,924,353 |
Total financial liabilities | 5,841,730 | 5,640,666 |
27
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
4.1 A S S E T - BASED FINANCIAL L IABIL ITIES
4 . 1 . 1 S T R U CT U RE D E NT I T I E S
The following consolidated structured entities existed as of the reporting date: Opusalpha Purchaser II Limited, Kebnekaise Funding Limited, CORAL PURCHASING (Ireland) 2 DAC, FCT "GK" COMPARTMENT "G2" (FCT GK 2), FCT "GK" COMPARTMENT "G3" (FCT GK 3) and FCT "GK" COMPARTMENT "G4" (FCT GK 4). All structured entities have been set up as asset-backed commercial paper (ABCP) programmes.
Sep. 30, 2020 | Dec. 31, 2019 | |
Programme volume in local currency | ||
EURk | 947,802 | 947,802 |
GBPk | 150,000 | 150,000 |
Programme volume in EURk | 1,112,213 | 1,124,107 |
Utilisation in EURk | 775,775 | 860,064 |
Carrying amount in EURk | 695,067 | 761,560 |
thereof current | 271,466 | 334,040 |
thereof non-current | 423,601 | 427,520 |
4 . 1 . 2 S A L E S O F R E CE I V A B L E S A G RE E M E NT S | ||
Sep. 30, 2020 | Dec. 31, 2019 | |
Programme volume in local currency | ||
EURk | 20,000 | 20,000 |
GBPk | 100,000 | 100,000 |
PLNk | 0 | 80,000 |
BRLk | 185,000 | 185,000 |
Programme volume in EURk | 157,507 | 197,298 |
Utilisation in EURk | 103,666 | 153,634 |
Carrying amount in EURk | 103,666 | 153,634 |
thereof current | 54,783 | 68,798 |
thereof non-current | 48,883 | 84,836 |
4 . 1 . 3 RE S I D UA L L O A N S
The residual loans are used primarily to finance the residual values of lease agreements in which the instalments were sold as part of the sale of receivables.
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Carrying amount | 745 | 1,724 |
thereof current | 586 | 1,137 |
thereof non-current | 159 | 587 |
4.2 SENIOR UNSECURED FINANCIAL LIABI LIT IES
The following table provides an overview of the carrying amounts of the individual refinancing instruments:
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Bonds | 2,786,260 | 2,764,192 |
thereof current | 433,992 | 336,652 |
thereof non-current | 2,352,268 | 2,427,540 |
Promissory notes | 426,390 | 431,587 |
thereof current | 107,485 | 92,449 |
thereof non-current | 318,905 | 339,138 |
Commercial paper | 20,000 | 226,500 |
Revolving credit facility | 96,367 | 114,319 |
thereof current | 55,403 | 67,873 |
thereof non-current | 40,964 | 46,446 |
Money market trading | 9,938 | 11,770 |
thereof current | 9,938 | 11,770 |
thereof non-current | 0 | 0 |
Overdraft facility | 8,406 | 3,829 |
Accrued interest | 25,881 | 19,347 |
The following table provides an overview of the refinancing volumes of the individual instruments:
Sep. 30, 2020 | Dec. 31, 2019 | |
Bonds EURk | 5,000,000 | 3,500,000 |
Commercial paper EURk | 750,000 | 750,000 |
Revolving credit facility EURk | 330,000 | 330,000 |
Revolving credit facility PLNk | 100,000 | 100,000 |
Revolving credit facility CHFk | 20,000 | 20,000 |
Revolving credit facility HRKk | 125,000 | 125,000 |
Money market trading EURk | 35,000 | 35,000 |
4 . 2 . 1 B O ND S
Three bonds with a combined volume of EUR 210,000k and HKD 300,000k have been issued this financial year to-date. Scheduled repayments of EUR 153,000k and CHF 70,000k were made.
4 . 2 . 2 P R O M I S S O RY N O T E S
Three new promissory notes were issued this financial year to-date. The total volume of the newly issued loans totals EUR 19,000k and CHF 40,000k. Scheduled repayments were made in the amount of EUR 46,500k, PLN 10,000k, DKK 46,000k and SEK 48,000k.
28
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
G R E N K E C O N S O L I D A T E D G R O U P
Q U A R T E R L Y R E P O R T F O R T H E T H I R D Q U A R T E R A N D F I R S T N I N E M O N T H S O F 2 0 2 0
4.3 COMMITTED DEVELOPMENT LOANS
The following table shows the carrying amounts of the utilised development loans at individual development banks.
EURk | Sep. 30, 2020 | Dec. 31, 2019 |
Description | ||
European Investment Bank | 99,788 | - |
NRW.BANK | 59,627 | 69,439 |
Thüringer Aufbaubank | 4,155 | 4,104 |
Investitionsbank des Landes Brandenburg | 1,781 | 3,006 |
KfW | 197,190 | 182,555 |
Landeskreditbank Baden-Württemberg - | 1,436 | 1,778 |
Förderbank | ||
Accrued interest | 0 | 1 |
Total committed development loans | 363,977 | 260,883 |
6 . CONTINGENT LIABILITIES
GRENKE AG, as guarantor for individual franchise companies, provided financial guarantees of EUR 71.2 million (previous year as of December 31, 2019: EUR 72.0 million), which represents the maximum default risk. The actual utilisation of the guarantees by the guarantee recipients was lower and amounted to EUR 37.9 million (previous year as of December 31, 2019: EUR 37.5 million)
7 . SUBSEQUENT EVENTS
No significant events occurred after the reporting date.
5 . DEPRECIATION AND IMPAIRMENT
For the cash-generating units Brazil, Poland and Turkey, which represent the leasing business in the respective countries, and for the cash-generating unit Factoring Switzerland, an impairment was recognised on portions of corresponding goodwill totalling EUR 7,128k as of September 30, 2020. This impairment was primarily due to an unplanned decline in new business figures in these markets, which have been particularly affected by the COVID-19 pandemic, and resulted in a reassessment of the associated market development in the valuations. The expected recovery of new business to pre-pandemic levels is likely to occur later than expected in the prior quarter due to the increased number of new infections.
29
GRENKE CONSOLIDATED GROUP // Q1-Q3 2020
INFORMATION
AND CONTACT
GRENKE AG
Team Investor Relations
Neuer Markt 2
76532 Baden-Baden
Phone: +49 7221 5007-204
Fax: +49 7221 5007-4218
Email: investor@grenke.de
Disclaimer
Figures in this financial report are usually presented in EURk and EUR millions. Rounding differences may occur in individual figures compared to the actual EUR amounts. Such differences are not significant in character due to their nature. For reasons of easier readability, gender-specific language is generally avoided, and the respective terms apply equally to all genders to ensure equal treatment.
This report is published in German and English. The German version shall prevail.
GRENKE AG
Headquarters
Neuer Markt 2
76532 Baden-Baden
Germany
Phone: +49 7221 5007- 204
Fax: +49 7221 5007- 4218
Email: investor@grenke.de
www.grenke.com
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Grenke AG published this content on 29 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 October 2020 09:44:10 UTC