2020
FINANCIAL REPORT
FOR THE 2ND QUARTER AND THE FIRST HALF-YEAR 2020 GRENKE CONSOLIDATED GROUP
KEY FIGURES
GRENKE GROUP
UNIT | Q2 2020 | Q2 2019 | ∆ (%) | Q1-Q2 2020 | Q1-Q2 2019 | ∆ (%) | |
NEW BUSINESS GRENKE GROUP LEASING | EURk | 402.3 | 734.6 | −45.2 | 1,083.6 | 1,404.9 | −22.9 |
of which international | EURk | 257.1 | 553.3 | −53.5 | 760.2 | 1,068.8 | −28.9 |
of which franchise international | EURk | 13.6 | 20.8 | −34.5 | 33.6 | 39.6 | −15.2 |
of which DACH * | EURk | 131.6 | 160.5 | −18.0 | 289.9 | 296.5 | −2.3 |
Western Europe (without DACH) * | EURk | 85.8 | 186.2 | −53.9 | 263.2 | 372.9 | −29.4 |
Southern Europe * | EURk | 104.0 | 229.9 | −54.8 | 300.9 | 442.6 | −32.0 |
Northern / Eastern Europe * | EURk | 62.1 | 125.1 | −50.4 | 182.6 | 233.4 | −21.8 |
Other regions * | EURk | 18.8 | 32.8 | −42.7 | 47.1 | 59.4 | −20.7 |
NEW BUSINESS GRENKE GROUP | |||||||
FACTORING | |||||||
(INCL. COLLECTION SERVICES) | EURk | 141.7 | 163.1 | −13.1 | 313.4 | 305.5 | 2.6 |
of which Germany | EURk | 42.3 | 43.7 | −3.2 | 91.5 | 84.9 | 7.8 |
of which international | EURk | 33.9 | 44.4 | −23.8 | 71.9 | 81.3 | −11.6 |
of which franchise international | EURk | 65.5 | 74.9 | −12.7 | 150.0 | 139.3 | 7.7 |
GRENKE BANK | |||||||
Deposits | EURk | 1,312.3 | 769.9 | 70.5 | 1,312.3 | 769.9 | 70.5 |
New business SME lending business incl. | |||||||
business start-up financing | EURk | 54.2 | 11.9 | 354.9 | 72.2 | 23.7 | 204.9 |
CONTRIBUTION MARGIN 2 (DB2) ON NEW | |||||||
BUSINESS | |||||||
GRENKE GROUP LEASING | EURk | 70.4 | 121.8 | −42.2 | 194.3 | 233.0 | −16.6 |
of which international | EURk | 49.2 | 95.9 | −48.7 | 144.6 | 184.0 | −21.4 |
of which franchise international | EURk | 3.0 | 4.4 | −30.7 | 7.3 | 8.3 | −12.0 |
of which DACH * | EURk | 18.2 | 21.5 | −15.4 | 42.5 | 40.7 | 4.3 |
Western Europe (without DACH) * | EURk | 16.6 | 32.2 | −48.5 | 50.0 | 64.9 | −23.0 |
Southern Europe * | EURk | 19.5 | 39.0 | −49.9 | 56.8 | 72.7 | −21.8 |
Northern / Eastern Europe * | EURk | 11.7 | 22.1 | −47.0 | 34.5 | 42.1 | −17.9 |
Other regions * | EURk | 4.4 | 7.0 | −36.9 | 10.5 | 12.6 | −16.9 |
FURTHER INFORMATION LEASING BUSINESS | |||||||
Number of new contracts | units | 50,381 | 83,053 | −39.30 | 126,035 | 157,813 | −20.1 |
Mean acquisition value | EURk | 7,985 | 8,845 | −9.7 | 8,597 | 8,902 | −3.4 |
Mean term of contract | months | 47.3 | 48.6 | −2.7 | 48.3 | 48.9 | −1.2 |
Volume of leased assets* | EURm | 8,794.3 | 7,737.0 | 13.7 | 8,794.3 | 7,737.0 | 13.7 |
Number of current contracts** | units | 971,944 | 869,610 | 11.8 | 971,944 | 869,610 | 11.8 |
* Regions: DACH: Germany, Austria, Switzerland
Western Europe (without DACH): Belgium, France, Luxembourg, the Netherlands
Southern Europe: Italy, Croati,. 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, UAE, USA ** 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 | Q2 2020 | Q2 2019 | ∆ (%) | Q1-Q2 2020 | Q1-Q2 2019 | ∆ (%) | |
KEY FIGURES INCOME STATEMENT | |||||||
Net interest income | EURk | 98,002 | 90,056 | 8.8 | 199,113 | 177,312 | 12.3 |
Settlement of claims and risk provision | EURk | 62,246 | 32,367 | 92.3 | 113,037 | 60,684 | 86.3 |
Total operating expenses | EURk | 50,763 | 54,125 | −6.2 | 107,510 | 107,029 | 0.4 |
Operating result | EURk | 20,177 | 41,743 | −51.7 | 51,539 | 83,479 | −38.3 |
Earnings before taxes (EBT) | EURk | 17,435 | 40,416 | −56.9 | 46,571 | 81,059 | −42.5 |
Net profit | EURk | 14,230 | 34,355 | −58.6 | 37,970 | 68,152 | −44.3 |
Net profit attributable to ordinary shareholders | |||||||
of GRENKE AG | EURk | 14,230 | 34,355 | −58.6 | 30,542 | 61,621 | −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 | 0.31 | 0.74 | −58.1 | 0.66 | 1.33 | −50.4 |
Adjusted earnings per share | |||||||
(ordinary shareholders of GRENKE AG)* | EUR | 0.26 | 0.71 | −63.4 | 0.72 | 1.40 | −48.6 |
Cost / income ratio | percent | 40.23 | 43.92 | −8.4 | 41.92 | 44.03 | −4.8 |
Staff costs | EURk | 27,937 | 28,759 | −2.9 | 58,241 | 56,390 | 3.3 |
of which total remuneration | EURk | 23,047 | 23,598 | −2.3 | 47,760 | 46,409 | 2.9 |
of which fixed remuneration | EURk | 17,658 | 16,877 | 4.6 | 35,822 | 33,438 | 7.1 |
of which variable remuneration | EURk | 5,389 | 6,721 | −19.8 | 11,938 | 12,971 | −8.0 |
Average number of employees | |||||||
in full-time equivalent | employees | 1,758 | 1,646 | 6.8 | 1,751 | 1,617 | 8.3 |
UNIT | JUN. 30, 2020 | DEC. 31, 2019 | ∆ (%) | ||||
STATEMENT OF FINANCIAL POSITION | |||||||
Total assets | EURm | 7,689 | 7,147 | 7.6 | |||
Lease receivables | EURm | 5,657 | 5,646 | 0.2 | |||
Equity persuant to statement | |||||||
of financial position | EURm | 1,272 | 1,249 | 1.8 | |||
Equity persuant to CRR | EURm | 1,051 | 941 | 11.7 | |||
Equity ratio | percent | 16.6 | 17.5 | −5.4 | |||
Embedded value, leasing contract portfolio | |||||||
(excl. equity before taxes) | EURm | 587 | 662 | −11.5 | |||
Embedded value, leasing contract portfolio | |||||||
(incl. equity after taxes) | EURm | 1.742 | 1,791 | −2.8 | |||
* 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 | ||||
6.1 | Security devices | |||||
and others | ||||||
8.8 | Medical technology | % | Copying | 28.2 | ||
% | technology | |||||
BROADLY | ||||||
31,12,2019 | Telecommuni- | 12.0 | ||||
21.4 | Machines / systems | Q1-Q2 2020 | ||||
cation equipment | ||||||
General office | 5.3 | |||||
63.6 | IT Products | equipment | ||||
IT equipment | 54.5 |
"We saw a recovery in our new business towards the end of the second quarter,"
explains Antje Leminsky, Chairman of the Board the
GRENKE AG
"We benefit from the fact that our business model is already established in numerous markets and industries, which results in a high degree of risk diversification,"
explains Sebastian Hirsch, Member of the Board of Management the GRENKE AG
GRENKE SHARE PRICE PERFORMANCE (JULY 1, 2019 TO JUNE 30, 2020) | ||||||||||||
GRENKE AG (Xetra) | SDAX (indexed) | DAXsector Financial Services (indexed) | MDAX (indexed) | STABILISATION | ||||||||
110 | ||||||||||||
100 | ||||||||||||
90 | ||||||||||||
80 | ||||||||||||
70 | ||||||||||||
COURSE | ||||||||||||
60 | ||||||||||||
50 | ||||||||||||
40 | ||||||||||||
30 | Jul. '19 | Aug. | Sep. | Oct. | Nov. | Dec. | Jan. | Feb. | Mar. | Apr. | May | Jun. '20 |
CONTENT
- KEY FIGURES
06 // CONDENSED INTERIM GROUP MANAGEMENT REPORT
06 // Business Performance
10 // Net Assets, Financial Position and Results of Operations 15 // Related Party Disclosures
15 // Report on risks, Opportunities and Forecasts
18 // CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
18 // Consolidated Income Statement
19 // Consolidated Statement of Comprehensive Income
19 // Consolidated Statement of Financial Position
21 // Consolidated Statement of Cash Flows
23 // Consolidated Statement of Changes in Equity
24 // NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
37 // NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
INTERIM GROUP MANAGEMENT REPORT
1 . CONSOLIDATED GROUP PRINCIPLES
1.1 G R E N K E OVERVIEW
The GRENKE Group acts as a global financing partner for small and medium -sized enterprises (SMEs). Customers have access to solutions from
- single source: from flexible small-ticket leasing and demand-driven banking products to convenient factoring. Fast and easy processing, along with personal contact with customers and partners, are a key focus. Founded in Baden-Baden, Germany, in 1978, the Company currently op- erates worldwide with more than 1,700 employees in 33 countries.
The Consolidated Group employs a franchise model to penetrate new regional markets. GRENKE AG does not own interests in the legally independent companies of the franchisees and, for this reason, a distinction is made in this interim management report between the GRENKE Consolidated Group (GRENKE AG including its consolidated subsidiaries and structured entities in accordance with IFRS standards) and the GRENKE Group (the Consolidated Group including franchise partners).
1.3 TARGETS AND STRATEGY
The GRENKE Group provides financial services for SMEs focused on small-ticket leasing. With its lease offerings, the Group is a leader in Ger- many, Switzerland, Italy and France. The Group's medium-term target is to position GRENKE as a comprehensive small-ticket financial service provider for medium-sized companies not just in Europe but also interna- tionally. Over the last several years, the Group has entered several countries outside of Europe in Asia, North and South America and Australia.
The Consolidated Group has a vast array of refinancing instruments at its disposal, which are used as part of the overall strategy in a variety of ways based on prevailing market conditions. Financing is essentially based on three pillars: the deposits of GRENKE Bank, asset-based financing (in- cluding ABCP programmes), and senior unsecured instruments such as bonds, notes and commercial paper. GRENKE also places high importance on maintaining a solid equity base and has maintained a benchmark of 16.0 percent for its equity ratio for many years. GRENKE considers this level as an essential prerequisite for securing an investment grade rating.
1.2 BUSINESS MODEL
By offering a range of lease financing for lower-value IT and office communication products and software starting at a net purchase price of EUR 500, GRENKE has defined and developed a market that is addressed only selectively by many of the lease providers. The net acquisition value for more than 90 percent of the Group's leases is less than EUR 25k. In recent years, the Group has also extended its business model to include other product groups such as small machinery and systems, as well as medical and security devices.
As a provider of financing solutions for small contract volumes, a fundamental prerequisite for our economic success is maintaining the highest level of processing efficiency possible and a low level of related direct costs. To accomplish this, GRENKE Group has geared its business model towards optimising efficiency across all core operating processes through broad standardisation, comprehensive IT-based automation, speed and maintaining a lean organisation. The Group believes it has established a key unique selling point in recent years.
2 . BUSINESS PERFORMANCE
2.1 IMPACT OF THE COVID - 1 9 PANDEMIC
The measures implemented to contain the COVID-19 pandemic have led to considerable restrictions on public life and economic activity worldwide since March 2020. The "lock-down" succeeded in slowing down the pace of the pandemic's spread considerably, so that numerous states were able to begin gradually lifting the restrictions again starting in the middle of the second quarter of 2020. Asia and Europe, in particular, saw a marked decline in the number of new infections by the end of the second quarter. New infection numbers in North and South America, however, have not yet signalled any lasting containment of the pandemic.
6
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
The International Monetary Fund (IMF) is expecting the global economy to contract by more than 5 percent in the second quarter of 2020. In the industrialised countries, the IMF is estimating a decline of more than even 10 percent. Meanwhile, extensive government assistance programmes to businesses and workers are available to address the economic impact of the COVID-19 pandemic in almost all major economies.
In the first two months of the 2020 financial year, new business at GRENKE Group Leasing was initially within the range forecast at the start of the year. However, as a result of the restrictions on macroeconomic activity triggered by the COVID-19 pandemic, new business development in the months of March through May 2020 compared to the same period in the prior year was at a significantly lower level. New leasing business then began to pick up again in June. With a decline of 45.2 percent year- on-year, new business in the second quarter of 2020 was in line with the volume of new business indicated by the Board of Directors at the beginning of May, i.e. around 50 percent of the new business volume planned at the beginning of the year prior to the pandemic's outbreak.
GRENKE adapted to the altered economic environment in the first half of 2020. The large majority of employees are working from home offices to ensure communication with business partners and customers in a secure environment. Business management is focusing on the quality of contracted new business and balanced risk-taking. In doing so, GRENKE is willfully accepting lower growth. At the same time, the CM2 margin in the first half of 2020 rose by 130 basis points to 17.9 percent compared to the same period in the previous year (Q1-Q2 2019: 16.6 percent). The higher CM2 margin can be used to cushion potentially higher risks. At a level of EUR 1,078.0 million, the Consolidated Group is also currently maintaining a significantly higher level of liquidity than in the past. Cash and cash equivalents serve to reduce any potential liquidity risk and increase GRENKE's financial independence and place it in a position to immediately meet a renewed increase in customer demand for lease financing.
2.2 GRENKE GROUP'S NEW BUSINESS
New business volume at GRENKE comprises the newly financed business volume of the Group, which is defined as the Consolidated Group and its franchise partners. As a result of the previously described economic environment, the Group's new business volume in the second quarter of 2020 dropped by 34.2 percent. For the first half of 2020, the overall decline is 15.3 percent. In absolute terms, GRENKE Group's new business reached a volume of EUR 1,469.2 million in the first half-year compared to EUR 1,734.0 million in the first half of the prior year.
In the leasing business (GRENKE Group Leasing), the volume of new business - defined as the total acquisition costs of newly acquired leased assets - in the first half of 2020 fell by 22.9 percent to EUR 1,083.6 million (Q1-Q2 2019: EUR 1,404.9 million). The leasing business as a percentage share of the Group's total new business volume fell accordingly to 73.8 percent (Q1-Q2 2019: 81.0 percent).
In the first half of 2020, GRENKE Group Leasing recorded a decline in new business volume across all regions. However, the DACH region, which comprises Germany, Austria and Switzerland, was able to distinguish itself positively from the other European regions by declining a mere
- percent to EUR 289.9 million (Q1-Q2 2019: EUR 296.5 million). The trend in Germany, where new business remained virtually stable in the first half of the year (-1.5 percent), was a major contributor to this perfor- mance. In its home market, GRENKE benefited from its extensive and long-standing relationships with customers and dealers. In addition, Ger- many was less affected by the COVID-19 pandemic than other European countries. In Western Europe without DACH, new business declined by
- percent to EUR 263.2 million in the half-year period (Q1-Q2 2019: EUR 372.9 million). In France, the most important single market in this region, new business volume fell by 32.6 percent. In Southern Europe, new business in the reporting period fell by 32.0 percent to EUR 300.9 million (Q1-Q2 2019: EUR 442.6 million). In Italy and Spain, the two coun- tries most severely affected by the pandemic, new business fell by 37.2 percent and 13.2 percent, respectively. In the Northern/Eastern Europe region, new business declined by 21.8 percent, reaching a volume of EUR 182.6 million (Q1-Q2 2019: EUR 233.4 million). In Great Britain, where government measures in reaction to the pandemic occurred later than in other European countries, new business declined by 32.6 percent. In the other regions, the volume of new business declined by 20.7 percent to EUR 47.1 million (Q1-Q2 2019: EUR 59.4 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 *
As of June 30, 2020, in EUR millions
289.9 | 263.2 | 300.9 | 182.6 | |
D | F | IT | 47.1 | |
DACH | Western Europa Southern Europe | Northern-/ | Other | |
without DACH | Eastern Europa | regions |
* See following page for regional description.
7
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
The diversification of the leasing portfolio beyond the traditional IT sector remained stable from January through June 2020. Medical technology products, small machinery and systems, security devices and other objects accounted for a combined 36.4 percent share of new business in the first half-year(Q1-Q2 2019: 36.3 percent).
In the first half of 2020, the GRENKE Group registered 266,109 lease applications (Q1-Q2 2019: 316,645), resulting in 126,035 (Q1-Q2 2019: 157,813) newly concluded lease contracts. This corresponded to a conversion rate (applications into contracts) of 47.4 percent (Q1-Q2 2019:
49.8 percent). International markets accounted for 216,025 applications
(Q1-Q2 2019: 264,875), which led to 95,299 new contracts (Q1-Q2 2019: 128,643). As a result, the conversion rate in this area fell to 44.1 percent (Q1-Q2 2019: 48.6 percent). The DACH region, by contrast, increased its conversion rate to 61.4 percent (Q1-Q2 2019: 56.3 percent). The Group's mean acquisition value per lease contract in the reporting period fell to EUR 8,597 (Q1-Q2 2019: EUR 8,902). The slightly lower conversion rate at Group level, as well as the lower mean acquisition value per lease con- tract, reflect a stricter approval of lease applications. GRENKE mainly fo- cused on concluding contracts with lower volumes from industries and companies with good to very good credit ratings.
The share of contracts concluded via eSignature rose to 28.6 percent in the first half of 2020 (Q1-Q2 2019: 24.0 percent). The eSignature offer is currently available in 20 markets and enables lease contracts to be processed entirely digitally.
The contribution margin 2 (CM2) of new leasing business fell in the first half of 2020 to EUR 194.3 million, compared to EUR 233.0 million in the same period of the previous year. Due to the lower decline in the contribution margin compared to the development of new business, the CM2 margin in percentage terms even improved to 17.9 percent (Q1-Q2 2019:
16.6 percent). The higher margin was primarily a result of the higher pro- portion of very profitable small-ticket business and was recorded across all regions. The strongest margin improvement was recorded in the Southern Europe region. In the prior-year period, the CM2 margin in that region was negatively impacted by the expiration of tax incentives for lease financing in Italy ("super ammortamento"). The tax incentives for lessors enabled GRENKE to offer customers lease contracts at more fa- vourable conditions. GRENKE adjusted its conditions at the beginning of 2019 after the programme had ended, which consequently resulted in an overall lower CM2 margin for the first quarter of 2019. In the quarters that followed, the CM2 margin gradually rose again. The CM1 margin of the leasing business (contribution margin 1 at acquisition values) reached a value of EUR 136.6 million in the first half of 2020, or 12.6 percent (Q1- Q2 2019: EUR 171.7 million and 12.2 percent).
The factoring business (GRENKE Group Factoring) increased new business volume (the total of purchased receivables) by 2.6 percent to EUR
313.4 million in the first half of 2020 (Q1-Q2 2019: EUR 305.5 million). The main driver was new business in Germany, which grew by 7.8 per- cent to EUR 91.5 million (Q1-Q2 2019: EUR 84.9 million). With a signifi- cantly higher share of receivables management (without financing func- tion) of 23.4 percent (Q1-Q2 2019: 15.1 percent), the gross margin in Germany fell to 1.41 percent (Q1-Q2 2019: 1.60 percent). The interna- tional business of GRENKE Group Factoring achieved new business growth of 0.6 percent to EUR 221.9 million (Q1-Q2 2019: EUR 220.6 mil- lion). The share of the receivables management (without financing func- tion) at the international level, which assumes no default risk, was 26.7 percent (Q1-Q2 2019: 21.3 percent). The gross margin in the international markets improved slightly to 1.47 percent (Q1-Q2 2019: 1.41 percent). The gross margin is based on an average period for a factoring transac- tion of approx. 26 days in Germany (Q1-Q2 2019: approx. 29 days) and approx. 48 days at an international level (Q1-Q2 2019: approx. 42 days).
In the first half of 2020, GRENKE Bank was able to more than triple its new business in the area of lending to SMEs to a level of EUR 72.2 million (Q1-Q2 2019: EUR 23.7 million). GRENKE Bank benefited from increased demand from SMEs for loans. The deposit volume of GRENKE Bank increased to EUR 1,312.3 million as of June 30, 2020, which was
48.4 percent higher than the level of EUR 884.2 million at the end of the 2019 financial year and 70.5 percent higher than at the end of the first half of 2019 (EUR 769.9 million).
8
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
¦ G RE NK E G R O U P L E A S I N G ' S N E W B U S I NE S S B Y RE G I O N
GRENKE Group Leasing | 2020 | 2019 | |||
(Share of new business in percent) | Q1-Q2 | Q1-Q2 | |||
5 | ¢ 1 | DACH | 26.7 | 21.1 | |
4 | ¢ 2 | Western Europe without DACH | 24.3 | 26.6 | |
1 | ¢ 3 | Southern Europe | 27.8 | 31.5 | |
¢ 4 | Northern / Eastern Europe | 16.9 | 16.6 | ||
¢ 5 | Other regions | 4.3 | 4.2 | ||
GRENKE Group (in EUR millions) | 2020 | 2019 | |||
Q1-Q2 | Q1-Q2 | ||||
3 | New business GRENKE Group Leasing | 1,083.6 | 1,404.9 | ||
New business GRENKE Group Factoring | 313.4 | 305.5 | |||
2 | Business start-up financing | ||||
GRENKE Bank (incl. microcredit business) | 72.2 | 23.7 | |||
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
2.3 GRENKE CONSOLIDATED GROUP'S BUSINESS PERFORMANCE
In the first quarter of 2020, two new locations in Brazil and one new branch each in Sweden and Portugal commenced operations as part of cell divisions. In the second quarter of 2020, GRENKE opened its first franchise location in the United States (Phoenix, Arizona). As of June 30, 2020, GRENKE was present for customers in 33 countries with a total of 153 locations.
At the beginning of April, GRENKE announced that due to the spread of the COVID-19 pandemic, the ordinary Annual General Meeting could not take place on May 19, 2020 as planned. The new date for this year's ordinary Annual General Meeting, which will be held as a purely virtual meeting, was changed to August 6, 2020. At the beginning of May, GRENKE announced a revised dividend proposal of EUR 0.80 per share instead of the originally proposed EUR 0.88 per share. GRENKE thereby plans to distribute a dividend at the previous year's level, which shareholders can choose to receive in cash or, alternatively, in cash and shares to strengthen the capital base.
9
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
3 . NET ASSETS, FINANCIAL POSITION AND RESULTS OF OPERATIONS
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
EURk
Net interest income
Settlement of claims and risk provision
Net interest income after settlement of claims and risk provision
Profit from service business
Profit from new business
Gains (+)/losses (-) from disposals
Income from operating business
Staff costs
of which total remuneration
of which fixed remuneration
of which variable remuneration
Selling and administrative expenses (excluding staff costs)
of which IT project costs
Earnings before taxes
Net profit
Earnings per share (in EUR; basic / diluted)
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements)
2020 | 2019 |
Q1-Q2 | Q1- Q21 |
199,113 | 177,312 |
113,037 | 60,684 |
86,076 | 116,628 |
56,464 | 45,947 |
23,290 | 28,493 |
-1,462 | -329 |
164,368 | 190,739 |
58,241 | 56,390 |
47,760 | 46,409 |
35,822 | 33,438 |
11,938 | 12,971 |
34,494 | 36,748 |
1,757 | 2,359 |
46,571 | 81,059 |
37,970 | 68,152 |
0.66 | 1.33 |
3.1 RESULTS OF OPERATIONS
3 . 1 . 1 HA L F - Y E A 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 rose 12.7 percent to EUR 229.3 million (Q1-Q2 2019: EUR 203.5 million) in the first half of 2020, as a result of the lower volume of new business. Interest expenses on refinancing rose disproportionately by 15.4 percent and amounted to EUR 30.2 million, compared to EUR 26.2 million in the first half of the previous year. Net interest income, which represents the balance of these items, increased 12.3 percent to EUR 199.1 million (Q1-Q2 2019: EUR 177.3 million).
The settlement of claims and risk provision in the consolidated income statement consists of two items: the impairment and settlement for lease contracts that have already been terminated and the expected credit losses from unterminated lease contracts to-date. 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 the credit risk (Level 2) or impairment in creditworthiness (Level 3), a risk provision must be recognised in the amount of the expected losses over the entire remaining term of the contract. Due to the effects of the COVID-19 pandemic, significantly more leases were identified that needed to be classified as Level 3 as of the reporting date, which led to a corresponding increase in risk provisions. However, the majority of the leases affected was not ter-
minated at the end of the half-year reporting period. If these lease contracts see an improvement going forward, the leases will be transferred back to their previous level, and the excess risk provision that was recognised will be reversed. Total risk provisions in accordance with IFRS 9 for all three levels and unterminated lease contracts totalled EUR 49.6 million in the reporting period. As a result, expenses for settlement of claims and risk provision rose by 86.3 percent to EUR 113.0 million, compared to EUR 60.7 million in the first half of the prior year. For more information on the settlement of claims and risk provision, please refer to section 5 on page 26 of the condensed notes to the consolidated financial statements.
The loss rate, which represents the ratio of settlement of claims and risk provision (numerator) to the volume of leased assets (denominator), was
2.5 percent for the first half of the year (Q1-Q2 2019: 1.6 percent). This increase resulted from both higher risk provisions and merely slight growth in the volume of leased assets. Due to the lower new business volume in the first half-year, the volume of leased assets (June 30, 2020: EUR 8,794.3 million), consisting of the net purchase values of all current leases, increased only slightly compared the end of 2019 (December 31, 2019: EUR 8,474 million). The rise in the loss rate as a result of the COVID-19 pandemic is thus attributable to the increase in risk provision- ing and the disproportionately low growth in the volume of leased assets.
10
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
Net interest income after settlement of claims and risk provision in the first half-year, fell 26.2 percent to EUR 86.1 million (Q1-Q2 2019: EUR 116.6 million).
Profit from service business increased by 22.9 percent during the half- year period and continued to benefit from the high volume of new business in previous years. The decline in profit from new business of 18.3 percent to EUR 23.3 million (Q1-Q2 2019: EUR 28.5 million) reflected the decline in new business in the first half-year due to the COVID-19 pan- demic. At EUR -1.5 million, net gains/losses from disposals were negative as in the same prior-year period (Q1-Q2 2019: EUR -0.3 million), resulting in a year-on-year decline in income from operating business of 13.8 percent to EUR 164.4 million (Q1-Q2 2019: EUR 190.7 million).
Staff costs rose by 3.3 percent to EUR 58.2 million compared to EUR 56.4 million in the prior-year period. The increase of 8.3 percent in the average number of employees to 1,751 (based on full-time equivalents; Q1-Q2 2019: 1,617) was offset by a decrease in variable compensation of 8.0 percent. Depreciation and amortisation increased by 6.4 percent in the first half-year to EUR 14.8 million (Q1-Q2 2019: EUR 13.9 million). Selling and administrative expenses, in contrast, declined by 6.1 percent to EUR
- million (Q1-Q2 2019: EUR 36.7 million). Within this item, there was a significant decrease in selling expenses, mainly due to lower marketing and travel expenses in the second quarter as a result of the COVID-19 pandemic. The significant increase in other operating expenses to EUR
- million (Q1-Q2 2019: EUR 5.2 million) resulted primarily from foreign currency translation differences of EUR -6.0 million (Q1-Q2 2019: EUR -
- million), mainly due to temporary differences during the term of foreign currency hedging relationships that do not 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 decisive and will be realised. Other operating income amounted to EUR 3.5 million compared to EUR 5.0 million in the first half of the previous year. Given the lower overall costs, the cost-income ratio declined to 41.9 percent in the first half of 2020, compared to a level of
- percent in the first half of the prior year. As explained in the Annual Report 2019, it is important to highlight that, starting with the 2020 finan- cial year, GRENKE has been calculating the cost-income ratio in accord- ance with the calculation method customary in the financial sector, with- out taking into account expenses for settlement of claims and risk provi- sion.
Due to the higher expenses from settlement of claims and risk provision, the operating result for the first six months of the 2020 financial year was EUR 51.5 million (Q1-Q2 2019: EUR 83.5 million), representing a decline of 38.3 percent. Earnings before taxes fell by 42.5 percent to EUR 46.6 million (Q1-Q2 2019: EUR 81.1 million). The comparatively sharper decline in earnings before taxes was also due to other interest expenses, which had increased to EUR 4.5 million (Q1-Q2 2020: EUR 2.2 million).
These expenses resulted primarily from negative interest on credit balances at the Deutsche Bundesbank. The tax rate for the reporting period was 18.5 percent, compared to 15.9 percent in the first half of the previous year. Net profit in the first half of 2020 amounted to EUR 38.0 million. This compared to EUR 68.2 million reported in the first half of 2019 for a decline of 44.3 percent. Earnings per share in the first half-year totalled EUR 0.66 (Q1-Q2 2019: EUR 1.33).
3 . 1 . 2 S E CO N D Q U A RT E R CO M P A RI S O N 2 0 2 0 V E R S US 2 0 1 9
Interest and similar income from the financing business rose by 9.7 percent in the second quarter of 2020 compared to the same prior-year pe- riod. In the same period, interest expenses on refinancing rose by 15.1 percent, resulting in a rise in net interest income in the second quarter of
8.8 percent to EUR 98.0 million (Q2 2019: EUR 90.1 million). Expenses for settlement of claims and risk provision rose 92.3 percent to EUR 62.2 million in the second quarter of 2020 (Q2 2019: EUR 32.4 million) as a result of the COVID-19 pandemic. Consequently, the loss rate for the Consolidated Group increased to 2.8 percent (Q2 2019: 1.6 percent). These higher losses led to a drop in net interest income after settlement of claims and risk provision in the second quarter of 2020 of 38.0 percent to EUR 35.8 million (Q2 2019: EUR 57.7 million).
Profit from service business increased by 14.9 percent to EUR 27.6 million in the reporting quarter (Q2 2019: EUR 24.0 million) and continued to benefit from the high volume of new business in previous years. In con- trast, the 35.9 percent decline in the profit from new business to EUR 9.6 million (Q2 2019: EUR 14.9 million) reflects the decline in new business in the second quarter of 2020. As in the prior-year period, the gains/losses from disposals were slightly negative at EUR 0.5 million (Q2 2019: EUR -0.1 million). In total, the income from operating business in the second quarter of 2020 fell by 24.9 percent to EUR 72.5 million (Q2 2019: EUR 96.5 million).
Staff costs in the second quarter fell 2.9 percent to EUR 27.9 million (Q2 2019: EUR 28.8 million), primarily as a result of lower variable compensation components. The high level of capital expenditure in previous years led to an increase in depreciation and amortisation of 7.8 percent to EUR 7.3 million (Q2 2019: EUR 6.8 million). Selling and administrative expenses decreased by 16.5 percent to EUR 15.5 million (Q2 2019: EUR
18.6 million). As explained in the description of the half-year figures, this decline was mainly a result of lower marketing and travel expenses. The balance of other operating income and expenses was EUR -1.5 million in the reporting quarter (Q2 2019: EUR -0.7 million). Consequently, the cost- income ratio declined to 40.2 percent in the second quarter of 2020 (Q2 2019: 43.9 percent).
11
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
The increase in risk provision caused a decline in the operating result in the second quarter of 2020 of 51.7 percent to EUR 20.2 million (Q2 2019: EUR 41.7 million). Earnings before taxes declined by 56.9 percent to EUR
- million (Q2 2019: EUR 40.4 million). Based on a higher tax rate of
- percent (Q2 2019: 15.0 percent), the net profit in the reporting quar- ter declined by 58.6 percent to EUR 14.2 million (Q2 2019: EUR 34.4 million), resulting in earnings per share of EUR 0.31 (Q2 2019: EUR 0.74). From an economic standpoint, a corresponding periodic deferral of inter- est payments for hybrid capital results in earnings per share of EUR 0.26 (Q2 2019: EUR 0.71).
3 . 1 . 3 I NT E RI M DE V E L O P M E NT O F R E S U L T S O F O P E R A T I O N S
In contrast to the previous reporting format, an additional comparison of the second quarter 2020 earnings development with the first quarter 2020 development is presented below. The effects of the COVID-19 pandemic on the Consolidated Group's business development can be presented in
- more meaningful and transparent manner than in a year-on-year com- parison.
Net interest income in the second quarter decreased by 3.1 percent compared to the first quarter of the year and amounted to EUR 98.0 million (Q1 2020: EUR 101.1 million). This decline was a result of the COVID-19 pandemic, the effects of which on the Consolidated Group's business became apparent only in the final weeks of the first quarter. In contrast, the pandemic had a negative impact on contracting new business, as well as on the generation of the related interest income throughout the second quarter. The aforementioned increase in the risk provisions in accordance with IFRS 9 - particularly in the markets in France and Italy - led to expenses for settlement of claims and risk provision of EUR 62.2 million in the second quarter (Q1 2020: EUR 50.8 million). Consequently, net interest income after settlement of claims and risk provision fell sequentially by 28.9 percent to EUR 35.8 million in the reporting quarter (Q1 2020: EUR 50.3 million).
The profit from service business was slightly lower than in the first quarter of 2020, declining 4.2 percent to EUR 27.6 million. Profit from new business declined 30.3 percent to EUR 9.6 million (Q1 2020: EUR 13.7 mil- lion) and reflected the drop in new business in the second quarter of 2020. At EUR -0.5 million, gains/losses on disposal were negative again as in the first quarter (Q1 2020: EUR -1.0 million). The income from operating business in the second quarter of 2020 fell by a total of 21.2 percent to EUR 72.5 million (Q1 2020: EUR 91.9 million).
Staff costs in the second quarter fell by 7.8 percent to EUR 27.9 million (Q1 2020: EUR 30.3 million). Depreciation and amortisation totalled EUR
7.3 million, which was the same level as the previous quarter (Q1 2020: EUR 7.5 million). Selling and administrative expenses, in contrast, de- clined 18.2 percent to EUR 15.5 million (Q1 2020: EUR 19.0 million). The balance of other operating income and expenses in the reporting quarter amounted to EUR -1.5 million (Q1 2020: EUR -3.8 million). The first quar- ter's figure included the majority of the foreign currency translation differ- ences mentioned above. The overall reduction in costs in the second quarter led to a cost-income ratio of 40.2 percent compared to 43.5 per- cent in the first quarter of 2020. Higher risk provisioning led to a fall in the operating result for the second quarter of 35.7 percent to EUR 20.2 million (Q1 2020: EUR 31.4 million). Earnings before taxes in the second quarter declined 40.2 percent to EUR 17.4 million (Q1 2020: EUR 29.1 million).
The sharply higher Bundesbank balances in the second quarter resulted in notable negative interest rates and led to an increase in other interest expenses to EUR 3.2 million (Q1 2020: EUR 1.4 million) and weighed on the earnings before taxes.
At 18.4%, the tax rate for the second quarter was almost unchanged compared to the first quarter (Q1 2020: 18.5%). Net profit amounted to EUR
14.2 million in the second quarter, compared to EUR 23.7 million in the first quarter and resulted in earnings per share of EUR 0.31 for the report- ing quarter (Q1 2020: EUR 0.35).
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. Based on a periodic deferral of interest payments, earnings per share for the second quarter of 2020 amounted to EUR 0.26 (Q1 2020: EUR 0.46).
S E G M E NT D E V E L O P M E NT
3.1.3.1 Business Segments
Segment reporting is based on the organisational structure of the Consolidated Group. The Consolidated Group's operating segments are defined accordingly based on the management of the business areas in the Leasing, Banking and Factoring segments. Further information on the business segments is provided in the Consolidated Group's segment reporting on page 33, which is part of the notes to the condensed interim consolidated financial statements.
3.1.3.2 Business Development
Operating income in the Leasing segment declined in the first half of 2020 compared to the same prior-year period by 19.1 percent from EUR 174.8 million to EUR 141.4 million. The segment result fell by 43.7 percent to EUR 41.9 million (Q1-Q2 2019: EUR 74.3 million). Due to the strong growth in lending to SMEs, the Banking segment increased its operating income in the first half of 2020 by 51.7 percent to EUR 21.5 million (Q1- Q2 2019: EUR 14.2 million). The segment result grew 21.0 percent to
12
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
EUR 11.7 million compared to EUR 9.7 million in the first half of the prior year. Operating income in the Factoring segment declined by 20.0 percent to EUR 1.4 million (Q1-Q2 2019: EUR 1.8 million). The segment's loss amounted to EUR -2.1 million, compared to EUR -0.5 million in the
same period of the previous year as a result of the continued investment in the sales infrastructure and start-up costs for the stronger international positioning of the business.
3.2 NET ASSETS AND FINANCIAL POSIT ION
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 | Jun. 30, 2020 | Dec. 31, 2019 |
Current assets | 3,616,511 | 2,972,450 |
of which cash and cash equivalents | 1,077,981 | 434,379 |
of which lease receivables | 2,021,168 | 1,901,181 |
Non-current assets | 4,072,785 | 4,175,032 |
of which lease receivables | 3,636,025 | 3,744,735 |
Total assets | 7,689,296 | 7,147,482 |
Current liabilities | 2,212,277 | 1,861,352 |
of which financial liabilities | 2,010,946 | 1,716,313 |
Non-current liabilities | 4,204,520 | 4,037,380 |
of which financial liabilities | 4,096,375 | 3,924,353 |
Equity | 1,272,499 | 1,248,750 |
Equity ratio (in percent) | 16.6 | 17.5 |
Total liabilities and equity | 7,689,296 | 7,147,482 |
Embedded value incl. equity after taxes | 1,741,957 | 1,791,388 |
3 . 2 . 1 NE T A S S E T S | The decline in other current assets to EUR 200.2 million (December 31, |
2019: EUR 322.7 million) resulted largely from a reporting date-related | |
Total assets of the GRENKE Consolidated Group as of June 30, 2020 | |
decline in VAT refund claims. | |
increased by 7.6 percent to EUR 7.7 billion compared to the end of the | |
2019 financial year (December 31, 2019: EUR 7.1 billion). The rise in total | On the liabilities side of the balance sheet, current and non-current finan- |
assets was mainly a result of higher cash and cash equivalents, which | cial liabilities increased in total by 8.3 percent to EUR 6.1 billion (Decem- |
more than doubled to EUR 1.1 billion as of the reporting date (December | ber 31, 2019: EUR 5.6 billion). The largest position in this item was current |
31, 2019: EUR 0.4 billion). The increase in cash and cash equivalents | and non-current liabilities from refinancing, which increased by 0.8 per- |
was primarily a result of higher deposit volumes at GRENKE Bank. In light | cent to EUR 4.8 billion compared to the end of 2019 (December 31, 2019: |
of the current overall economic situation, the GRENKE Consolidated | EUR 4.7 billion). Current and non-current liabilities from the deposit busi- |
Group is placing a special focus on maintaining sufficient liquidity re- | ness rose by 48.0 percent to EUR 1.3 billion (December 31, 2019: EUR |
serves to give it the flexibility to respond to market conditions. The Con- | 0.9 billion). |
solidated Group also has a regulatory obligation to maintain a liquidity | Deferred lease payments recorded a reporting date-related rise to EUR |
buffer. As of the reporting date, EUR 849.4 million (December 31, 2019: | |
83.2 million as of June 30, 2020 (December 31, 2019: EUR 23.6 million). | |
EUR 212.2 million) were held in accounts at the Deutsche Bundesbank, | |
As this balance sheet item is often subject to major fluctuations during the | |
which, due to the negative interest rate on deposits in the amount of -0.5 | |
course of the year, an increase of 31.8 percent was recorded compared | |
percent, caused corresponding interest expenses. | |
to June 30, 2019. | |
The Consolidated Group's largest balance sheet item - current and non- | Consolidated Group equity amounted to EUR 1,272.5 million as of June |
current lease receivables - remained virtually unchanged at EUR 5.7 bil- | |
30, 2020 (December 31, 2019: EUR 1,248.8 million), amounting to an | |
lion (December 31, 2019: EUR 5.6 billion). This development reflects the | |
increase of 1.9 percent. The Consolidated Group's net profit of EUR 38.0 | |
low volume of new business in the first half of 2020. | |
million generated in the reporting period was offset by interest payments | |
on hybrid capital (EUR 7.4 million) and negative effects from currency |
13
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
translation (EUR 8.9 million). A positive effect of EUR 2.4 million, how- ever, resulted from the fair value measurement of hedging instruments. Due to the increase in total assets resulting from the higher level of cash and cash equivalents, the equity ratio fell to 16.6 percent as of June 30, 2020 (December 31, 2019: 17.5 percent). Nevertheless, the Consolidated Group's equity base continued to exceed the long-term benchmark of a minimum 16.0 percent.
3 . 2 . 2 L I Q U I D I T Y
As a result of the high level of cash and cash equivalents and broadly diversified refinancing structure, the GRENKE Consolidated Group was in a position to meet its payment obligations at all times during the half- year under review.
In the first half of 2020, the subsidiary Grenke Finance PLC issued three new fixed-interest bonds with a total gross volume of EUR 210 million and HKD 300 million. Further information on these bond issues is presented in the notes to the condensed interim consolidated financial statements and is also available on the Company's website at www.grenke.com/in- vestor-relations/debt-capital/issued-bonds. A promissory note in the amount of EUR 19 million was also issued. In the short-term segment during the first half-year, GRENKE carried out eight commercial paper issues in the amount of EUR 70 million. Bonds in the amount of EUR 153 million and promissory notes totalling EUR 21.5 million, DKK 33 million and SEK 33 million were redeemed in the reporting period.
The utilisation of ABCP programmes as of June 30, 2020 amounted to EUR 746.0 million and GBP 113.8 million (December 31, 2019: EUR 713,1 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 available volumes from bonds and commercial paper) amounted to EUR 3,145.7 million, PLN 39.0 million, HRK 40.0 million and CHF 11.6 million as of the 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 has also enhanced its cooperation with development banks and expanded the existing programmes to provide further support for SMEs. In April 2020, a EUR 90 million loan from the European Investment Bank (EIB) was disbursed.
Refinancing via bank deposits of GRENKE Bank amounted to EUR 1,312.2 million as of June 30, 2020 compared to EUR 769.9 million at the same prior-year date, corresponding to an increase of 70.5 percent.
3 . 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-Q2 | Q1-Q2 |
Cash flow from operating activities | 674,350 | 49,945 |
Net cash flow from operating activities | 667,571 | 36,359 |
Cash flow from investing activities | -9,266 | -10,846 |
Cash flow from financing activities | -15,638 | -50,462 |
Total cash flow | 642,667 | -24,949 |
Cash flow from operating activities improved significantly in the first half of 2020 to EUR 674.4 million (Q1-Q2 2019: EUR 49.9 million). The increase resulted from the aforementioned sharp rise in liabilities from the deposit business (EUR 427.3 million compared to EUR 78.3 million in same prior-year period) and the lower year-on-year rise in lease receivables (EUR 11.3 million compared to EUR 481.0 million) due to the lower volume of new business in the first half of the year. These developments were offset by a lower increase in liabilities from refinancing (EUR 38.4 million compared to EUR 452.5 million). In addition, the change in other assets resulted in a cash inflow of EUR 101.2 million in the first half of the reporting year, which compares to a cash outflow of EUR 114.7 million in the same prior-year period. The change in other assets was mainly a result of lower input tax credits.
After interest and taxes paid and received, net cash flow from operating activities for the first half-year equalled EUR 667.6 million (Q1-Q2 2019: EUR 36.4 million).
Cash flow from investing activities amounted to EUR -9.3 million in the first half of 2020 (Q1-Q2 2019: EUR -10.8 million) and mainly included payments for the acquisition of property, plant and equipment and intangible assets of EUR 9.5 million (Q1-Q2 2019: EUR 11.0 million).
Cash flow from financing activities amounted to EUR -15.6 million in the first half of 2020 (Q1-Q2 2019: EUR -50.5 million). The improvement resulted from the fact that the dividend for the 2019 financial year has not yet been paid due to the postponement of the 2020 ordinary Annual General Meeting. The cash flow from the previous year included a dividend payment for the 2018 financial year of EUR 37.1 million. Consequently, the largest position in the first half of 2020 is the interest payment on hybrid capital of EUR 10.7 million (Q1-Q2 2019: EUR 9.4 million). The repayment of lease liabilities also led to a cash outflow of EUR 5.8 million (Q1-Q2 2019: EUR 4.8 million).
14
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
Total cash flow for the first half of the 2020 financial year therefore amounted to EUR 642.7 million (Q1-Q2 2019: EUR -24.9 million). Cash and cash equivalents increased accordingly to EUR 1,077.9 million as of June 30, 2020, compared to EUR 434.3 million at the end of 2019.
4 . RELATED PARTY DISCLOSURES
For information on related party disclosures, see the notes to the condensed interim consolidated financial statements on page 24.
5 . REPORT ON RISKS, OPPORTUNITIES AND FORECAST
5.1 OPPORTUNITIES AND RISKS
Due to the restrictions on macroeconomic activity resulting from the COVID-19 pandemic in the first half of 2020, uncertainty has increased significantly in comparison to the environment described in the 2019 Annual Report, particularly with respect to credit and liquidity risks.
The economists at the IMF now expect a recession of unprecedented scale 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 rise in corporate insolvencies is still expected in the current financial year. Euler Hermes, for example, expects a 20 percent increase in the number of insolvencies worldwide in 2020. In the first half of 2020, the payment behaviour of the Consolidated Group's clients also changed due to the overall economic environment, although an improvement could already be seen in June and July of 2020 compared to the months before. As a result of late or missed payment receipts, an increase in losses in the current financial year is therefore to be expected and is reflected in the higher IFRS 9 risk provision as of June 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 June 30, 2020. Since the assessment in the first quarter of 2020 of the initial 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.
As already communicated upon the publication of the first quarter 2020 interim report, the rating agency Standard & Poor's confirmed the Consolidated Group's counterparty credit rating of BBB+/ A-2 in its last analysis on April 23, 2020 and revised the outlook for GRENKE AG from stable to negative due to the expected impact of the COVID-19 pandemic. In its statement, the rating agency cited tougher economic conditions in GRENKE's main European markets over the next 18-24 months.
The economic environment does offer opportunities in that insights and observations can be integrated into risk measurement at an early stage, thus making it possible to adjust the risk when concluding contracts. GRENKE strives for the best possible balance between risk and contribution margin. In addition, the Company's relationship with its customers and partners are strengthened by the fact that GRENKE continues to support companies in the implementation of investment projects.
5.2 MACROECONOMIC AND INDUSTRY - SPECIFIC ENVIRONMENT
In June 2020, the IMF lowered its outlook for the global economy, and based on an even sharper negative impact from the corona pandemic than originally expected, anticipates a decline in the current year of 4.9 percent. In April 2020, the IMF had forecast a decline of only 3.0 percent. The lower outlook mainly concerns the advanced economies and especially the eurozone for which the IMF now expects a decline of 10.2 percent (April estimate: -7.5 percent). The IMF is assuming that economic development probably bottomed in the second quarter of 2020. A gradual recovery is expected in the coming quarters, but at a slower pace than expected in April. The development of the ifo business climate index, which recorded unprecedented slumps in March and April 2020, supports the assumption that the German economy will recover in the second half of the year. The index rose again significantly in both May and June. For 2021, the IMF is forecasting global economic growth of 5.4 percent and growth in the eurozone of 6.0 percent.
15
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D T H E F I R S T H A L F - Y E A R 2 0 2 0
5.3 COMPANY FORECAST
As previously announced on July 2, 2020, upon the publication of the new business figures for the second quarter of 2020, the impact of the COVID- 19 pandemic on the further development of the business and earnings of the GRENKE Consolidated Group cannot yet be assessed with any certainty and was not taken into consideration in the forecast for the 2020 financial year published on February 11, 2020. In light of the general economic restrictions resulting from the COVID-19 pandemic, the Board of Directors is currently assuming that the level of new business in the third quarter of 2020 will amount to roughly 70 percent of the prior-year level. Consequently, new business development for the current financial year as a whole remains dependent on the further course of the COVID- 19 pandemic. At the beginning of the year, the initial target for new business growth was between 14 and 18 percent.
The Consolidated Group can operate profitably during this crisis with a lower volume of new business and appropriate cost savings, 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 will update and provide a more concrete forecast for the 2020 financial year as soon as the impact of the COVID-19 pandemic can be quantified with sufficient certainty.
16
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
NEW BUSINESS GRENKE GROUP LEASING | PROXIMITY TO THE |
by regions, Q1-Q2 2020 | CUSTOMER |
Regions / Markets | |||||||
47.1 | 33 | WORLDWIDE | |||||
Other regions | On 5 continents for our customers | ||||||
visible, market entry USA | |||||||
182.6 | |||||||
+1 | |||||||
289.9 | 1,083.6 | Northern / Eastern | |||||
DACH | Europe | ||||||
total in EURk | NEW FRANCHISE LOCATION | SITE | |||||
IN PHOENIX, ARIZONA | |||||||
300.9 | ON | ||||||
263.2 | |||||||
Southern Europe | |||||||
Western Esurope | LOCATIONS | ||||||
(without DACH) | GRENKE GROUP | ||||||
153 | |||||||
CONSOLIDATED | EARNINGS PER | EQUITY RATIO | KEY FIGURES | ||||
GROUP NET PROFIT | SHARE | 16.6 | |||||
14.2 | 0.31 | ||||||
Percent | SOLID | ||||||
EUR million | EUR | ||||||
THREE PILLARS: GRENKE CONSOLIDATED | BASE | ||||||
GROUP'S REFINANCING MIX | |||||||
GRENKE Bank | 29 | REFINANCING | |||||
% | |||||||
June 30, 2020 | |||||||
BROAD | |||||||
Asset-based | 16 | ||||||
Senior unsecured | 55 | ||||||
eSIGNATURE QUOTE
28.6
percent of all new leasing contracts were fully digitally completed.
eSIGNATURE
Number of countries
20
eSignature is used in 20 countries.
DIGITAL ALIGNMENT
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
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 2 | Q 1 - Q 2 | ||||||
Apr. 1, 2020 | Apr. 1, 2019 | Jan. 1, 2020 | Jan. 1, 2019 | |||||
EURk | to Jun. 30, 2020 | to Jun. 30, 20191 | to Jun. 30, 2020 | to Jun. 30, 20191 | ||||
Interest and similar income from financing business2 | 113,734 | 103,723 | 229,305 | 203,474 | ||||
Expenses from interest on refinancing and deposit business | 15,732 | 13,667 | 30,192 | 26,162 | ||||
Net interest income | 98,002 | 90,056 | 199,113 | 177,312 | ||||
Settlement of claims and risk provision | 62,246 | 32,367 | 113,037 | 60,684 | ||||
Of which, impairment losses | 59,804 | 30,644 | 109,492 | 57,508 | ||||
Net interest income after settlement of claims and risk provision | 35,756 | 57,689 | 86,076 | 116,628 | ||||
Profit from service business | 27,620 | 24,040 | 56,464 | 45,947 | ||||
Profit from new business | 9,562 | 14,923 | 23,290 | 28,493 | ||||
Gains(+) / losses (-) from disposals | -488 | -130 | -1,462 | -329 | ||||
Income from operating business | 72,450 | 96,522 | 164,368 | 190,739 | ||||
Staff costs | 27,937 | 28,759 | 58,241 | 56,390 | ||||
Depreciation and impairment | 7,304 | 6,776 | 14,775 | 13,891 | ||||
Selling and administrative expenses (not including staff costs) | 15,522 | 18,590 | 34,494 | 36,748 | ||||
Other operating expenses | 3,109 | 3,317 | 8,777 | 5,192 | ||||
Other operating income | 1,599 | 2,663 | 3,458 | 4,961 | ||||
Operating result | 20,177 | 41,743 | 51,539 | 83,479 | ||||
Result from investments accounted for using the equity method | -103 | -48 | -218 | -89 | ||||
Expenses / income from fair value measurement | -259 | -513 | -1,313 | -801 | ||||
Other interest income | 790 | 382 | 1,108 | 672 | ||||
Other interest expenses | 3,170 | 1,148 | 4,545 | 2,202 | ||||
Earnings before taxes | 17,435 | 40,416 | 46,571 | 81,059 | ||||
Income taxes | 3,205 | 6,061 | 8,601 | 12,907 | ||||
Net profit | 14,230 | 34,355 | 37,970 | 68,152 | ||||
Ordinary shareholders and hybrid capital holders of GRENKE AG | 14,230 | 34,355 | 37,970 | 68,152 | ||||
Earnings per share (basic/diluted in EUR) | 0.31 | 0.74 | 0.66 | 1.33 | ||||
Average number of shares outstanding | 46,353,918 | 46,353,918 | 46,353,918 | 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 5,503k (previous year: EUR 4,088k).
18
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 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 2 | Q 1 - Q 2 | ||||||
Apr. 1, 2020 | Apr. 1, 2019 | Jan. 1, 2020 | Jan. 1, 2019 | ||||
to Jun. 30, 2020 | to Jun. 30, 20191 | to Jun. 30, 2020 | to Jun. 30, 20191 | ||||
14,230 | 34,355 | 37,970 | 68,152 | ||||
-4,164 | 5 | 2,107 | 11 | ||||
595 | -1 | -301 | -2 | ||||
-2,427 | -1,361 | -8,900 | 521 | ||||
Change in value of equity instruments recognised in other comprehensive income (option under | - | - | - | - |
IFRS 9) | ||||
Thereof: income tax effects | ||||
Appropriation to / reduction of reserve for actuarial gains and losses | - | - | - | - |
Thereof: income tax effects | ||||
Other comprehensive income | -6,591 | -1,356 | -6,793 | 532 |
Total comprehensive income | 7,639 | 32,999 | 31,177 | 68,684 |
Ordinary shareholders and hybrid capital holders of GRENKE AG | 7,639 | 32,999 | 31,177 | 68,684 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
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 | Jun. 30, 2020 | Dec. 31, 2019 |
Assets | ||
Current assets | ||
Cash and cash equivalents | 1,077,981 | 434,379 |
Derivative financial instruments that are assets | 5,108 | 946 |
Lease receivables | 2,021,168 | 1,901,181 |
Other current financial assets | 250,480 | 252,504 |
Trade receivables | 10,403 | 9,272 |
Lease assets for sale | 27,497 | 24,038 |
Tax assets | 23,659 | 27,450 |
Other current assets | 200,215 | 322,680 |
Total current assets | 3,616,511 | 2,972,450 |
Non-current assets | ||
Lease receivables | 3,636,025 | 3,744,735 |
Derivative financial instruments that are assets | 6,600 | 1,492 |
Other non-current financial assets | 100,848 | 96,650 |
Investments accounted for using the equity method | 4,705 | 4,923 |
Property, plant and equipment | 115,469 | 109,092 |
Right-of-use assets | 50,015 | 50,315 |
Goodwill | 102,395 | 106,555 |
Other intangible assets | 36,101 | 37,899 |
Deferred tax assets | 19,236 | 21,967 |
Other non-current assets | 1,391 | 1,404 |
Total non-current assets | 4,072,785 | 4,175,032 |
Total assets | 7,689,296 | 7,147,482 |
19
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 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 | Jun. 30, 2020 | Dec. 31, 2019 |
Liabilities and equity | ||
Liabilities | ||
Current liabilities | ||
Financial liabilities | 2,010,946 | 1,716,313 |
Lease liabilities | 11,852 | 12,148 |
Derivative liability financial instruments | 3,918 | 8,506 |
Trade payables | 24,827 | 35,890 |
Tax liabilities | 5,346 | 3,059 |
Deferred liabilities | 22,668 | 30,219 |
Other current liabilities | 49,516 | 31,583 |
Deferred lease payments | 83,204 | 23,634 |
Total current liabilities | 2,212,277 | 1,861,352 |
Non-current liabilities | ||
Financial liabilities | 4,096,375 | 3,924,353 |
Lease liabilities | 39,354 | 38,679 |
Derivative liability financial instruments | 8,606 | 7,445 |
Deferred tax liabilities | 54,558 | 61,676 |
Pensions | 5,544 | 5,128 |
Non-current provisions | 83 | 99 |
Total non-current liabilities | 4,204,520 | 4,037,380 |
Equity | ||
Share capital | 46,354 | 46,354 |
Capital reserves | 289,314 | 289,314 |
Retained earnings | 743,214 | 712,672 |
Other components of equity | -6,383 | 410 |
Total equity attributable to shareholders of GRENKE AG | 1,072,499 | 1,048,750 |
Additional equity components 1 | 200,000 | 200,000 |
Total equity | 1,272,499 | 1,248,750 |
Total liabilities and equity | 7,689,296 | 7,147,482 |
1 Including AT1 bonds (hybrid capital), which are reported as equity under IFRS.
20
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 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-Q2 | Q1-Q21 | |
Earnings before taxes | 46,571 | 81,059 | |
Non-cash items contained in earnings and reconciliation to cash flow from operating activities | |||
+ | Depreciation and impairment | 14,775 | 13,891 |
- / + | Profit / loss from the disposal of property, plant, and equipment and intangible assets | -37 | -24 |
- / + | Net income from non-current financial assets | 3,165 | 1,281 |
- / + | Other non-cash effective income / expenses | 162 | 1,255 |
+ / - | Increase / decrease in deferred liabilities, provisions, and pensions | -7,151 | -3,076 |
- | Additions to lease receivables | -1,135,429 | -1,396,859 |
+ | Payments by lessees | 1,098,066 | 942,487 |
+ | Disposals / reclassifications of lease receivables at residual carrying amounts | 191,910 | 176,868 |
- | Interest and similar income from leasing business | -221,551 | -197,150 |
+ / - | Decrease / increase in other receivables from lessees | 19,636 | -5,365 |
+ / - | Currency translation differences | 36,091 | -932 |
= | Change in lease receivables | -11,277 | -480,951 |
- Addition to liabilities from refinancing
- Payment of annuities to refinancers
- Disposal of liabilities from refinancing
- Expenses from interest on refinancing
- / - Currency translation differences
880,191 | 1,331,237 |
-717,932 | -879,836 |
-123,193 | -24,249 |
26,458 | 24,054 |
-27,078 | 1,257 |
= | Change in refinancing liabilities | 38,446 | 452,463 |
+ / - | Increase / decrease in liabilities from deposit business | 427,349 | 78,321 |
- / + | Increase / decrease in loans to franchisees | 175 | -25,200 |
Changes in other assets / liabilities | |||
- / + | Increase / decrease in other assets | 101,211 | -114,656 |
- / + | Increase / decrease in lease assets from operating leases | -2,052 | -10,133 |
+ / - | Increase / decrease in deferred lease payments | 59,570 | 38,390 |
+ / - | Increase / decrease in other liabilities | 3,443 | 17,325 |
= | Cash flow from operating activities | 674,350 | 49,945 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
continued on next page
21
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 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-Q2 | Q1-Q21 | |
- / + | Income taxes paid / received | -3,342 | -12,056 |
- | Interest paid | -4,545 | -2,202 |
+ | Interest received | 1,108 | 672 |
= | Net cash flow from operating activities | 667,571 | 36,359 |
- | Payments for the acquisition of property, plant and equipment and intangible assets | -9,523 | -10,985 |
- / + | 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 | 257 | 779 |
= | Cash flow from investing activities | -9,266 | -10,846 |
+ / - | Borrowing / repayment of bank liabilities | 875 | 759 |
- | Repayment of lease liabilities | -5,849 | -4,763 |
- | Interest coupon payments on hybrid capital | -10,664 | -9,375 |
- | Dividend payments | 0 | -37,083 |
= | Cash flow from financing activities | -15,638 | -50,462 |
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
- Cash funds after currency translation Cash funds at end of period
950 | -19 |
435,256 | 330,495 |
Cash in hand and bank balances | 1,077,981 | 309,252 | ||
- | Bank liabilities from overdrafts | -58 | -3,706 | |
= | Cash and cash equivalents at end of period | 1,077,923 | 305,546 | |
Change in cash and cash equivalents during the period (= total cash flow) | 642,667 | -24,949 | ||
Net cash flow from operating activities | 667,571 | 36,359 | ||
+ | Cash flow from investing activities | -9,266 | -10,846 | |
+ | Cash flow from financing activities | -15,638 | -50,462 | |
= | Total cash flow | 642,667 | -24,949 | |
1 | Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements). |
22
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 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
EURk | Revaluation | |||||||||
Retained | reserve for | Total equity | ||||||||
earnings / | Reserve for | equity | attributable to | Additional | ||||||
Share | Capital | Consolidated | Hedging | actuarial | Currency | instruments shareholders of | equity | Total | ||
capital | reserves | net profit | reserve | gains / losses | translation | (IFRS 9) | GRENKE AG | components | equity | |
Equity | 46,354 | 289,314 | 712,672 | -2,193 | -1,393 | 1,641 | 2,355 | 1,048,750 | 200,000 | 1,248,750 |
as of Jan. 1, 2020 | ||||||||||
Net profit | 37,970 | 37,970 | 37,970 | |||||||
Other comprehen- | 2,107 | -8,900 | -6,793 | -6,793 | ||||||
sive income | ||||||||||
Dividend payment | 0 | 0 | ||||||||
in 2020 for 2019 | ||||||||||
Interest coupon | ||||||||||
payment on | 0 | -7,428 | -7,428 | |||||||
hybrid capital (net) | ||||||||||
Interest coupon for | ||||||||||
hybrid capital | -7,428 | -7,428 | 7,428 | 0 | ||||||
(net) | ||||||||||
Equity | 46,354 | 289,314 | 743,214 | -86 | -1,393 | -7,259 | 2,355 | 1,072,499 | 200,000 | 1,272,499 |
as of Jun. 30, 2020 | ||||||||||
Equity | ||||||||||
as of Jan. 1, 2019 | 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 | 68,152 | 68,152 | 68,152 | |||||||
Other comprehen- | 11 | 521 | 532 | 532 | ||||||
sive income | ||||||||||
Dividend payment | -37,083 | -37,083 | -37,083 | |||||||
in 2019 for 2018 | ||||||||||
Interest coupon | ||||||||||
payment on | 0 | -6,531 | -6,531 | |||||||
hybrid capital (net) | ||||||||||
Interest coupon for | -6,531 | -6,531 | 6,531 | 0 | ||||||
hybrid capital (net) | ||||||||||
Equity | ||||||||||
as of Jun. 30, 20191 | 46,354 | 289,314 | 640,050 | 4 | -828 | -198 | 2,295 | 976,991 | 125,000 | 1,101,991 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
23
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
1 . GENERAL INFORMATION
GRENKE AG is a stock corporation with its registered office located at Neuer Markt 2, Baden-Baden, Germany. The Company is recorded in the commercial register at the local court of Mannheim, Section B, under HRB 201936. The subject matter of GRENKE AG's condensed interim consolidated financial statements ("interim consolidated financial state- ments") as of June 30, 2020, is GRENKE AG, its subsidiaries and consolidated structured entities ("the GRENKE Consolidated Group"). These interim consolidated financial statements have been prepared in accordance with the IFRSs applicable for interim reporting (IAS 34) as published by the International Accounting Standards Board ("IASB") and adopted by the European Union (EU) into European law. These interim consolidated financial statements should be read in conjunction with the IFRS consolidated financial statements as of December 31, 2019. The condensed interim consolidated financial statements and the interim group management report as of June 30, 2020 have neither been audited nor subject to an audit review as defined by Section 115 (5) of the German Securities Trading Act (WphG).
1.1 C O V ID - 19 PANDEMIC
The global economy was severely affected by the COVID-19 pandemic in the first half of 2020. This development also affected the interim financial statements of the GRENKE Consolidated Group. GRENKE responded by establishing working groups to deal with the potential effects of the pandemic on the business areas and decide on the corresponding actions to take. One of these actions was the conclusion of deferral agreements with customers. For more details on the actions taken as a result of the current effects of the pandemic, please refer to the information provided in the interim group management report.
2 . ACCOUNTING POLICIES
The accounting policies applied in the interim consolidated financial statements are generally the same as those applied in the previous year. Exceptions relate to changes resulting from the mandatory application of new accounting standards discussed in the paragraph below. Early application was waived for the amended standards and interpretations that will be mandatory in the 2021 financial year or later. GRENKE AG will apply these standards to the consolidated financial statements at the time of their mandatory application.
The same accounting and valuation methods apply to these interim financial statements as to the consolidated financial statements as of December 31, 2019, that we refer to here. Furthermore, we have added supplemental information in the sections that follow.
2.1 DEFERRAL AGREEMENTS
GRENKE has entered into deferral agreements with its leasing custom- ers, under which the customers receive support due to the current COVID-19 pandemic and its consequences. Under the deferral agree- ments, individual payments for lease instalments are deferred without interest for a fixed period of time and due at a later date. Parts of these deferral agreements are based on statutory moratoria. In the opinion of GRENKE, the agreed deferrals have not led to any change in the scope of a lease or the consideration for a lease. Therefore, the changes in payment are treated as non-substantial contractual changes (modifica- tions). The interest rates underlying the leases are carried forward unchanged when calculating the net investment in a lease.
In addition, deferral agreements have also been concluded with customers in the lending business. Here, debtors were granted a deferral for loan instalments for a certain period of time, but in this case, with interest. This change is also considered a non-substantial contractual amendment, as neither the qualitative nor the quantitative indicators were met that would justify a modification. For further information, please refer to the accounting policies described in the notes to the consolidated financial statements as of December 31, 2019.
2.2 ACCOUNTING STANDARDS AND INTERPRETATIONS ALREADY PUBLISHED BUT NOT YET IMPLE MENTED
IFRS 17 "Insurance Contracts" published by the International Accounting Standards Board (IASB) in May 2017 sets out the basic principles for the recognition, measurement, presentation, and disclosure of insurance contracts within the scope of the standard. The new standard is not only relevant to insurance companies but affects all companies that issue insurance contracts within the scope of the standard. IFRS 17 replaces the provisions of IFRS 4. The objective of IFRS 17 is to prescribe uniform accounting for insurance contracts. An amendment to IFRS 17 was published on June 25, 2020. The IASB decided to postpone the standard's first-time adoption until January 1, 2023 and to extend the exception in IFRS 4 currently applicable to some insurers regarding the application of IFRS 9 "Financial Instruments" in order to allow them to adopt IFRS 9 and IFRS 17 simultaneously. A material impact on the consolidated financial statements of GRENKE AG is not expected from this new standard.
24
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
The IASB also published various amended standards. IAS 1 "Classifica- tion of Liabilities as Current or Non-current" was published in January 2020. The purpose of the amendment to IAS 1 is to clarify that the classification of liabilities as current or non-current must be based on the existing rights of the entity on the reporting date. The classification therefore does not depend on expectations as to whether an entity will exercise its right to defer settlement of an obligation. On July 15, 2020, the IASB postponed the first-time adoption of the amendment by one year for financial years beginning on or after January 1, 2023.
The IASB also published several limited IFRS amendments on May 14, 2020 concerning the standards IAS 16 "Property, Plant and Equipment", IAS 37 "Provisions and Contingent Liabilities" and IFRS 3 "Business Combinations". These publications also contained the collective revision of the annual improvements, cycle 2018-2020, which makes adjustments to IFRS 1 "First-time Adoption of IFRS", IFRS 9 "Financial In- struments", IAS 41 "Agriculture" and an example of IFRS 16 "Leases". The amendments are effective for annual periods beginning on or after January 1, 2022. The current analyses do not indicate any significant impact on the consolidated financial statements of GRENKE AG.
On May 28, 2020, the IASB amended IFRS 16 "Leases" ("COVID-19- Related Rent Concessions"). The amendment concerns the accounting effects of concessions granted within the scope of the COVID-19 pan- demic. The purpose of the amendment is to make it easier for lessees to apply the provisions on contract modifications contained in IFRS 16. The practical simplifications do not explicitly apply to lessors, as the IASB considers the complexity of the changes and the procedural possibilities of implementation to be less critical for lessors. The amendment is effective for annual periods beginning on or after June 1, 2020, but earlier application is permitted. The standard amendment has not yet (as of July 24, 2020) been endorsed by the EU. GRENKE is not making use of the simplification as of the current reporting date, as GRENKE, as lessee, is not affected by these circumstances.
3 . F IRS T- TIME APPLICATION OF NEW ACCOUNTING STANDARDS
In the 2020 financial year, the GRENKE Consolidated Group took into account all new and revised standards and interpretations that were mandatory for the first time as of January 1, 2020 and have already been adopted into European law (endorsement), insofar that these standards and interpretations were relevant for the GRENKE Consolidated Group.
None of the following revised or amended standards had a material impact on the accounting or reporting of the consolidated financial statements of GRENKE AG. These are the amendments to IFRS 3, "Business Combinations"; amendments to IAS 1 "Presentation of Financial Statements" and IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors" regarding the "Definition of Materiality"; IBOR reform: amendment to IFRS 9 "Financial Instruments", IAS 39 "Financial Instruments, Recognition and Measurement" and IFRS 7 "Financial Instruments: Disclosures" as well as amendments to references to the IASB's accounting framework.
4 . USE OF ASSUMPTIONS AND ESTIMATES
In preparing the interim consolidated financial statements, assumptions and estimates have been made that have had an effect on the recognition and carrying amounts of assets, liabilities, income, expenses, and contingent liabilities.
The estimates and underlying assumptions are subject to regular re- views. Changes to estimates are prospectively recognised and have occurred in the following areas:
Determination of impairments for financial assets
Use of estimated residual values at the end of the lease term to determine the present value of lease receivables
Assumptions in the context of impairment tests for the measurement of existing goodwill
The determination of impairment for financial assets is based on assumptions and estimates for default risks and expected loss rates. When making these assumptions and selecting the inputs for the calculation of impairment, the Consolidated Group exercises discretion based on past experience, existing market conditions and forward-looking estimates at the end of each reporting period. The key assumptions and inputs used are presented in the section entitled "Accounting Policies". In accordance with the announcements made by various regulators (ESMA, EBA), an assessment of the modelling of IFRS 9 impairment and the estimation of expected credit losses (ECL) was carried out. As a result of this assessment, which also involved senior management, there were no adjustments made to the previous models as of Decem- ber 31, 2019. The models will continue to be reviewed on an ongoing basis during the course of the financial year in order to identify any potential changes in the estimates of expected credit losses.
25
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
Non-guaranteed (calculated) residual values are taken into account when determining the present value of the lease receivables in accordance with IFRS 16. The calculated residual values at the end of the lease term depend on the maturity group of the respective lease and include the expected follow-up business and the expected sales proceeds at the end of the term based on past experience. For additions since January 1, 2020, the calculated residual values amount to between 5.5% and 15.0% of the acquisition cost. The calculated residual values are determined on the basis of statistical analyses using the best possible estimate. In the event of a decline in the revenue actually achievable in the follow-up business (consisting of disposal and post- leasing), impairment of the lease receivables is taken into account, whereas an increase is not taken into account.
Discounted cash flow measurement is derived from cash flows of existing goodwill based on current business plans and internal planning and assuming a planning horizon of five years. In doing so, assumptions are made about future revenue and cost developments. The business plans and internal planning are being revised as a result of the COVID- 19 pandemic. The as-yet unforeseeable consequences for business in the individual cash-generating units has led to even higher uncertainty with respect to estimates. Generally, the future growth rates of the respective cash-generating units are assumed on the basis of past experience and past earnings trends and projected into the future.
These estimates and the underlying methodology can have a significant influence on the values determined. If material assumptions differ from the actual figures, this could lead to the recognition of impairment losses through profit or loss in the future.
5 . 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 June 30, 2019. Net interest income increased by EUR 20,586k and the settlement of claims and risk provision rose by EUR 399k. Consequently, profit from new business decreased by EUR 20,428k and gains(+)/losses(-) from disposals increased by EUR 41k. Overall, there was a reduction in earnings before taxes of EUR 200k and net profit (after taxes) of EUR 173k. For further information, please refer to section "2.1.4 IFRS 16 Leases - The Consolidated Group as Lessor" in the consolidated financial statements as of December 31, 2019 contained in the notes to the consolidated financial statements.
6 . LEASE RECEIVABLES
EURk | Jun. 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 | 30,912 | 942,138 |
Lease receivables (current + non-current) from current contracts at end of period | 5,619,021 | 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 | 88,986 | 133,647 |
- Disposals of gross receivables during the period | 24,354 | 53,205 |
Gross receivables at end of period | 476,122 | 411,490 |
Total gross receivables (terminated and current) | 6,095,143 | 5,999,599 |
Impairments at beginning of period | 353,683 | 279,480 |
+ Change in accumulated impairment during the period | 84,267 | 74,203 |
Impairments at end of period | 437,950 | 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 | 5,657,193 | 5,645,916 |
26
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
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.
Jun. 30, 2020 | Dec. 31, 2019 | ||||
EURk | Level 1 | Level 2 | Level 3 | Total | Total |
Gross lease receivables | |||||
Germany | 1,153,568 | 47,425 | 47,401 | 1,248,394 | 1,210,593 |
France | 1,097,054 | 115,151 | 141,345 | 1,353,550 | 1,351,940 |
Italy | 1,047,501 | 149,979 | 217,711 | 1,415,191 | 1,385,640 |
Other countries | 1,687,105 | 177,275 | 213,628 | 2,078,008 | 2,051,426 |
Total gross lease receivables | 4,985,228 | 489,830 | 620,085 | 6,095,143 | 5,999,599 |
Impairment | 42,769 | 49,531 | 345,650 | 437,950 | 353,683 |
Carrying amount | 4,942,459 | 440,299 | 274,435 | 5,657,193 | 5,645,916 |
The following overview shows changes in the impairment of current and non-current receivables.
Jun. 30, 2020 | Dec. 31, 2019 | ||||
EURk | Level 1 | Level 2 | Level 3 | Total | |
Impairment at start of period | 46,098 | 43,017 | 264,568 | 353,683 | 279,480 |
Newly extended or acquired financial assets | 10,283 | 8,065 | 8,292 | 26,640 | 68,029 |
Reclassifications | |||||
to Level 1 | 4,294 | -3,294 | -1,000 | 0 | 0 |
to Level 2 | -3,719 | 9,971 | -6,252 | 0 | 0 |
to Level 3 | -3,082 | -15,342 | 18,424 | 0 | 0 |
Change in risk provision due to change in level | -3,457 | 12,309 | 73,989 | 82,841 | 55,308 |
Mutual contract dissolution or payment for financial assets (without derecognition) | -11,330 | -8,563 | -8,745 | -28,638 | -41,276 |
Change in contractual cash flows due to modification (no derecognition) | 0 | 0 | 0 | 0 | 0 |
Change in category in processing losses | 0 | 0 | 9,839 | 9,839 | 13,988 |
Change in models/risk parameters used in ECL calculation | 0 | 0 | 6,721 | 6,721 | 5,219 |
Derecognition of financial assets | -8 | -43 | -19,484 | -19,535 | -35,484 |
Currency translation and other differences | -336 | -345 | -2,889 | -3,570 | 1,162 |
Accrued interest | 4,026 | 3,756 | 2,187 | 9,969 | 7,257 |
Impairment at end of period | 42,769 | 49,531 | 345,650 | 437,950 | 353,683 |
27
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
7 . FINANCIAL LIABILITIES
EURk
Financial liabilities
Current financial liabilities
Asset-based
Senior unsecured
Committed development loans
Liabilities from deposit business
thereof bank liabilities
Other bank liabilities
thereof current account liabilities
Total current financial liabilities
Non-current financial liabilities
Asset-based
Senior unsecured
Committed development loans
Liabilities from deposit business
Total non-current financial liabilities
Total financial liabilities
7.1 A S S E T - BASED FINANCIAL L IABIL ITIES
7 . 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.
Jun. 30, 2020 | Dec. 31, 2019 | |
Programme volume in local currency | ||
EURk | 947,802 | 947,802 |
GBPk | 150,000 | 150,000 |
Programme volume in EURk | 1,112,198 | 1,124,107 |
Utilisation in EURk | 871,123 | 860,064 |
Carrying amount in EURk | 780,083 | 761,560 |
thereof current | 434,055 | 334,040 |
thereof non-current | 346,028 | 427,520 |
Jun. 30, 2020 | Dec. 31, 2019 | |||||
496,047 | 403,975 | |||||
699,640 | 758,420 | |||||
117,241 | 83,122 | |||||
696,272 | 469,910 | |||||
5,600 | 6,300 | |||||
1,746 | 886 | |||||
58 | 73 | |||||
2,010,946 | 1,716,313 | |||||
412,246 | 512,943 | |||||
2,782,298 | 2,813,124 | |||||
280,319 | 177,761 | |||||
621,512 | 420,525 | |||||
4,096,375 | 3,924,353 | |||||
6,107,321 | 5,640,666 | |||||
7 . 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 | ||||||
Jun. 30, 2020 | Dec. 31, 2019 | |||||
Programme volume in local currency | ||||||
EURk | 20,000 | 20,000 | ||||
GBPk | 100,000 | 100,000 | ||||
PLNk | 80,000 | 80,000 | ||||
BRLk | 185,000 | 185,000 | ||||
Programme volume in EURk | 177,820 | 197,298 | ||||
Utilisation in EURk | 127,262 | 153,634 | ||||
Carrying amount in EURk | 127,262 | 153,634 | ||||
thereof current | 61,267 | 68,798 | ||||
thereof non-current | 65,995 | 84,836 | ||||
7 . 1 . 3 RE S I D UA L L O A N S
The residual loans are partly used to finance the residual values of lease agreements in which the instalments were sold as part of the sale of receivables.
EURk | Jun. 30, 2020 | Dec. 31, 2019 |
Carrying amount | 948 | 1,724 |
thereof current | 725 | 1,137 |
thereof non-current | 223 | 587 |
28
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
7.2 SENIOR UNSECURED FINANCIAL LIABI LIT IES
The following table provides an overview of the carrying amounts of the individual refinancing instruments:
EURk | Jun. 30, 2020 | Dec. 31, 2019 |
Bonds | 2,857,420 | 2,764,192 |
thereof current | 419,412 | 336,652 |
thereof non-current | 2,438,008 | 2,427,540 |
Promissory notes | 420,326 | 431,587 |
thereof current | 114,753 | 92,449 |
thereof non-current | 305,573 | 339,138 |
Commercial paper | 89,500 | 226,500 |
Revolving credit facility | 73,269 | 114,319 |
thereof current | 36,430 | 67,873 |
thereof non-current | 36,839 | 46,446 |
Money market trading | 21,262 | 11,770 |
thereof current | 19,384 | 11,770 |
thereof non-current | 1,878 | 0 |
Overdraft facility | 2,068 | 3,829 |
Accrued interest | 18,093 | 19,347 |
The following table provides an overview of the refinancing volumes of the individual instruments:
Jun. 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 THRk | 125,000 | 125,000 |
Money market trading EURk | 35,000 | 35,000 |
7.3 COMMITTED DEVELOPMENT LOANS
The following table shows the carrying amounts of the utilised development loans at different development banks.
EURk | Jun. 30, 2020 | Dec. 31, 2019 |
Description | ||
European Investment Bank | 99,832 | - |
NRW BANK | 72,778 | 69,439 |
Thüringer Aufbaubank | 4,767 | 4,104 |
Investitionsbank des Landes Brandenburg | 2,086 | 3,006 |
KfW | 216,582 | 182,555 |
Landeskreditbank Baden-Württemberg - | 1,514 | |
Förderbank | 1,778 | |
Accrued interest | 1 | 1 |
Total development loans | 397,560 | 260,883 |
8 . EQUITY
GRENKE AG's share capital remained unchanged compared to De- cember 31, 2019 and continues to be divided into 46,353,918 registered shares.
The Board of Directors will propose to the Annual General Meeting to be held in August 2020 that a dividend of EUR 0.80 per share be distributed for the 2020 financial year. This distribution is not recognised as a liability as of June 30, 2020.
7 . 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 have been made.
7 . 2 . 2 P R O M I S S O RY N O T E S
One new promissory note was issued this financial year to-date. The total volume of the newly issued loans totals EUR 19,000k. Scheduled repayments were EUR 21,500k, DKK 33,000k and SEK 33,000k.
29
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
9 . DISCLOSURES ON FINANCIAL INSTRUMENTS
9.1 FAIR VALUE HIERARCHY
The GRENKE Consolidated Group uses observable market data to the extent possible for determining the fair value of an asset or a liability. The fair values are assigned to different levels of the valuation hierarchy based on the input parameters used in the valuation methods:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: Measurement procedures in which all input factors having a significant effect on the recognition of fair value are directly or indirectly observable in the market
Level 3: Measurement procedures that use input factors that have a significant effect on the fair value recognised and are not based on observable market data
If the input factors used to determine the fair value of an asset or a liability may be assigned to different levels of the valuation hierarchy, then the measurement at fair value is completely assigned to that level in the valuation hierarchy which corresponds to the lowest input factor that is material for the overall measurement.
The GRENKE Consolidated Group recognises reclassifications between the different levels of the valuation hierarchy at the end of the reporting period in which the change has occurred. In the reporting period, there
were no reclassifications between the three levels of the valuation hierarchy.
9.2 FAIR VALUE OF F INANCIAL INSTRUMENTS
9 . 2 . 1 F A I R V A L U E O F P R I M A RY F I NA N CI A L I NS T R U M E NT S
The following table presents the carrying amounts and fair values of financial assets and financial liabilities by category of financial instruments that are not measured at fair value. This table does not contain information on the fair value of financial assets and financial liabilities when the carrying amount represents an appropriate approximation to the fair value and includes the following line items of the statement of financial position: cash and cash equivalents, trade receivables, and trade payables. All primary financial instruments are assigned to Level 2 of the valuation hierarchy except for exchange-listed bonds that are included in refinancing liabilities and which are assigned to Level 1 of the valuation hierarchy. Their carrying amount and fair value as of the reporting date was EUR 2,857,420k (previous year as of December 31, 2019: EUR 2,764,192k) and EUR 2,843,956k (previous year as of December 31, 2019: EUR 2,827,286k), respectively. All primary financial assets are allocated to the "At amortised cost" (AC) measurement category except for lease receivables, which are measured according to IFRS 16, and other investments, which are assigned to the FVOCIoR category and measured at fair value. Financial liabilities are also measured at (amortised) cost.
30
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
Fair value | Carrying amount | Fair value | Carrying amount | |
EURk | Jun. 30, 2020 | Jun. 30, 2020 | Dec. 31, 2019 | Dec. 31, 2019 |
Financial assets | ||||
Lease receivables | 6,363,197 | 5,657,193 | 6,381,615 | 5,645,916 |
Other financial assets | 345,825 | 345,823 | 343,650 | 343,649 |
of which factoring receivables | 28,710 | 28,710 | 37,082 | 37,082 |
of which loan receivables | 139,571 | 139,569 | 126,629 | 126,628 |
of which receivables from franchisees (refinancing) | 133,115 | 133,115 | 133,289 | 133,289 |
of which other assets | 44,429 | 44,429 | 46,650 | 46,650 |
Financial liabilities | ||||
Financial debt | 6,191,549 | 6,107,321 | 5,754,703 | 5,640,666 |
of which refinancing liabilities | 4,842,276 | 4,787,791 | 4,853,046 | 4,749,345 |
of which liabilities from deposit business | 1,347,527 | 1,317,784 | 900,771 | 890,435 |
of which bank liabilities | 1,746 | 1,746 | 886 | 886 |
9 . 2 . 2 F A I R V A L U E O F DE R I V A T I V E F I N A NC I A L I NS T R UM E NT S
At the end of the reporting period, all derivative financial instruments, which include interest rate derivatives (interest rate swaps), forward exchange contracts and cross-currency swaps, are carried at fair value
in the GRENKE Consolidated Group. Forward exchange contracts are accounted for without hedging relationship. All derivative financial instruments are assigned to Level 2 of the valuation hierarchy.
Fair value | Carrying amount | Fair value | Carrying amount | |
EURk | Jun. 30, 2020 | Jun. 30, 2020 | Dec. 31, 2019 | Dec. 31, 2019 |
Financial assets | ||||
Derivative financial instruments with hedging | ||||
relationship | ||||
Interest rate derivatives | 3,872 | 3,872 | 28 | 28 |
Derivative financial instruments without hedging | ||||
relationship | ||||
Interest rate derivatives | 498 | 498 | 380 | 380 |
Forward exchange contracts | 7,338 | 7,338 | 2,030 | 2,030 |
Total | 11,708 | 11,708 | 2,438 | 2,438 |
Financial liabilities | ||||
Derivative financial instruments with hedging | ||||
relationship | ||||
Interest rate derivatives | - | - | - | - |
Cross-currency swaps | 3,670 | 3,670 | 2,642 | 2,642 |
Derivative financial instruments without hedging | ||||
relationship | ||||
Interest rate derivatives | 2,037 | 2,037 | 696 | 696 |
Forward exchange contracts | 6,817 | 6,817 | 12,613 | 12,613 |
Total | 12,524 | 12,524 | 15,951 | 15,951 |
The GRENKE Consolidated Group uses so-called OTC derivatives ("over the counter"). These are directly concluded with counterparties having at least investment grade status. There are no quoted market prices available for these instruments.
Fair values of forward exchange contracts and interest rate derivatives are determined based on valuation models that include observable input parameters. Forward exchange contracts are measured on the basis of a mark-to-market valuation model. The fair value of interest rate deriva-
tives is determined based on the net present value method. The input parameters applied in the valuation models are derived from market quotes. Interest rates with matching maturities in the traded currencies are used for forward exchange contracts, and interest rates are used for interest rate derivatives. To obtain the fair value of such OTC deriva- tives, the determined amounts are multiplied with the counterparty's credit default swaps (CDS) with coupons that are observable on the market, or with their own credit risk using what is known as the "add-on method".
31
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
The predominant portion of cash flows of these hedges is expected to impact the net profit over the next two years.
9.3 MEASUREMENT METHODS AND INPUT FACTORS USED
The following table shows the measurement methods, input factors and assumptions used to measure fair value:
Type and level | Measurement method | Input parameters |
Fair value hierarchy Level 1 | ||
Exchange-listed bonds | n/a | Quoted market price on the reporting date |
Fair value hierarchy Level 2 | ||
Other financial assets | Discounted present value of estimated future cash | Available interest rates at comparable conditions and residual terms using the |
flows | counterparty's credit risk | |
Financial liabilities (liabilities from the refinancing of the Discounted present value of estimated future cash | Available interest rates at comparable conditions and residual terms using the | |
leasing business, promissory note loans, bank liabili- | flows | own credit risk (Debt Value Adjustment [DVA]) |
ties) | ||
Forward exchange contracts | Mark-to-market | Available interest rates at the end of the term in the traded currencies using |
Discounted present value of estimated future cash | the own counterparty risk (Debt Value Adjustment [DVA]) or the counterpar- | |
ty's credit risk (Credit Value Adjustment [CVA]) derived from available credit | ||
flows | ||
default swap (CDS) quotes | ||
Interest rate derivatives | Net present value model | Available interest rates at comparable conditions and residual terms using the |
own counterparty risk DVA (Debt Value Adjustment) or the counterparty's |
Discounted present value of estimated future cash | credit risk CVA (Credit Value Adjustment) derived from available credit default |
flows | |
swap (CDS) quotes | |
10 . REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table shows the revenue from contracts with customers (IFRS 15):
11 . REVENUE AND OTHER REVENUE
The following shows revenue from contracts with customers (IFRS 15) and other revenue (IFRS 9, IFRS 16):
Segment | Jan. 1 - | Jan. 1 - | |
EURk | Jun. 30, 2020 | Jun. 30, 2019 | |
Revenue from contracts with | |||
customers (IFRS 15) | |||
Gross revenue from service and | |||
protection business (service | |||
business) | Leasing | 60,096 | 49,795 |
Service fee for making lease assets | Leasing | 2,552 | 3,433 |
available for use | |||
Revenue from franchisees | Leasing | 992 | 753 |
Revenue from reminder fees | Leasing | 816 | 767 |
EURk
Revenue from contracts with customers
Other revenue (IFRS 9, IFRS 16)
Interest and similar income from the financing business
Income from operating leases
Portions of revenue from lease down payments
Total
Jan. 1 - Jun. 30, 2020
143,157
229,305
9,785
5,679
387,926
Jan. 1 - Jun. 30, 20191
141,602
203,4741
7,380
7,422
359,878
Revenue from reminder fees | Factoring | 10 | 11 |
Other revenue from lessees | Leasing | 532 | 409 |
Disposal of lease assets | Leasing | 77,522 | 85,742 |
Commission income from banking | Banking | 637 | 692 |
business | |||
Total | 143,157 | 141,602 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
32
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
12 . INCOME TAXES
The main components of the income tax expense for the consolidated income statement are the following:
Jan. 1 - Jun. 30, | Jan. 1 - Jun. 30, | |
EURk | 2020 | 20191 |
Current income tax | 9,420 | 6,366 |
Corporate income tax and trade | 1,237 | -76 |
tax (Germany) | ||
Foreign income tax | 8,183 | 6,442 |
Deferred taxes | -819 | 6,541 |
Germany | 3,335 | 4,952 |
Foreign countries | -4,154 | 1,589 |
Total | 8,601 | 12,907 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
13 . GROUP SEGMENT REPORTING
Leasing segment | Banking segment | Factoring segment | Consolidation & other | Consolidated Group | |||||||||||
EURk | effects | ||||||||||||||
January to June | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||
Operating segment income | |||||||||||||||
External operating income | 167,541 | 191,665 | -4,863 | -2,918 | 1,690 | 1,992 | 0 | 0 | 164,368 | 190,7391 | |||||
Internal operating income | -26,129 | -16,900 | 26,397 | 17,113 | -268 | -213 | 0 | 0 | 0 | 0 | |||||
Total operating income | 141,412 | 174,7651 | 21,534 | 14,195 | 1,422 | 1,779 | 0 | 0 | 164,368 | 190,7391 | |||||
Operating result | 41,859 | 74,332 | 11,690 | 9,657 | -2,132 | -515 | 122 | 5 | 51,539 | 83,4791 | |||||
Result from investments account- | |||||||||||||||
ed for using the equity method | -80 | -27 | -138 | -62 | 0 | 0 | 0 | 0 | -218 | -89 | |||||
Reconciliation to consolidated | |||||||||||||||
financial statements | |||||||||||||||
Operating result, including | |||||||||||||||
result from investments ac- | |||||||||||||||
counted for using the equity | 51,321 | 83,3901 | |||||||||||||
method | |||||||||||||||
Other net financial income | -4,750 | -2,331 | |||||||||||||
Earnings before taxes accord- | |||||||||||||||
ing to consolidated income | 46,571 | 81,0591 | |||||||||||||
statement | |||||||||||||||
As of June 30 (previous year: | |||||||||||||||
December 31) | |||||||||||||||
Segment assets | 7,185,128 | 6,809,218 | 2,027,824 | 1,529,276 | 50,922 | 42,151 | -1,617,473 | -1,282,580 | 7,646,401 | 7,098,065 | |||||
Segment liabilities | 6,100,412 | 5,783,469 | 1,770,597 | 1,301,124 | 40,163 | 31,984 | -1,554,279 | -1,282,580 | 6,356,893 | 5,833,997 |
1 Selected prior-year figures adjusted (see section "Adjustments" in the notes to the condensed interim consolidated financial statements).
33
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
13. 1 BUSINESS SEGMENTS
The reporting of the GRENKE Consolidated Group on the development of its segments follows the prevailing organisational structure within the GRENKE Consolidated Group, which is based on the management approach. Consequently, the operating segments are divided into the segments Leasing, Banking and Factoring, in line with the management approach, which serves the Board of Directors of GRENKE AG as the key decision-maker in assessing the segment performance and making decisions on the allocation of resources to the segments. A regional breakdown of the business activities is provided annually in the GREN- KE Consolidated Group financial statements of the respective financial year. Separate financial information is available for the three operating segments.
In the 2020 financial year, the segment reporting of the GRENKE Consolidated Group was expanded to include a breakdown of internal and external operating income. This breakdown takes account the overall higher importance of the transactions taking place between segments, especially in the area of refinancing.
13. 2 REPORTABLE SEGMENTS
1 3 . 2 . 1 L E A S I NG
The Leasing segment comprises all of the activities that are related to the Consolidated Group's leasing business. The service offer encompasses the provision of financing to commercial lessees; rental; service, protection and maintenance offerings; and the disposal of used equip- ment.
1 3 . 2 . 2 B A NK I N G
The Banking segment comprises the activities of GRENKE BANK AG, which regards itself as a financing partner particularly to small- and medium-sized companies (SMEs). Additionally, GRENKE BANK AG cooperates with development banks in providing financing to this clientele in the context of business start-ups and offers fixed-term deposits through its internet presence. GRENKE BANK AG's external business is focused primarily on German customers. In addition to the business with external customers, the bank's activities also includes the internal refinancing of the Leasing segment of the GRENKE Consolidated Group by means of purchasing receivables and issuing loans.
1 3 . 2 . 3 F A CT O R I NG
The Factoring segment contains traditional factoring services focused on small-ticket factoring. Within non-recourse factoring, the segment offers both notification factoring where the debtor is notified of the assignment of receivables, as well as non-notification factoring where the debtor is not notified accordingly. The segment also offers receivables management without refinancing function (recourse factoring) for which the customer continues to bear the credit risk. Internal operating income stems predominantly from internal refinancing.
13. 3 SEGMENT DATA
The accounting policies employed to gather segment information are the same as those used for the interim consolidated financial statements. Intragroup transactions are performed at standard market prices.
The Board of Directors of GRENKE AG is the competent corporate body responsible for assessing the success of the GRENKE Consolidated Group. In addition to the growth of new business in the Leasing seg- ment, the key performance indicators for the Board of Directors include the deposit volumes for GRENKE Bank and the gross margin in the Factoring segment. The key performance indicators are determined primarily by the operating segment income, the segment result before other net financial income and staff costs, selling and administrative expenses as well as depreciation and amortisation. Other net financial income and income tax expenses/income represent the main components of the consolidated income statement that are not allocated to individual segments.
The segment data for the period and the operating segment income was calculated and categorised as follows:
Leasing:Net interest income after settlement of claims and risk provision, profit from service business, profit from new business and gains/losses from disposals
Banking:Net interest income after settlement of claims and risk provision
Factoring:Net interest income after settlement of claims and risk provision
The profit from service business, profit from new business, and profit from disposals concern the Leasing segment
Segment result is calculated as the operating result before taxes
Segment assets comprise the operating assets excluding tax assets and deferred tax assets.
Segment liabilities correspond to the liabilities attributable to the respective segment excluding tax liabilities and deferred tax liabilities.
34
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
14 . CHANGES IN THE SCOPE OF CONSOLIDATION IN THE 2020 FINANCIAL YEAR
14. 1 CORAL AND CORAL II
In the second quarter of 2020, the contracts with CORAL Purchasing Limited were prematurely terminated, and the structured entity was deconsolidated. CORAL Purchasing (Ireland) 2 DAC was included in the scope of consolidation for the first time in the second quarter of 2020. This structured entity has since been included within the scope of consolidation of the GRENKE Consolidated Group as part of a silo structure.
15 . PAYMENTS TO HYBRID CAPITAL HOLDERS
On March 31, 2020, GRENKE AG made the coupon payment of EUR 10,664k to hybrid capital holders as scheduled.
16 . RELATED PARTY DISCLOSURES
The Supervisory Board of GRENKE AG concluded a phantom stock agreement with all members of the Board of Directors in office. Payments under these agreements during the financial year to-date amounted to EUR 653k (previous year as of June 30, 2019: EUR 0k).
As of June 30, 2020, the value of all existing phantom stock agreements amounted EUR 70k (June 30, 2019: EUR 673k). This amount is recognised under staff costs in the income statement and is included under variable remuneration components.
As part of its ordinary business activities, GRENKE BANK AG offers services to related persons in key positions and their close family members at standard market conditions. On the reporting date, the bank received deposits in the amount of EUR 4,597k (December 31, 2019: EUR 9,272k). The interest expense for these amounted to EUR 1k (previous year until June 30, 2019: EUR 35k). Credit card accounts that have not yet been settled showed a balance of EUR 8k (December 31, 2019: EUR 27k) on the reporting date with a credit card limit of EUR 216k (December 31, 2019: EUR 216k) for related parties in key positions and their close family members. No further loans were granted to this group of persons during the reporting period.
17 . CONTINGENT LIABILITIES
GRENKE AG, as guarantor for individual franchise companies, provided financial guarantees of EUR 60.1 million (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 35.8 million (December 31, 2019: EUR 37.5 million).
18 . EMPLOYEES
In the interim reporting period, GRENKE Consolidated Group's head- count (excluding the Board of Directors) averaged 1,777 employees (June 30, 2019: 1,651). A further 75 employees (June 30, 2019: 69) are in training.
19 . EVENTS AFTER THE REPORTING DATE
There were no significant events to report after the reporting date.
16. 1 LIABIL ITIES TO RELATED ENTIT IES AND PERSONS
EURk | Jun. 30, 2020 | Dec. 31, 2019 |
Persons in key positions | 0 | 0 |
Associated companies | 409 | 430 |
The liabilities to persons in key positions result from a consultancy contract with a member of the Supervisory Board. The consulting expenses for this amounted to EUR 80k in the financial year (previous year until June 30, 2019: EUR 0k). Liabilities to associated companies result from the Bank's deposit business. Interest expenses of EUR 0k were incurred (previous year until June 30, 2019: EUR 1k).
35
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
G R E N K E C O N S O L I D A T E D G R O U P
F I N A N C I A L R E P O R T F O R T H E 2 N D Q U A R T E R A N D F I R S T H A L F - Y E A R 2 0 2 0
RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge and in accordance with the applicable accounting standards for half-year financial reporting that the half-year consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Consolidated Group and that the interim group management report conveys a fair review of the business development, including the results and the position of the Consolidated Group, together with a description of the important opportunities and risks for the expected development of the Consolidated Group for the remainder of the financial year.
Baden-Baden, July 29, 2020
Antje Leminsky
(Chair of the Board of Directors)
Gilles Christ | Sebastian Hirsch | Mark Kindermann |
(Member of the Board) | (Member of the Board) | (Member of the Board) |
36
GRENKE CONSOLIDATED GROUP // HALF-YEAR FINANCIAL REPORT 2020
CALENDAR OF EVENTS
July 30, 2020 // Financial report for the 2nd quarter and the first half-year 2020 August 6, 2020 // Annual General Meeting
October 2, 2020 // New business figures 9M-2020
October 29, 2020 // Quarterly statement for the 3rd quarter 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