GRENKE: Operating income rises – net profit in the first quarter of 2023 reduced by extraordinary currency and interest rate effects

GRENKE: Operating income rises – net profit in the first quarter of 2023 reduced by extraordinary currency and interest rate effects

• Operating income up 9.1 percent in the first quarter to EUR 99.6 million
  (Q1 2022: EUR 91.3 million)
• Extraordinary currency and interest effects reduce quarterly net profit to EUR 15.9 million
  (Q1 2022: EUR 20.5 million)
• 2023 forecast confirmed: Continued double-digit growth trend for the past six consecutive quarters
• Consolidated Group portfolio strengthened by the acquisition of Australian franchise companies

Baden-Baden, May 11, 2023: GRENKE AG, a global financing partner for small and medium-sized enterprises, generated an operating income of EUR 99.6 million in the first quarter of 2023, representing a year-on-year increase of 9.1 percent (Q1 2022: EUR 91.3 million). This figure already includes the increase in refinancing costs from EUR 13.8 million (Q1 2022) to EUR 24.5 million (Q1 2023). In the same period, selling and administrative expenses decreased by 3.7 percent (Q1 2023: EUR 23.9 million versus Q1 2022: EUR 24.8 million). Extraordinary effects from currency valuation of EUR 3.0 million, as well as higher expenses of EUR 1.6 million from the fair value measurement of interest rate derivatives, reduced earnings in the first quarter. Quarterly net profit amounted to EUR 15.9 million (Q1 2022: EUR 20.5 million).

“We expect the Consolidated Group net profit at the end of the year to be within the forecast range,” emphasises Dr Sebastian Hirsch, CEO of GRENKE AG. “The extraordinary items in the first quarter, caused by erratic exchange rate fluctuations, are naturally a burden, which also makes short-term forecasts more difficult. We consider it entirely possible that we will see compensatory effects in the course of the year. The fact is that our operating business is running according to plan.” In any case, GRENKE will be able to gradually pass on the higher interest rates to the market, with a time lag of a few months. In addition, the steady favourable business trend since the end of the corona pandemic is providing strong momentum for our further profit development. “This is why it is important to stay the course and focus on long-term success. Our new business has been growing at double-digit rates for the past six consecutive quarters. This growth represents a secure income source for us this year and in the years to come.” 

As already reported in early April 2023, our growth in new leasing business was strong again in the first quarter of this year and, at EUR 610.2 million, exceeded the level in the same quarter of the previous year by 22.2 percent (Q1 2022: EUR 499.2 million). The portfolio of over one million current lease contracts featuring a total volume of EUR 9.1 billion (Q1 2022: EUR 8.8 billion) is the foundation for our future income. Contribution margin 2 (CM2), a measure of this future profitability, already takes into account the current interest rates for refinancing. The positive development of the CM2 margin in the past quarter, in particular, to 16.7 percent compared with 16.1 percent in the 2022 financial year, will continue to have a positive impact on the Consolidated Group’s earnings. The higher operating income generated in the first quarter of 2023 also underscores this.

With the addition of the companies in Sydney and Melbourne, two further former GRENKE franchise companies were finally acquired in the first quarter of 2023. With almost EUR 38 million in new business in the past year and a forecast for strong growth, Australia is one of GRENKE’s future core markets. Dr Hirsch comments: “In the future, we intend to grow not only in Europe but increasingly in Australia, Canada and the USA.”

In contrast, the Consolidated Group, which operates in more than 30 countries, will discontinue its new business activities in Turkey (approx. 2,800 active contracts) in the weeks to come in view of the prevailing hyperinflation and high hedging costs to protect against fluctuations in the Turkish lira. The end of marketing activities will reduce further currency risks and avoid operating losses of around EUR 1 million per financial year.

Based on an unchanged, cautious assessment of all of the present macroeconomic factors, it was possible to reduce risk provisions. This, combined with our customers’ good payment behaviour has allowed for a year-on-year reduction in the settlement of claims and risk provision in the first quarter of 2023. As a result, expenses for settlement of claims and risk provision fell by 16.3 percent to EUR 26.4 million in Q1 2023 (Q1 2022: EUR 31.6 million). The resulting loss rate was 1.2 percent in the reporting period (Q1 2022: 1.4 percent) and in line with our forecast of below 1.5 percent for the current 2023 financial year.

In the first quarter of 2023, staff costs increased by EUR 8.3 million compared to the same quarter of the prior year to EUR 41.3 million (Q1 2022: EUR 33.0 million). This was due primarily to the adjustment in salary structures in the second quarter of last year. Staff costs fell slightly, however, in comparison to the fourth quarter of 2022. As a result, the cost-income ratio (CIR) equalled 57.1 percent in the first quarter of 2023, compared to 57.6 percent in the fourth quarter of 2022 (Q1 2022: 52.5 percent).

As of the March 31, 2023 reporting date, the GRENKE Group’s total assets amounted to EUR 6.8 billion (December 31, 2022: EUR 6.4 billion). The largest balance sheet item, current and non-current lease receivables, increased slightly to EUR 5.3 billion as of the reporting date (December 31, 2022: EUR 5.2 billion). As of March 31, 2023, liquidity in the form of cash and cash equivalents reached a level of approximately EUR 0.8 billion (December 31, 2022: EUR 0.4 billion). The equity ratio was at a consistently high level of 19.4 percent (December 31, 2022: 20.8 percent) and was thus comfortably above the self-set target of at least 16.0 percent.

Outlook

The Board of Directors reaffirms its outlook announced on March 16, 2023 for a volume of new leasing business in the 2023 financial year in the range of EUR 2.6 billion and EUR 2.8 billion. Despite the extraordinary effects, the Board of Directors expects Consolidated Group net profit in 2023 to be within the communicated forecast range of EUR 80 million to EUR 90 million.

For 2024, the Board of Directors continues to expect new leasing business of approximately EUR 3.4 billion and Consolidated Group net profit of around EUR 120 million.

The report for the first quarter of 2023 is available on the Company’s website at www.grenke.com/investor-relations/reports-and-presentations/.

Key figures at a glance (in EUR million)

Note: Rounding differences may occur between individual values and the actual figure achieved in euros.

*Value for Q1 2022 adjusted retrospectively based on new calculation method since May 2022.

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 About GRENKE

The GRENKE Group (GRENKE) is a global financing partner for small and medium-sized companies. As a one-stop shop for customers, GRENKE’s products range from flexible small-ticket leasing and demand-driven bank products to convenient factoring. Fast and easy processing and personal contact with customers and partners are at the centre of GRENKE’s activities.

Founded in 1978 in Baden-Baden, the Group operates in 33 countries and employs approx. 2,000 staff members (measured in terms of full-time equivalents) worldwide. GRENKE shares are listed on the Frankfurt Stock Exchange (ISIN DE000A161N30).