Grenke AG, a German-based provider of leasing for SMEs across Europe, generated business growth of €398.6m in Q2 2021, marginally below the level achieved in the previous year (Q2 2020: €402.3m).
The number of new contracts increased in Q2 2021 by 11.3% to 56,078, which was the first year-on-year increase since the outbreak of the Covid-19 pandemic. The contribution margin 2 of the new leasing business also increased from 17.5% in the same prior-year quarter to 18.1% in the reporting quarter. The new leasing business is defined as the total acquisition cost of all newly purchased leased assets.
“When we look back on the past few months, it’s becoming evident that things are on the upturn. At the same time, we find ourselves in a market environment that continues to be dominated by the pandemic,” said Dr Sebastian Hirsch, chief financial officer of Grenke AG, adding: “With the onset of the Covid-19 crisis, we focused our new business activities specifically on risk limitation and small-ticket business. This strategy has worked, and we are now on the verge of taking the next step in which we also want to successively increase volumes. We have met a key prerequisite for achieving this based on our syndicated loan.”
The timing of the pandemic’s development on a regional basis has varied dramatically. These differences are very visible when comparing the operating performance. At the beginning of Q2 2020, new business in Germany was still less affected by the pandemic. In comparison to this relatively robust performance a year ago, the DACH region (of Germany, Austria & Switzerland) saw lower year-on-year new leasing business in Q2 2021 of €111.1m (Q2 2020: €131.6m).
Western Europe without DACH, on the other hand, recorded a significant increase of 27.8% in the same period. Grenke achieved substantial growth in the second quarter of 2021, particularly in France, the Netherlands and Luxembourg. Southern Europe, by contrast, new business declined year-on-year by 12.2%. The strength of new business development in Spain, Portugal and Croatia was not able to fully compensate for the lower number of contracts in Italy. In Northern and Eastern Europe, Grenke recorded growth in the new leasing business of 6%, driven by a significant increase in Great Britain and Poland. Other regions recorded new leasing business of €20.9m, for a year-on-year increase of 11%.
Development of the contribution margin
At €72.1m, the contribution margin 2 (CM2) of the new leasing business was close to the level of €70.4m reported in the same prior-year quarter. The CM2 margin increased again and reached 18.1% in Q2 2021 (Q2 2020: 17.5%), as a result of the ongoing and consistent focus on the profitable small-ticket business. The mean acquisition value per lease contract was €7,108 in the reporting quarter (Q2 2020: €7,985). Grenke defines “small tickets” as lease contracts with a volume of between €500 and €25,000.
The contribution margin 1 (CM1) in Q2 2021 was 2.8% below the same quarter last year at €47.2m (Q2 2020: €48.5m). As a result, Grenke achieved a CM1 margin of 11.8%, which was just below the previous year’s level (Q2 2020: 12.1%).
Regional development of the contribution margins
A comparison of contribution margins 2 also reveals the dramatic differences in terms of timing and regional developments during the pandemic. While a decline in the contribution margin 2 of 21.6% was recorded in the DACH region, Western Europe excluding the DACH region, recorded substantial growth of 26.8%. In Southern Europe, the contribution margin 2 in Q2 2021 declined slightly by 3.5%, whereas Northern/Eastern Europe achieved growth of 11.5%. Other regions were able to achieve year-on-year growth of 12.3%.
In the reporting quarter, Grenke received a total of 117,387 lease applications – the first year-on-year increase since the start of the pandemic (Q2 2020: 111,934) – indicating an initial recovery in some of the target markets. During the reporting quarter, the DACH region accounted for 24,673 applications and the international regions for 92,714 applications. Grenke concluded a total of 56,078 new lease contracts in the reporting period, corresponding to a conversion rate of 48%. In Q2 2020, 50,381 leases were concluded, equalling a conversion rate of 45%.
New factoring business
With a purchased receivables volume of €175.2m, Grenke achieved significant growth in new factoring business of 23.7% in the reporting quarter compared to the same prior-year period (Q2 2020: €141.7m). Growth was driven, above all, by the strong performance in Germany (+33.3% to €56.4m). New factoring business in the international markets rose by 19.6% from €99.3m in the prior year’s quarter to €118.8m in Q2 2021.
With the adjustment of the business volume in the SME lending business made at the beginning of the year, Grenke Bank’s new lending business decreased by 88.7% to €6.1m in Q2 2021 (Q2 2020: €54.2m), as expected. Regardless of this decline, Grenke Bank’s deposit business continues to be an important pillar of the Consolidated Group’s refinancing, with a deposit volume of €1,505.2m as of June 30, 2021 (June 30, 2020: €1,312.3m).
Syndicated revolving credit
On June 30, 2021, the Grenke Group signed a syndicated revolving credit facility with a total volume of €250m with seven core banks. The facility runs for two years, with the option to extend the term for up to two further years.
The GBB-Rating Gesellschaft für Bonitätsbeurteilung mbH lowered the rating for the Grenke Group from A to A- on July 1, 2021. The outlook remains negative. GBB cited its primary rationale for this change as the Company’s earnings situation, which is under pressure due to the Covid-19 pandemic, as well as the progress that still needed to be made in the Company’s governance and risk & compliance management to restore investor confidence. The economic viability of the business model continues to be rated as high. The Grenke Group, therefore, continues to be given a high credit rating.
Grenke will publish its half-year financial report on August 4, 2021.