- Half-year net profit increases by 7.2% to EUR 68.3 million (6M-2018: EUR 63.8 million)
- Higher risk provisions required than initially forecast at the start of the year
- Growth remains on course with the target for new business growth at GRENKE Group Leasing narrowed to 16 to 19%
- Growth of Consolidated Group net profit for the full year expected in the range of 5 to 13% to EUR 138 to 148 million (previous forecast: EUR 147 to 156 million)
Baden-Baden, July 30, 2019: The profitable new business generated in the past quarters continued to be a key driver of the Consolidated Group’s profitability in the reporting period. The sum of interest and similar income from financing business increased by 14.6%. Expenses from interest on refinancing increased by 16.6% and contributed to a year-on-year increase in net interest income of 14.2% from EUR 137.2 million to EUR 156.7 million in the 2019 six-month period. The changing overall economic environment and the associated fluctuations in the payment behaviour of our customers led to a higher loss rate of 1.59% in the second quarter of 2019, compared to a level of 1.52% in the first quarter. This increase led to a rise in expenses for the settlement of claims and risk provision to EUR 60.3 million compared to a total of EUR 42.1 million in the first half of 2018, which accompanied the rise in the volume of leased assets to EUR 7,735 million (6M-2018: EUR 6,356 million). Net interest income after settlement of claims and risk provision grew by 1.4% to EUR 96.4 million compared with EUR 95.1 million in the same prior-year period. Including the profit from service business and new business, the Consolidated Group’s income from operating business increased by 10.6%, from EUR 172.6 million in the previous year to EUR 190.9 million.
"The increase in business volume in past years, and the simultaneous slowdown in economic growth in many markets led to higher losses in the second quarter. Important to note is that the settlement of claims has been at a very low level in recent years, with this development in the first half of 2019 now representing a normalisation. We are able to cushion ourselves very well from these higher losses without having an impact on our long-term profitability expectations. We continue to be within the range of our long-term average loss rate and expect this rate to stabilise at a level of 1.6% over the course of the year," says Sebastian Hirsch, explaining the development of risk provisions in the first half-year. "At the same time, we are keeping a close eye on our costs and will continue to monitor these using our consistent, disciplined approach. Evidence of this approach can be seen in the moderate rise in costs compared to new business growth, while maintaining the necessary level of investment to ensure our continued profitable expansion."
The average number of employees at the GRENKE Consolidated Group increased by 15.7% compared to the same period of the previous year to a total of 1,617 employees. Staff costs were 14.3% higher than in the previous year, in contrast to selling and administrative expenses – the Consolidated Group’s second largest expense item – which fell by 1.0%. Overall, the development of expenses in the first half-year underscores the Consolidated Group’s cost-conscious approach and scalable growth strategy. Consequently, the operating result exceeded the previous year’s figure of EUR 77.1 million by 8.6% and reached a total of EUR 83.7 million.
The Consolidated Group’s tax rate declined slightly in the first half of the year to 15.9% (6M-2018: 16.5%), reflecting the benefits from the special depreciation programme in Italy, which had expired at the beginning of fiscal year 2019. The tax advantages resulting from the new business acquired in recent years, however, will continue to result in lower overall tax expenses and benefit the GRENKE Consolidated Group in the quarters to come. These advantages will much more than compensate for the volume-related rise in risk provisions from this new business. As a result, net profit in the first half-year grew by 7.2% to EUR 68.3 million after a level of EUR 63.8 million in the same period of the prior year. Earnings per share remained unchanged at EUR 1.33.
In view of the change in the overall economic environment and the development in the first half-year, the GRENKE Consolidated Group has adjusted its forecast for Consolidated Group net profit and now expects the net profit to be in the range of EUR 138 to 148 million in the current 2019 fiscal year (previous forecast: EUR 147 to 156 million). Growth in new business at GRENKE Group Leasing and GRENKE Group Factoring during the first half of 2019 has been higher than planned. The Company reaffirms its 2019 fiscal year outlook, narrowing the forecast for new business growth at GRENKE Group Leasing to a range of 16 to 19%, which is in the upper range of the initial target range of 14 to 19%. New business at GRENKE Group Factoring is expected to grow by 25% as planned.
"GRENKE is and remains on a growth path. Our business model has proven itself over the long term in various economic cycles and has provided sustainability in terms of new business growth and profitability. Based on this, we are narrowing our growth forecast for new business in the Leasing segment to a rate of between 16 and 19%. We are also making a slight adjustment to our forecast for Consolidated Group net profit and again expect solid earnings growth of between 5 and 13% in full-year 2019. In addition, we are well prepared to expand our leasing offer to the US market in 2020 following a successful feasibility study", says Antje Leminsky, Chair of the Board of Directors of GRENKE AG, in her comments on the outlook for the current year.
The structure of the balance sheet remained solid as per the June 30, 2019 reporting date. As a result of the distribution of the dividend and strong business expansion, the equity ratio dropped from 18.5% as per the end of 2018 to 17.0% but continued to exceed the long-term benchmark level of 16%. In addition, in June 2019, the rating agency Standard & Poor’s reconfirmed the BBB + credit rating with a stable outlook.
The GRENKE Consolidated Group’s financial report for the second quarter and first half-year of 2019 is available on the Internet at www.grenke.com/investor-relations/reports-downloads