- Contribution margin 2 increases from 16.6% to 18.2%
- Demand reflects global constraints on macroeconomic activity
- Leasing enables the supply of SMEs with important goods in difficult times
- Guarantee commitments by governments strengthen SMEs
- 2020 outlook to be updated once the impact of the COVID 19 pandemic can be determined
Baden-Baden, April 2, 2020: GRENKE AG, a global financing partner for small and medium-sized enterprises, increased new business at GRENKE Group Leasing in the first quarter of 2020 by 1.6% compared to the same quarter of the previous year, despite the COVID 19 pandemic. As a result, new business, defined as the total acquisition costs of all newly purchased leased assets, rose to EUR 681.3 million (Q1 2019: EUR 670.3 million). New business performance was within the forecast range in the first ten weeks of the current fiscal year. Contribution margin 2 (CM2) at that time had already exceeded expectations. The global constraints on macroeconomic activities as a result of the COVID 19 pandemic significantly impacted new business growth, particularly in the final days of the first quarter. CM2 for new business expanded significantly, rising to EUR 123.9 million after amounting to EUR 111.2 million in the first quarter of the prior year. Consequently, the CM2 margin for new business increased from 16.6% in the first quarter of 2019 to 18.2% in the first quarter of 2020.
With purchased receivables of EUR 171.7 million, the new business at GRENKE Group Factoring recorded a year-on-year increase of 20.6% (Q1 2019: EUR 142.4 million).
Looking at the leasing markets individually, GRENKE achieved strong year-on-year growth of 16.4% in leasing new business in the DACH region. In the Western Europe region (without DACH), it was not possible to exceed the prior year’s level as a result of the pandemic, and a decline of 5.0% was recorded. New business volume in Southern Europe fell by 7.4%. Northern/Eastern Europe and other regions saw new business increase 11.3% and 6.3%, respectively, compared to the first quarter of 2019.
"Corona is a natural disaster that shifts our priorities. For responsible entrepreneurs, health and risk management now take precedence over unconditional growth. More than 90% of our employees now work from home and contract new business at much tighter specifications. In this extreme situation, we can support small and medium-sized businesses above all by financing digital equipment for home offices and medical technology", explains Antje Leminsky, Chair of the Board of Directors of GRENKE AG.
"We concluded over 75,000 new lease contracts in the first quarter of 2020. 25,000 of these contracts were signed in March alone. Though we are naturally limited as a result of the current situation, we can handle this type of extreme situation by taking on the challenges presented and getting ready for the period when the pandemic is over. In the current environment, GRENKE BANK and our direct access to development banks, such as NRW.Bank, KfW and EIB, give us a distinct advantage by enabling us to provide SMEs with important goods via leasing, even in difficult times", explains Sebastian Hirsch, member of the Board of Directors of GRENKE AG.
Demand reflects global constraints of macroeconomic activities
In the first quarter of 2020, the GRENKE Group received a total of 154,175 lease applications. Of these applications, 25,736 originated in the DACH region and 128,439 in international regions. At the Group level, 75,654 new lease contracts were concluded from these applications, which corresponds to a conversion rate of 49%. The mean acquisition value per lease contract was nearly unchanged at EUR 9,005 (Q1 2019: EUR 8,965).
Contribution margin development
With the GRENKE Group’s new business focused on concluding profitable contracts, the Group’s contribution margins developed favourably in the first quarter of 2020, and contribution margins grew in all regions. The CM2 of the Leasing segment overall amounted to EUR 123.9 million at the end of the first quarter compared to EUR 111.2 million in the first quarter of the prior fiscal year. This corresponds to a CM2 margin in percentage terms of 18.2% compared to 16.6% in the same period of the prior year. The contribution margin 1 (CM1), which consists of the contractual cash flows of the lease contracts, increased by EUR 88.1 million for a CM1 margin of 12.9%.
Prospect of government guarantees for SMEs on the horizon
Against the background of the COVID 19 pandemic, potential changes in customer payment behaviour will only become apparent in the weeks ahead. The liquidity and guarantee commitments adopted at various levels of government are likely to have a significant influence on solvencies. In any case, these measures will generally help to minimise credit risks and ensure that business relationships can continue.
The scope and extent of the impact of the COVID 19 pandemic on the GRENKE Group’s further business and earnings development cannot be reliably estimated at the present time and is not included in the outlook for the 2020 fiscal year, which was published on February 11, 2020. The Board of Directors will update its forecast once the effects of the COVID 19 pandemic can be sufficiently determined.