Earnings call transcript: Grenke’s Q2 2025 performance highlights strategic growth

Grenke AG reported its Q2 2025 earnings, showcasing a robust performance with significant growth in new business volume and improvements in key financial metrics. Despite a challenging macroeconomic environment, the company maintained strong operational results and provided optimistic guidance for the future. According to InvestingPro analysis, Grenke appears undervalued based on its Fair Value model, with the stock showing a healthy YTD return of 19.11%.

Key Takeaways

• Half-year group earnings reached €26.2 million.
• New business volume surged to €1.6 billion.
• The cost-income ratio improved to 56.4%.
• The company anticipates annual earnings of €71-81 million.

Company Performance

Grenke AG demonstrated resilience in Q2 2025, driven by strategic initiatives in digital integration and product innovation. The acquisition of B2F and development of white-label solutions contributed to enhancing the company’s digital platform, attracting a broader customer base. Despite elevated insolvencies, Grenke capitalized on a strong leasing market and stable pricing, increasing its customer base to over 690,000 lessees.

Financial Highlights

• Half-year group earnings: €26.2 million
• New business volume: €1.6 billion
• Operating income: €318 million, up 14%
• Operating result before risk provisions: €139 million
• Loss rate decreased to 1.7% from 1.9%

Outlook & Guidance

Grenke remains optimistic about its future, setting ambitious targets for annual earnings between €71-81 million and leasing new business of €3.2-3.4 billion. The company aims for a long-term loss rate of 1.5% and expects a growth rate of 10-12%. With a focus on cost efficiency and digital process improvements, Grenke is confident in surpassing the peak of risk provisioning.

Executive Commentary

Sebastian Hirsch, CEO, stated, "Grenke’s performing as planned, and we are on track for our guided targets." CFO Martin Paal added, "We have passed the peak in risk provisioning," highlighting the company’s strong financial management. Hirsch emphasized, "Our business is built on data-driven processes," underscoring Grenke’s commitment to leveraging technology for growth.

Risks and Challenges

• Macroeconomic pressures: Continued inflation and market volatility could impact financial performance.
• Elevated insolvencies: A higher rate of insolvencies poses a risk to the company’s leasing operations.
• Competitive market: Maintaining a competitive edge in the SME leasing market requires ongoing innovation and strategic partnerships.
• Regulatory changes: Potential changes in financial regulations could affect operational processes.
• Digital transformation: Successfully executing digital strategies is crucial for sustaining growth.

Grenke’s Q2 2025 earnings call highlighted its strategic focus on digital integration and market expansion, positioning the company for continued growth despite external challenges. InvestingPro’s comprehensive analysis indicates a FAIR financial health score of 2.47, with particularly strong ratings in relative value and cash flow metrics. Discover the full financial health analysis and detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Full transcript - Grenke AG (GLJ) Q2 2025:

Frances Garant, Head of Investor Relations, Granke: Welcome, ladies and gentlemen, and good morning from Baden Baden to our today’s earnings call regarding our half year financial report 2025. My name is Frances Garant. I’m Head of the IR department. And as announced during our Q1 earnings call for the half year and the full year results, we will have both with us, the CEO and CFO. So I have the pleasure to announce that Doctor.

Sebastian Hirsch, our CEO and Doctor. Martin Paal, our CFO, are here with us today. So before we’re entering into the Q and A sessions, we will start with the presentations. And with that, I would like to hand over to our CEO, Sebastian. Please go ahead.

Sebastian Hirsch, CEO, Granke: Thank you, Francesca, and a warm welcome also from my side to our earnings call today. I’m happy to be with you today. Ladies and gentlemen, the 2025 went exactly according to plan. This is good news as we are still operating in a challenging macroeconomic environment, as you are aware of. This environment is shaped by a high level of insecurity, volatile customs policies and significant pressures on the global economy.

While inflation has stabilized in most of our markets and monetary easing in The Eurozone generates more favorable conditions for our refinancing activities, insolvencies in our core markets remain on an elevated level. But our loss rate came in, as Martin will explain you later on. At the same time, the leasing market remains strong with stable pricing levels. We saw and continue to see an unbroken demand among customers, which underlines the high relevance our services have for SMEs worldwide, especially the desire of businesses for investments in modern digital solutions, in new technologies and sustainable products were key drivers and it will continue. In the 2025, our leasing business performed strongly and according to plan.

Our new business came in at €1,600,000,000 and a strong CM2 margin of 17.3%. And this is a positive sign, reflecting a high profitability of these new contracts. Further, our customer base increased steadily to over 690,000 lessees, and our lease receivables reached almost €7,000,000,000 And it includes also our new cooperation with Intesa, which slowly but steadily starts to bear first fruits. On an operational side, we also saw good progress in the 2025. With the successful placement of our max benchmark bond in terms of refinancing, we have secured the necessary funding for our further growth.

The strategic acquisition of B2F, we enable closer digital integration of our services with our resellers and enhance our Granger platform. With this technology, we are widening our online attractiveness for dealers with a simple rent button in the online shop, with white label solutions for several dealers and vendors, a modern portal and an app to app integration. We are working with B2F, Maes, it’s important for you, since twenty years in Italy. And before the takeover, it was very important for us to have a proof of concept in another country, and that was the case last year in Spain. And our operating income at all continued to grow according to our plan, outperforming our cost development while risk provisioning remained within the expected level.

Ladies and gentlemen, I’m delighted to announce that in the past weeks, we have reached two important milestones on our path to a pure global leasing provider. Firstly, we have come to an agreement with involved parties and will shortly close the final takeover of all remaining franchise companies. And this marks the end of an ongoing progress process, which we started in 2020 and brings this chapter to a successful conclusion. We’ve signed the first contracts and the next one we will sign over the next couple of weeks. And secondly, the transfer of our factoring business to Taylor is progressing smoothly.

With the conclusion of the transfer of our Polish subsidiary, it was the first one, and also the first milestone in this process has been reached in the last weeks. The deconsolidation already took place in July, so after the second quarter, but in July. And we expect the sale of the factoring business and its local entities to be concluded by 2026 as we announced earlier in this year. Our overall performance in the 2025 was well within our expectations. While we generated a strong new business, as I mentioned, and improved our CM2 margin of 17.3%, we saw an improvement in our costincome ratio to 56.4%.

At the same time, the loss rate came down compared to the first quarter in twenty twenty five, that was 1.9%, and now it’s 1.7%, while remaining elevated compared to the last year. With this performance, we achieved group earnings in the 2025 of €26,200,000 at a stable equity ratio of roughly 16%. With the continuous improvement of our income growth drivers as well as our cost and risk structure, we are on track for our targets for 2025. Ladies and gentlemen, looking at profits, we have achieved an important development in the second quarter. We have reached the anticipated trend reversal in group earnings, and that’s shown on this graph.

Since the sudden hike in insurvencies and loss rate in Q3 last year, which caused the strong increase in our risk provisioning, we have seen correspondingly reduced earnings quarter on quarter. We have made the necessary adjustments, pricing and higher loss expectations into our new contracts, expanding our efforts on debt collections and strengthening our cost discipline. With €60,000,000 group earnings in the second quarter, we have not only grown our profits compared to the previous quarters by over 50, we have also significantly outperformed the previous quarters, which were affected. As a consequence of our strong new leasing business of the past quarters and our expanding lease book as well as our continuous cost discipline, we expect earnings to continue on a clear growth trajectory throughout the year, in line with our annual gross earnings target of 71,000,000 to €81,000,000 Before handing over to Martin for more financial details, I would like to underline. In a challenging and volatile environment, we see ourselves well on track.

Our measures for cost efficiency and risk management are effective, and our business is performing according to plan. With the peak of loss rate behind us, we continue to follow our strategic path towards our annual targets. And with that, I would like to hand over to you, Martin.

Martin Paal, CFO, Granke: Yes. Thank you, Sebastian, and also a very warm welcome from my side. Allow me now to dive deeper into the figures. In the 2025, we continued on our strategic growth path, achieving a leasing new business of €867,000,000 at a CM2 margin of 17.1%. And this was within our expectations and puts us well on track for our annual target of €3,200,000,000 to €3,400,000,000 leasing new business at a CM2 margin of above 16.5%.

Overall, we are on target on the cost side, where we saw an overall strong growth in operating income as a result of our growing lease receivables. This together leads to an improvement in our costincome ratio for the 2025 of currently 56.1%. However, we need to maintain a consequent focus on cost efficiency also looking forward for the second half of this year. Let’s now turn towards our income statement. And yes, as just mentioned, we saw a strong increase in our operating performance, operating income in the 2025 by 14% to roughly €318,000,000 outperforming our cost development of 12.6%.

This development reflected both our continued strong top line momentum as well as our ongoing efforts on cost efficiency. Correspondingly, our operating result before settlements of claims and risk provisions increased by 16% to roughly 139,000,000 Settlements of claims and risk provisioning remained elevated compared to the previous year as anticipated and communicated at €94,700,000 And consequently, our operating result reached €36,500,000 in the 2025, euros 21,900,000.0 below the previous first half. And with other financial results widely stable, group earnings finally came in at €26,200,000 well within our expectations. With the next chart, I would like to illustrate in greater detail the trend reversal Sebastian just talked about. In Q2, we saw expected continuous increase in operating result before settlements of claims and risk provisioning, which has reached €71,500,000 after €67,000,000 in Q1.

And at the same time, we expected our settlements of claims and risk provisions to have surpassed their peak, coming in at €47,000,000 just below the first quarter. We expect this positive momentum shown by the growing gap between both bars to further expand as our growing leasing portfolio contributes increasingly to our operating result. On the other hand, the impact of defaults steadily normalizes over the coming quarters. And consequently, we remain confident to reach our earnings target for 2025. So let’s now move on to our cash flow statement.

Our operating cash flow reflects our continuous growth path. We saw a steady increase in payments by lessees compared to the previous year of about 9.4% to €1,400,000,000 And in the 2025, we repaid €1,800,000,000 in refinancing, while adding €2,000,000,000 of new refinancing, including our recent benchmark bond and the deposits from Grenke Bank to finance our leasing new business of €1,600,000,000 Consequently, our cash from operating activities remained balanced in the 2025, resulting in a continued strong cash position of €950,000,000 And this provides us with sufficient headroom to meet our new business targets in the second half of the year. Let’s now take a closer look at our funding mix. So those of you who have attended previous calls will spot the slight but important difference here. We have adjusted the presentation of our funding mix and added external bank funding as a fourth pillar.

This move accounts for the broader diversification of our debt side that we achieved and now becomes visible through the cooperation with already existing and new bank partners, especially in Teza San Paolo in Italy. So apart from that, our funding mix remained widely stable. With the newest addition of this year’s benchmark bond in May, senior unsecured now accounts for 34%. The deposit business of our Grenke Bank contributes to €2,300,000,000 or 28%. And ABCP programs make up 14% or 1,200,000,000 And the newly added external bank funding pillar, which includes promissory notes and revolving credit facilities, made up 9% of our mix.

With regards to funding, finally, we will maintain our strategic approach of diversification to ensure sustainable resources for our continued growth. And with that, I hand back to Sebastian.

Sebastian Hirsch, CEO, Granke: Yeah. Thank you, Martin, for the details. Ladies and gentlemen, Granges performing as planned, and we are on track for our guided targets, but it is a path to go. With a strong C2 margin of the first half of that year and the strong new business, we have the foundation for going forward for the rest of the year towards our guided targets. Also, our cost discipline and growing income side are also reflected in our costincome ratio with 56.4%, as Martin mentioned, and we would like to continue also on this path.

The 1.7% in loss rate is very close to our guided loss rate on an annual basis of 1.6%. It came in from 1.9% in the first quarter, and we see also to continue on that pause with a stable level in risk provisioning and settlement of claims and an ongoing growing business and growing volume. And regarding our group earnings, we have achieved a trend reversal, as mentioned, in Q2, and that was very important from a long term run, but also from a short term run on the path for 2025. With €26,200,000 in the first six months, we are well within our projections and we’ll see continuous growth quarter on quarter in the coming quarters. The 2025, we have worked hard to overcome the impact of the volatile macroeconomic environment, which resulted in the higher default, as we mentioned and reported over the last couple of quarters.

And we are delivering. We see continuous double digit growth of our operating income as our growing lease book continue outperforming our cost development, especially based on the strong contribution margin too we are settling in our new contracts. We’ve stabilized our risk provisions and have fully priced in the more volatile economic environment into our new business for the leasing. Our cost development is under control and our measures for cost discipline shows first results in higher cost efficiency. And with the previous benchmark bond issuance, we have well funded for our growth targets of 2025 and have a very comfortable situation within our liquidity.

In short, Granges is performing according to plan, and we are on track. Thank you very much for your attention, and we look forward to your questions.

Frances Garant, Head of Investor Relations, Granke: Yes. Thank you very much, Sebastian and Martin, for your remarks, your presentations. Ladies and gentlemen, we will now enter into our Q and A sessions. Now depending through which link you joined our call today, you have the possibility to ask whether oral or written questions. For the written questions, please use the Q and A section for this.

For the oral questions, you will find a hand symbol on the upper bar of your screen, and you can just click on that. If you want to remove yourself from the question queue, just click on that button once again. If I call out your name, we will unmute your line, and then please do not forget to unmute your device as well. So let me just take a moment here to wait for the questions. And we have a first question coming from Simon Keller from HauckAlphaiza.

Yes, I think yes, should be unmuted now. Mr. Keller, please go ahead. I hope you can hear us because we can’t hear you. I think is your device unmuted, Keller?

Yes. Perfectly. Yes. Wonderful.

Simon Keller, Analyst, HauckAlphaiza: Morning. Thanks for sharing the encouraging figures. I have a couple of questions. Firstly, starting with net interest income. Yeah.

I noticed that growth slightly, slowed down, compared to q one. Is there any particular reason? And especially, yes, looking forward, what’s a fair growth pace that one should expect for the full year on net interest income?

Martin Paal, CFO, Granke: Well, there is no specific reason for if you might have seen a slower growth on NII in the first quarter in the second quarter compared to the first one. We have a continuous growth there from quarter to quarter, and that’s more or less the growth that we also expect towards the second towards the third and fourth quarter. What we what is also affecting our NII is, for example, on the interest expense side. If we add, for example, a benchmark bond that then weighs on interest expenses in that quarter, especially that was the case in the second quarter with our benchmark bond. On the other hand, we had some repayments in the first quarter already at the beginning of a larger tranche of €300,000,000 So that always then levies out over the year.

So it’s not always the same. If you just compare quarter to quarter, you have always seen the smoothing over the year of NII. But there’s no special effect apart from that what I just mentioned.

Sebastian Hirsch, CEO, Granke: Maybe there’s one small impact, Martin, to add compared to the operate lease because with the acquisition of Intesa, we did we added to our portfolio roughly €160,000 if I’m right, operate lease contracts. And the revenue of that operate lease contracts are not bringing interest income that is revenue. It’s very close to the German leasing law and it’s based on our service business. But the expense for the funding is part of the interest expenses, but it’s not significant and material. And when you would like to have a feeling for the figures, roughly 3% of our leasing book is operate lease.

And the most important part there is the consolidated book from Entesa Sanpaolo. The new business will be finance leased, so it’s, let’s say, a temporary impact. And in a smaller country in Croatia, have also operated. So roughly 3% of our leasing book is operated leasing. That is may interesting for you.

So you can reduce the interest expense by 3% roughly to having a fair ratio between interest income and interest expenses and the 3% interest expenses normally should account to the revenues of operate lease, which is in the line service business.

Frances Garant, Head of Investor Relations, Granke: I think you still have your hand up, Mr. Keller, if you want to ask another question. I think we have to open up the line again for in the background just to make sure that we got all your questions. You have to unmute yourself. Is there other further questions?

Simon Keller, Analyst, HauckAlphaiza: Hope it works now.

Frances Garant, Head of Investor Relations, Granke: Yes, perfect.

Simon Keller, Analyst, HauckAlphaiza: Yes. Thank you. Yes. My second question is on two P and L lines, which basically what appeared to very much reflect the very current dynamics and not are not necessarily indicative of the long term trends. And that’s firstly the gains and losses from disposals, yeah, which was really positive in h ’1.

And secondly, also the impairment losses within the settlement of claims and risk provisions, had negative impact. Yeah? And I wanted to hear your thoughts on these lines, yeah, what you expect for h two and also maybe even looking into 2026. And, yeah, maybe I should directly ask the questions that I still have left. Yeah.

Otherwise, there’s this mute, unmute difficulty. So my second or my third question now really is the pickup in net profit momentum in h two. Yeah. What basically how how should it be split between q three and q four? Is it pretty much as you have shown in this this one slide?

And what’s the visibility on on net profit in h four looking into h two? And maybe what would enable you to reach the upper end even of the net profit guidance? Thank you.

Martin Paal, CFO, Granke: So I’m to start with your first questions on gains and losses from disposals. So what we see here is still a temporary effect that will not last into the next year. What we assume so far, we had some lower new business portfolios four years ago after the pandemic, which now come to an end. And in this result of gains and losses from disposals is always shown a small portion of subsequent lease business. And because now relatively less lease objects come back because we had some lower new business portfolios four years ago, relatively less leasing objects come back in comparison to lease contracts that are still ongoing and in subsequent lease.

So this effect this positive effect overcompensates other effects from the disposal of this lower portion of lease objects. But this is not an effect that we expect over the next years. Normally, the result of gains and losses from disposals is more or less around zero, a little bit negative. But this year, we see still this positive impact on our P and L lines. On the second one, on impairment for losses, well, that’s still the effect that we see since three or four quarters where we write down our lease receivables.

For example, on the one hand, if they are performing and then enter into our Stage three into the nonperforming stage, They get hit in loss provisioning first. And on the impairment side, then if we already are in a default mode of these receivables, they maybe enter other stages within the Stage three and get another impairment loss or, yes, provisioning insofar on the P and L line. So the overall effect of this €47,000,000 in the second quarter is still reflecting this elevated risk level overall what we see since the last two or three quarters.

Sebastian Hirsch, CEO, Granke: Yes. And may I add for the outlook? That’s right. It was a momentum increase in overall income and earnings in the first half of the year, especially in Q2. That was important.

And we see that it will continue as we’ve shown in the graph. It illustrates our expectations very well. And at the end of the day, it depends on the development on risk provisioning and settlement of claims. We’re expecting a loss rate of roughly 1.6%, so a bit lower on an annual base as we’ve seen in the second quarter of that year. And that is decisive at the end of the day for our overall P and L per end of that year because of the existing portfolio, because of the new business we printed over the first half of the year.

And the numbers we’re having now, the leasing portfolio and so on, it’s a good visibility on the income side. We also have a very good visibility on the cost perspective. Of course, we have to do some consolidation efforts in terms of the factoring business, in terms of the consolidation of the Entesa portfolio and so on, as we mentioned. But overall, the visibility is very high and the risk provisioning and settlement of claims, so the loss rate at the end of the day is decisive for the range and where we are at the end of the day in the lower or the upper end of the guidance.

Frances Garant, Head of Investor Relations, Granke: So we have a next question lining up from Tobias Lukas from Kepler Cheuvreux. We will unmute your line just now, and you should unmute your device. Mr. Lukas, Yes. Please go

Tobias Lukas, Analyst, Kepler Cheuvreux: Good morning. Thank you very much. Also three questions from my side, please. Touching again on the NII trajectory, I was just wondering if a ballpark number of a kind of 400,000,000 or 420,000,000 of NII, you know, looks reasonable to you and potentially, you know, what what is rather a base case on your side? Secondly, on the on the gains from disposals you just mentioned, it’s it’s 10,000,000 so far in h one.

So if that was the run rate and kind of continued well, it would be easily 25% of the of the earnings before tax and and make a huge part of the net profit. So I was wondering if if there’s really this kind of cliff effect into ’26, which should then obviously weigh on the year on year comparison next year. Then on the equity ratio on the cash management, you’re now at 15.9. So I was wondering the 1615% we talked in the past, you know, it’s like what is the kind of ratio you would not want to undershoot? And in terms of the close to 1,000,000,000 cash and cash equivalents, maybe you could remind us, you know, it’s like how you deploy this cash.

Is it sitting with the central bank? Or is it deployed differently? Okay.

Martin Paal, CFO, Granke: A couple of questions. Let me start with the first one, the NII trajectory for this year. I think that’s a ballpark that we are also assuming in our planning, which might be realistic for the end of the year. I mean, at half year, we already have €200,000,000 And operating income, especially the NII, is driven by our strong portfolio growth from the last years, so this ballpark number should be a realistic one. The next one on the disposals.

Yes, we see €10,000,000 in the first half, and we expect to have positive income from that also in the second half of the year, but we do not see a cliff effect towards the next years. It will be slower down slowing down and maybe become then negative as it did in past years, but not as, I would say, as a cliff effect from positive to negative. The portfolio effects that we now describe from our 2021 portfolios will then reverse but will smoothly reverse over the next years, so to speak. On the equity side, we feel very comfortable with this, roughly 16% equity ratio. You might have seen in the first half of this year, we have different effects in equity that contributed to that equity ratio.

On the first hand, we had the payout of the AT1 coupon bond in the first quarter. In the second quarter, always the dividend flows out. Also, we had in the second quarter a positive equity effect from the consolidation of the Entesa portfolio from the Entesa transaction. On the other hand, our balance sheet got longer because, as Sebastian just mentioned, we are consolidating now these 200,000,000 operate lease portfolio from Entesa. So the 16% is a ballpark, be it a little bit below 16% wouldn’t matter us towards the end of the year.

So we as I said, we feel comfortable with the 16%. And this nearly €1,000,000,000 cash is more or less with Bundesbank. Effectively, they are some million euro with our partner banks also, but the largest by far the largest part, 900,000,000 or so, are with Bundesbank.

Sebastian Hirsch, CEO, Granke: May I would like to add two things in terms of equity? We would like to finalize that year all the consolidation impact and things we have to do in M and A, including the franchise transaction. And after that, it’s a fair time to bring the new, let’s say, benchmark for equity ratio from a feeling it will be lower than 16% as we had in the past because of higher good bills, and we don’t see that high goodwill anymore. So it will be lower. So 15.x percent equity ratio is absolutely okay for us from a strategic point of view.

And in terms of the profit and loss of disposal, it’s also from a strategic point of view, we would like to have a zero there because we would like to meet with our expectation as a residual value at the end of the lease term. Whenever And there is a deviation, then it’s also the question, should we adjust for the next business, for the new business, the estimated residual value in our leasing receivables calculation, and that is the normal progress and process we have to do. So from a long term run and also for the next year, it’s better to assume a zero. But if that impact we see now, it’s sustainable and it seems to be sustainable in terms of retention, in terms of what’s the fair value of a used object at the end. And are we able to say that then we can adjust the estimated residual value and then over the four years average, it will improve the interest income from the methodology

So the goal is to have a zero there and the realistic scenario is that sometimes it’s a bit negative, sometimes it’s a bit positive.

Frances Garant, Head of Investor Relations, Granke: We have a next question from the other line coming from Mengshan Sun from Deutsche Bank. Mrs. Sun, you’re being unmuted just now. Please go ahead.

Mengshan Sun, Analyst, Deutsche Bank: Hi. I hope you can hear me well.

Frances Garant, Head of Investor Relations, Granke: Yes.

Mengshan Sun, Analyst, Deutsche Bank: Perfect. So three questions from my side as well. So the first one is on the second half of the year. So in order to reach the lower end of your full year guidance, you still need roughly like €12,000,000 increase in your net profitabilities. So what will be the building blocks in your estimates for this kind of profitability improvement levels for the second half of the year?

And the second question is on your loss ratio. So you sound quite confident that the loss ratio is going to come down in the sequential quarters. But if I look at the stage three loans, we continue to see a further increase over there in this quarter. So what provides you the confidence that the loss ratio will come down or has already passed peak level as you said for now? And the last question is a follow-up on the equity ratio.

So the equity ratio has come down slightly below 16%. What will be the new business volume growth rate and the net profit you need to achieve for next year to for you to feel comfortable or even to improve your equity ratio? Thank you very much.

Martin Paal, CFO, Granke: Let me start with the questions from my point of view. For the second half of the year, you are right, that’s basically math. We need €5,000,000 net profit to reach the lower end of the guidance. I mean we have basically three levers where we see our operate or our results increasing. On the first one, we see a strong increase in the operating income side.

We are just talking about NII and other components of operating income where we already see this steady increase quarter by quarter. On the second, we really need to maintain our cost efficiency measures, our internal cost efficiency to keep this up, to really have this in all our minds with all our employees also from the board side to have an increase in costs at a lower pace, which is currently the case, but to really maintain this lower pace of cost increases towards the second half of the year. And on the third lever, then we have the risk provisioning, where we assume that we have now passed the peak really before risk provisionings can go down. It’s always essential that we see a peak there. And with this result here in risk provisioning, yes, we have basically the same level as we had in the first quarter, and that makes us confident that we really have surpassed this peak from that end.

On the equity ratio, let me start with that. Yes, as just mentioned, we currently have the 16%. We will overlook our targets for the equity ratio from a balance sheet perspective towards the end of this year. Below 16% is not an issue at all. On the one hand, this is our target from balance sheet perspective.

On the other hand, we have regulatory requirements to fulfill. And we have really enough headroom above all the requirements from BaFin on our regulatory ratios of 200 to 300 basis points, for example, even already taking into account goodwills, as Sebastian just mentioned, that are deducted from regulatory capital from a regulatory perspective and also from the requirements that the rating agencies put on us. We feel really comfortable with our regulatory ratios. And with that, the equity capital ratio is also fine below 16%. But we will overlook that towards the end, and there is currently no further need to for any capital measures also on.

And the third or second question was on the loss rate. Yes, I just mentioned it. We think that we have passed this peak. We have early indicators where we see some slight enhancements in what we then expect for the second half of the year. But at the end, that’s more or less the most unsecured component from our P and L perspective where we have to live with.

But as I said, we feel comfortable that we have surpassed this peak.

Sebastian Hirsch, CEO, Granke: And in terms of growth rate for the future, normalizing and loss rate closer to the long term average of 1.5% with a better costincome ratio and the strong income growth because of our new business. And we with our payout ratio of 25%, which should be stable, we feel comfortable to running a growth pace of 10% to 12% from a long term run without new equity. But as we mentioned before, I think at the end of that year, after all the consolidation, all the M and things, we should have a clear picture on equity, equity needs and equity ratio. But for the feelings, 10% growth rate is absolutely okay with the existing equity with a payout ratio of 25 and a growing profitability.

Frances Garant, Head of Investor Relations, Granke: And we have a next question from the audio line coming from Mr. Roberto Cazoni. Mr. Cazoni, please go ahead. Your line is unmuted.

You have just to unmute your own device as well.

Roberto Cazoni, Analyst: Yes. Sorry, sorry. Yes. Good morning, everyone. You for Some taking my of my questions have been answered already.

I have one general and one specific left. My general one is just trying to understand a bit looking in the next two or three years, what is the operating leverage we could expect from this company in the sense, I’m particularly looking at the cost of labor and the FTE growth, which is still at 6%, 6.5%, if I’m not mistaken, in H1. And so in order to grow, as you mentioned, Sebastian, 10% to 12% without diluting your equity ratio, do you still need to recruit and to increase your FTEs by 5%, 7%? I mean, AI by chance help your operating leverage and hence your growth in assets would actually, reflect in not a much higher growth in FTEs. So this is my first question.

The second question is, I understand we touched a bit on the trough in terms of non performing loans and 1.9%, 1.7% is actually the sort of peak. We are coming from exceptional times where this ratio was much, much lower. Can you give us a bit of a color on where do you see currently coming most of the new troublemakers? And where should we be landing basically on this relation in two, three years’ time in a normalized world that which will never materialize possibly, but thank you. Thank you very much.

Sebastian Hirsch, CEO, Granke: Yes, thanks for your question. I would like to start and Martin will add something. With the first thing, you’re absolutely right. It’s not only about AI, it’s all about digitalization, more efficient processes. And as we mentioned also, to be more digital at the very beginning on a platform base, app to app and so on.

The goal is to hiring less people and to having less FTE growth than new business and also having when we’re talking about 10% new business growth, less FTE growth than 5%. That’s absolutely the goal because our business is built for that. It’s a business built on datas. It’s an architecture which is built on data driven processes, and that’s our long term goal, and we are on the way to realizing that. But it’s not only AI, it’s also digitalization across the countries and also in the back end and the backbone at the end of the day in all the administrative processes.

And in terms of allosate, Martin will add some more details about some countries with other drivers. But from a long term run, as we always mentioned, 1.5% seems to be a fair loss rate from a long term average in our new business. Why? For four years, leasing contract, in average, we’re calculating 6% expected loss at the beginning. And that is from our expectation and average across countries for sure because it’s a bit different in Southern Europe and to Northern Europe or Germany.

But that is a fair level to having a good risk premium in our business in terms of interest income, in terms of contribution margin one and conditioning on the market. And so that is, so to say, a loss level we need to earn money and to having our footprint in the market. A lower loss level than normally, we will not take in all the market opportunities and a higher loss level may it’s too risky in our portfolio. From a long term run, it seems to be the fair level. It depends on country.

It’s country wise different. And so the 6% is okay. And that means for four years, an average, a 1.5% loss rate is, from a long run, a fair estimation. But as always, in reality, we will see some volatility and sometimes it’s 1.6%, 1.7 or 1.2%. Extreme scenarios like 2% or more or 1% as we had over the last couple of years should be normally not the case.

But again, when there are extreme scenarios and it’s also linked to accounting to the accounting scheme, then it could happen. And again, 1.5% is fair.

Martin Paal, CFO, Granke: Yes. Just let me add one point to the loss rate. While we have seen in towards the second half of last year, especially insolvencies and higher defaults in our three largest countries, Spain, Germany and France. We have what we have seen now in the first half year was a more broader picture where a lot of countries faced higher insolvencies and defaults. But again, we it seems like that we have passed the peak here.

But what is even more important looking forward is that we price in the risks that we see in our contracts that we really make contracts with a contribution margin where we have this expectation of loss rate already priced in, be it 1.5% or 1.6%. It is, again, important that it is part of our C2 margin that our salespeople can take the right decisions in writing new business.

Frances Garant, Head of Investor Relations, Granke: We have another question coming from our audio line, which is Doctor. Philip from Bank. Hessler, please go ahead.

Philip Hessler, Analyst, DZ Bank: Good morning. Philip Hessler from DZ Bank. I have two questions, one clarification and one more technical question. The clarification is on the NII outlook for the full year. I’m not sure whether I’ve understood you correctly.

Do you guide now or not guide, but do you see the 400,000,000 to $420,000,000 realistic? Or do you see the $420,000,000 realistic? So that’s the clarification question. And the technical question is on the minorities. They turned positive compared to q one, both on the balance sheet and the p and l.

I assume that’s due to the Entesa joint venture, but maybe you can explain this a little bit whether the acquisition of the franchise company also has something to do with this and maybe giving an outlook for H2, what the impact on the balance sheet will be from the acquisition of the franchise companies. Thank you.

Martin Paal, CFO, Granke: Okay. So let me start maybe with the technical questions. On the one hand, yes, you are right, the minorities led to this reversal in share of minorities and equity from negative to positive because now as Intesa has assumed a 17% stake of our Italian business, this part now is shown as noncontrolling interest. That’s basically the part of 17% of the Italian business now shown as noncontrolling and therefore minorities there turned from negative to positive. The impact of franchise companies in the or of the acquisition of the franchise companies can’t be seen in the second quarter because the closings already took place, some of them, and the other ones will take place in the third quarter.

We have everything prepared to now have the closings, namely we had already signings of the SPA, so to speak, technically speaking. But in equity, it will be visible in the second half of this year. And then because all these franchise entities are already consolidated, we will deduct the purchase prices directly from the equity position, and that will become visible then in the second half of this year. And to your first question on the NII outlook, I mentioned that it is a realistic ballpark, 400,000,000 to $420,000,000 This is, as I said, a realistic one. Could also be towards the upper end of this ballpark.

Frances Garant, Head of Investor Relations, Granke: Yes. Thank you. We have some questions from our Q and A chat. One of this was already answered regarding the franchise companies and how they’re accounted for in our balance sheet and P and L. And now moving on a little bit more on the Entesa partnership.

We just ventured that you can shed a little bit more light on that and especially on the new funding source and about the book value of the Granquelo Gracione that we have in Italy with the deal with regards to Entesa.

Martin Paal, CFO, Granke: So let me go ahead, first of all, with the funding side that is integrated into this deal with Intesa Sanpaolo with this cooperation that now really moves on, where we see really the first contracts coming in and the first leads with our partners there in Italy as it was agreed in the business combination agreements that really takes place, and that’s good also towards the outlook for the second half of the year. And the second really important part of this cooperation with Entesa was a so called funding agreement, namely that Entesa committed to fund at least the part that they have now in our Italian business, namely the 17%. And that especially contributes to our fourth pillar of funding of external bank funding. Bank funding, we are talking about roughly 200,000,000 just coming from the Entesa side. In this fourth pillar, there are other revolving credit facilities, which we have with banks in different countries that make up then the rest of the part of this fourth pillar.

But it was important for us to now show this in our funding mix because it is, again, a new broader diversification in terms of funding. Regarding the book value of Granque Lucarzione, well, it is fully consolidated under IFRS, so there is no book value of this entity. The contribution of equity that we see in from this cooperation, namely that Entezer Sao Paulo brought in Rent4U, its Italian business, is around €80,000,000 positive in the equity components in the second half or in the second quarter after closing.

Frances Garant, Head of Investor Relations, Granke: And last question from our written Q and A queue we have about Q3 and how it’s going so far in terms of new business but also in terms of loss rate.

Sebastian Hirsch, CEO, Granke: Yes. The new business is running as planned, is expected. It’s summer, but it’s a normal time for us. And Julie was as we expected and also the August is running as expected. And also in terms of risk provisioning, settlement of claims, termination and so on, we are well on track within our expectations.

So July was as we expected and as we planned for our full year at the end of today. So everything is on track.

Frances Garant, Head of Investor Relations, Granke: So I think there are no further questions. I would just wait a little bit, but this doesn’t seem to be the case. Ladies and gentlemen, thank you for joining us today. This concludes our earnings call. If you have further questions, please don’t hesitate to contact us through investorgranca.

De. We look forward to hearing from you. I would also like to give you some information because we will be on several conferences over the past of the next couple of weeks, starting in Hamburg on the end of this month, going also to Frankfurt and Munich. So we would be delighted to meet you in one of these conferences together with our CFO. On the October 2, we will publish our Q3 new business results, and it was our pleasure to have you today.

You can disconnect now. Have a great summer. Take care, and goodbye.

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