Grenke AG (0R97.IL) Earnings Call Transcript & Summary

Good day, and welcome to the Grenke AG Investors and Analyst Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anke Linnartz. Please go ahead.

Good morning, ladies and gentlemen. Welcome to our today's conference call on the occasion of the publication of our preliminary results 2020. My name is Anke Linnartz, I'm Head of IR. And with me today are Antje Leminsky, our CEO; and Sebastian Hirsch, our CFO. Just before we let into things, I would like to let you know that this call is being recorded and will be archived on our website. We will start off with the presentations by Antje Leminsky and Sebastian Hirsch and are going to have a Q&A session right after the presentations. I stop here and I pass the call on to Antje Leminsky.

Thank you very much, Ms. Linnartz, and thank you very much for joining us today, ladies and gentlemen, for our analysts and investors call on our preliminary 2020 annual results. We, of course, very much appreciate your time. You've already seen from our announcement this morning that we were able to achieve a good overall result for Grenke AG in an extremely challenging year, as all of you know. Despite the global corona crisis and the very time-consuming processing of the wide range of allegations against us, we have once again operated very profitably. Grenke has a functioning business model, and we are well positioned in our markets, and therefore, we remain optimistic for the time after the end of the corona crisis. As you also know, we are not yet able to present our audited annual report for Grenke Consolidated Group today. The delay resulted primarily from the extremely comprehensive audits this year. However, we are close to the finish line. Our auditing firm KPMG has confirmed that it plans to issue the audit opinion for the 2020 consolidated financial statements on May 17. And we have submitted all the necessary documents so far. And we are now in the final stages of preparing the annual report, which our Supervisory Board in a normal process will then endorse before it will be published on May 21. For all the reasons already mentioned, 2020 was an extremely challenging year for Grenke. And against this backdrop, we are very pleased that we have achieved a consolidated net profit of EUR 79.9 million. This result was burdened primarily by a 62.1% increase in expenses for claim settlement and risk provisioning. And this was, of course, primarily due to the consequences of corona. Leasing business decreased by 28.8% compared to last year. Although the margin indices, the positive message we already sent with our new business figures early this year of our contribution margin to increase totally up to 18.4%. And this was due to our very consistent focus on small ticket business with low and lower volumes than average before. Our equity ratio remained stable at 16.3%, which further underpins the strength of our company. In the factory segment, we were able to keep our new business almost constant compared to '19 at around EUR 648 million. And at Grenke Bank, the volume of new business -- lending business, in that case, more than doubled to almost EUR 120 million. And this was primarily due to corona and our strong focus on KfW subsidies. Ladies and gentlemen, let me hand over to Sebastian Hirsch, our CFO, for further explanation of our figure. And after that and before we take our questions, as Anke announced, I will provide you with the outlook for the remaining year of 2021. And I will also like to briefly explain to you what Grenke has done so far in the meantime to address criticism from BaFin and our auditors to reorganize the consolidated group in order to become even more transparent, more and better structured and even, thus, more successful in the future. Sebastian?

Yes. Thank you, Andrew, and a warm welcome from my side, too, to our -- today's conference call for the preliminary results of fiscal year 2020. Before guiding you through the fiscal figures of 2020, I would like to outline the accounting changes we have implemented as already communicated in February this year. The most significant change is the first-time consolidation of all outstanding franchise companies. And what's the driver behind this change? It's a reassessment of the scope in consolidation according to IFRS 10 based on new insights. We have come to the conclusion after checking everything that the managing directors of our franchise companies as well as the financial investors in these companies should be classified as a de facto agent of Grenke AG. And therefore, all the 13 currently existing as well as franchise companies that we had acquired since 1st of January 2014, because it was a starting point implementing IFRS 10 in our balance sheet, have been included in the scope of the consolidation of Grenke AG consolidated statements. The revised accounting treatment is such as if those companies had already been with Grenke's scope of consolidation since their very establishment at the very beginning, and this change have been implemented retroactively with effect on 1st of January 2019. Previously recorded goodwill has been offset against retained earnings and purchase price allocations have been reversed. In aggregate, the adjustment in scope of consolidation reduced net profit by a single-digit million amount for 2019 and 2020. The book equity is reduced and aggregate by EUR 87.9 million. And 2 distinct drivers are responsible for this. First, EUR 67.4 million, that's the offset of recorded goodwill and intangible assets linked to the franchise companies. And secondly, the first-time consolidation impact of roughly EUR 20.5 million because of the outstanding franchise company, which are now part of the group balance sheet of Grenke AG. Importantly, please note that regulatory capital ratio are virtually unaffected by this move. I will elaborate this on the next slide in a minute. And before moving to that slide, let me briefly mention 3 smaller additional impacts we have adjusted for 2019. At first, we retroactively increased allowance for lease receivables by EUR 4.1 million. Rationale was an adjustment in discount rates used in the calculation of IFRS 9 risk provisioning. Our business in Poland was impaired by EUR 4.2 million that was also part of our statement per end of September of the last year, and now we adjusted that impairment for 2019. And finally, we have corrected the goodwill for our Portuguese business by EUR 2 million. All things are noncash events, that's quite important. And for all things, we are talking about evaluation and interpretation issues. And with that, let me turn to Slide 8. Here, I would like to outline the impact of the franchise consolidation especially and also the other impacts on our capital and the capital ratio at the end of the day. And as you can see, as a consequence of the comprehensive consolidation, our balance sheet equity ratio as of year-end 2019 decreased by 1.3 percentage points and now amounting on 16.2%, per end of 2020, 16.3%. And however, as already mentioned, you also need to be aware that our regulatory capital and rating ratio is largely unaffected by that consolidation and that you can see here. Because for calculating regulatory capital ratio or rating capital ratio, you have to fully back goodwill and intangible assets by equity. That means that portion of equity was, in other words, not free for other things and that is a gray portion of the bar here, the 1.5% in 2019 before the consolidation and now the 0.6% after the consolidation because there is less intangible assets and less goodwill on the balance sheet. And the blue bar, the huge portion, is quite stable and nearly unaffected by that impact. And now we come to the next slide and see our figures for the financial year 2020 on the P&L. It's a bit different chart, a bit different way to showing our P&L. As you are aware of, starting with the net interest income driven by our strong leasing business, the existing business of our portfolio increased by 6.7% over the year. And also, the profit from new business and service business quite stable over the year means a strong business of previous years are much more important than the decreased new business in the last year. Also, the costs are quite stable over the whole year. The cost decreased in operational business, means the costs which are linked to the operational business decreased because of less new business and our cost steering. Otherwise, because of the [ Warth & Klein ] report and the audits, we started the special audit of BaFin, we had more cost for auditing and consulting of roughly EUR 10 million, and that's why, overall, the cost level is quite stable compared to the previous year. Overall, we are talking about earnings before taxes of EUR 104.6 million and a net profit of EUR 79.9 million. Here, on the next slide, we are making a deep dive in our risk provisioning. You are aware of this, slightly discussed it for Q3. Also, that show us different stages under IFRS 9 and the risk provision balance sheet base. It's not the P&L risk provisioning. It's risk provisioning on our leasing receivables on the balance sheet. And in each stage, we have boxes colored. And in the Stage 3, you see that 3 is the green one, that is an impairment for nonperforming loans that is based on the incurred loss because of terminated leasing contracts. The gray bar is risk provisioning for performing loans without deferrals. And the blue bar is also for performing loans, for running loans, not terminate, but with deferrals. You are aware of that. And looking to that stages, it's important to point out that in stage 3, we are talking about more than 57% of that cross-receivables are covered by risk provisions. So it's quite comfortable from our point of view. And also from a deferrals point of view, we can say that we had a peak in deferred payments of EUR 84.2 million in September, where end of December, we're talking about EUR 24 million deferred payments. So a lot of companies pay back the deferrals for the others, for the main portion of that, there's a payback plan negotiated with the clients. So we think that we can reduce it over the year and the overall risk provisioning for the leasing contracts -- sorry, for the leasing contracts of that deferrals means contracts with deferral is 48 -- EUR 41.5 million. And that EUR 41.5 million are reflecting, on the one hand, the outstanding deferred installments of EUR 24 million and also the outstanding leasing receivables, future installments of the leasing receivables of roughly EUR 246 million. From a regional point of view, Italy is the main driver in our risk provisions because of the huge business, the huge growth of the previous years. And in 2019, the risk provisioning on the balance sheet, roughly 25% of that is based on the Italian business. For 2020, roughly 30% of that risk provisioning is based on the Italian business. Now we can go to the cash flow statement, quite important for us. And you can see here our cash flow statement, the most important pillars of that -- important payment of -- from lessees increased to EUR 2.3 billion over the year, a quite important pillar for our funding and liquidity management of our business. And also our repayment to the existing refinancing and deposit business was EUR 1.5 billion as planned over the whole year. The net new refinancing, in addition of the refinancing and also the deposit business in 2020, was EUR 1.8 billion roughly. So it was less than our new business investment with roughly EUR 2.1 billion. And that show us that we can manage our liquidity, we can -- doing our business also with our strong cash flow from the existing business. That's quite important. And the overall operating cash flow for the year 2020 was roughly EUR 586 million. The next slide show us the funding mix, also important for our funding for the cash flow structure we saw before. And there was a change in the last year from the senior unsecured funding to Grenke Bank's deposit business. The senior unsecured funding, quite important with a bit more than 50% of our funding. But over the last year, we collected a deposit business with Grenke Bank, taking care for our liquidity position and taking action there to covering our liquidity and being prepared for several situations. And that was pretty important for the last year and also for the time being. With roughly 31%, 10 percentage points more in the deposit business of Grenke Bank then in 2019. And the asset-based funding, quite stable with 15%. And that funding mix bring us to that cash flow structure at the end of the day, here only the maturity of our funding, you see. And that's very important for us, and it's not a random work. That's important, why it is linked and like a mirror to our leasing receivables, and that's why we see here roughly 75% of the maturity of the material payments over the next 3 years because our leasing portfolio has a duration -- capital rate duration of roughly 2 years, new leasing contract with roughly 4 years, and that's why we're seeing that matched funding quite important for our liquidity management and our interest risk management. And now I would like to hand over to Antje again.

Thank you, Sebastian. Ladies and gentlemen, we promised you transparency and full clarification in terms of the allegations last fall. And I would emphasize once again, no one had and has a greater interest in this than Grenke itself. It was and it is equally important to us to eliminate identified weaknesses immediately and above all sustainably. And this is how we become a better company, that's what we believe, and that's our goal. And the Board of Directors and the Supervisory Board have actively taken up all points of criticism from the special audits, the initiated numerous measures, and we already started to implement them where we were able to. The main areas in which we have systematically introduced those improvements, and that's what you can see here on the slide, are compliance, money laundering prevention, internal audit, our lending business at Grenke Bank, the franchise business and several other smaller areas. So if we now look into some details, you can see and as you know, at the beginning of the year, we extended the Board of Directors of Grenke AG to include Isabel Rösler, especially to strengthening our compliance function. And she now works with us in the Board of Directors as Chief Risk Officer. And she also coordinates the interaction with BaFin, and she will be monitoring the implementation of all measures following the different audits, and we already started this project. In addition, a new management position, Head of Compliance, was also created and filled externally in the meantime. And in addition to the compliance organization, you can see that Grenke is also strengthening money laundering prevention. Just to give you a light on that, we installed, for instance, an additional -- an internal anti-money laundering coordinator in addition to our AML officer at Grenke Bank, and we also increased tremendously the capacity of the external anti-money laundering service provider we have in place there. I personally took over the responsibility for internal audit myself at the end of 2020. We already reported on that. And I initiated a fundamental realignment in the meantime. And in addition, also the position of the Head of Group Audit will be filled externally, latest as of July 1. We have discontinued Grenke Bank's lending business for small and medium-sized enterprises with volumes of more than EUR 20,000. We already reported on that. And we are now essentially focused on promotional lending business for now. On the issue of our franchise companies, as you can see here and as announced in February, we consolidated all existing franchise companies in the balance sheet. For the first time, Sebastian just emphasized on that with the 2020 financial statements. And as a result, following consultation with KPMG, we have corrected the comparative figures 2019 and presented them accordingly. It is also important to note for us, again, that in retrospect, the franchise model itself has been explicitly assessed by Warth & Klein Grant Thornton being positive for Grenke overall. And we now intend to acquire and fully consolidate the remaining 13 franchise companies by 2022. Our purchase prices to be agreed will also be reviewed by Warth & Klein Grant Thornton, and they will confirm as to their appropriateness. And this, of course, is very important to us in this stage. Ladies and gentlemen, 2021 will clearly be a year of transition for Grenke. Primarily, of course, due to the pandemic, the Board of Directors expect the volume of new business in leasing to be between EUR 1.7 billion and EUR 2.0 billion, as you can see on this chart. And this will be slightly in our expectation below the previous year. The lower level of new business in recent quarters and the coming weeks will also be reflected in the operating income. Due to the high profitability of our contract portfolio overall and the new business, we nevertheless expect a net profit for 2021 of between EUR 50 million and EUR 70 million. And also very important to underline our substantial strength. We continue to see our equity ratio above our target of at least 16%. As I already stated -- or we already stated, we plan to publish our annual report 2020 on May 21, following the issuance of the audit opinion by KPMG planned for May 17. We have also rapidly asked -- been asked why the special audits by Mazars are taking so long. And no doubt, we would have preferred to be quicker on both sides. However, the investigations, we can tell you, were very detailed, very complex, look back for a long period of time. And therefore, the effort both for Mazars, but also for us, was simply enormous. But we can assure you that we did all our best and supported the investigations by BaFin and its auditors with all our strength in parallel to all the other audits taking place at the same time. And finally, and this is a good note for you, Mazars has now submitted the draft for the partial reports to BaFin at the beginning of this week. So overall, we have seen a lot of change in the past few months. Besides a lot of work, and this change, we want to take as an opportunity and as a result, we want to make our company, we want to make Grenke an even stronger company with -- in every respect. We strongly and firmly believe and we are working hard to ensure that we ultimately emerge stronger from the recent crisis. Grenke, with its established business model, has proven itself during this crisis of corona and the heavy workload through the different audits. And we also, during that time, underlined that we can stay by our customer, wherever possible, together with our team across the globe with support measures also with -- just to give this example of deferrals that Sebastian already talked about. And overall, we can say we are very proud that we made it. Together, we will consistently continue on the path we have chosen and we lead back -- lead Grenke back to growth after the end of the corona pandemic. And now we want to look forward for your questions.

[Operator Instructions]

So the first question comes from HSBC, Johannes Thormann.

First of all, 2 questions from my side. Could you elaborate a bit more on the funding mix you plan to use for 2021, for the EUR 1.7 billion to EUR 2 billion new business? And as I know that you have pretty detailed management reporting tools, could you update us on the Q1 performance as well in terms of pretax and net profit for this quarter, give an indication to understand your full year guidance?

Yes. Thank you, Mr. Thormann. First, the funding mix for '21, at the end of the day, will be part of the future and our decision of the future, at the end of the day, also what's possible at the market. And we have several options. The most important thing for us is to -- finishing the audits to going out in May with the fiscal year's figures audited finally. And then we will see what's the best way to fund our business, what is a need because of our strong liquidity we had from existing business. And of course, maybe we will make some actions at the capital market. We have also other opportunities as our funding mix showing asset-based also Grenke Bank and, as I mentioned, it's part of the future, but the funding toolbox is big enough and diverse enough that I'm aware and you should also be aware of that, that we will be able to fund our business in what we plan for 2021. And the other question, giving more flavor to the first quarter in detail to the P&L. It's not that easy. But what we can say that from a risk perspective, the payment behavior of our clients was quite stable in Q1 and also in Q2, means the incoming leasing installments and the missed payment rate was quite stable as it was in the last quarters in roughly 5% as we announced that before. So that's quite stable. And so from that point of view, we expect that the risk provisioning level should be more or less stable and -- for the other figures. So I'm sorry that we can't discuss today.

Okay. Maybe a follow-up question then to get a broader context. In terms of your full year results guidance for 2021 of EUR 50 million to EUR 70 million, we should assume stable risk cost, if I understand you correctly. And operating costs, how should they trend? Because what am I missing? If the new leasing business of EUR 2 billion is roughly unchanged at the upper end of the guidance of EUR 50 million to 70 -- of EUR 1.7 billion to EUR 2 billion, why is it lower -- or the net profit guidance, but also EUR 50 million to EUR 80 million probably to be back on this year's net profit level of EUR 80 million? Has there been any one-offs in this year? Or where do you expect the worsening of the operating performance?

Today's best guess, I would like to say, and of course, we have one-offs in the last year, we had roughly EUR 10 million extra cost because of auditing and because of the special audits and so on. For that year, we expect roughly EUR 15 million extra for that special audit. We planned and we did some actions internally in the organization. And that's why we think that the cost will be a bit increased. Of course, the business, a bit less than in the years before. But overall, from a today's perspective, that's the best guess we can give with that guidance.

Then we move on to Marius Fuhrberg, please, from Warburg Research.

With regard to the loans or the receivable in phase 3, could you give us a feeling what the usual recovery ratio is and how that did change in the pandemic? And another one maybe on the cost we just discussed. With the adjusted structures and the higher headcount in compliance and so on, would you expect the CIR to improve further or would you rather say that you see higher costs in the mid-run? And the last one, the actions taken you displayed in several topics, did you discuss those with your auditor? And did the auditor regard those actions suitable to address the issues protected?

I don't get the last question 100%. Okay. You got it, okay, because his sound was not that good. The first one, the recovery rate for our bad debts over the pandemic from the things we've seen today is quite stable. But at the end of the day, the pandemic is not over, and so also the measurement overall for the crisis is not closed. But from today's perspective, the expectation of payments when we're having a termination is more or less stable to the previous years.

Yes. And in terms of cost and maybe this question is also linked a little bit to your last question, what are the measures that are resulting from the different audits? We are not at this point yet to have a full broad picture on that. Of course, we have taken on when across or in parallel to the audits, whenever we saw an area to improve. We started measures already. We already finished several measures. But we don't have the full picture yet. We will have that after the final report of KPMG and after the final report of BaFin. And that's the point where we can also say, okay, those are the costs related to those measures, and that's the time frame related to that measure. So after all, we will have a clear answer on also the question, to what extent this will have effect on our cost/income ratio when we have a full picture. I think that's the main message. And of course, we were discussing also parallel measures that we already started or finished. We discussed that not only with Mazars and KPMG. So they reflected those measures, of course, in their reports to the extent that those were transparent to them.

Okay. So maybe just one follow-up on the receivables from Phase 3. You said that this is roughly stable. But if I take into account that you -- that the receivables are only covered by 57% by the risk provisioning, so shall I expect that -- I don't have the number in mind but probably that some more than 50% is the usual payout ratio from the Phase 3 loans or receivables?

So that's roughly right, yes.

Great. Then we move on to Pareto and Dr. Häßler, please.

Yes. Philipp Häßler from Pareto. I have 3 questions as well. Firstly, on the net interest income in Q4, which was quite strong. Maybe you could explain a little bit the reasons for this. Then secondly, on the equity ratio and the acquisition of the franchise companies, will the actual acquisition of the franchise company have any impact on the equity ratio or have we seen or this has to be seen from the acquisition of the franchise companies already regarding the equity ratio? And then regarding margins, maybe you can share a little bit your expectation for the development of the contribution margin to -- in 2021.

And so I will take your questions. I think the first question linked to the Q4 figures. And to be honest, it's not that easy today to compare the -- or to split out Q4 with that figures. We published today because the figures we published today are within our franchise companies. And the last figures of 2020, the Q3 figures, are without the full consolidation of franchise companies. And that means, at the end of the day, when you take today's figures minus figures of Q3, you will get to big portion of net interest income because of that part, what the franchise companies are and also from the expense perspective, you will have the same. And we will clear up that as soon as possible. And also in our full year's report, you will see that and we will split out the impact on the consolidation, what is the impact of franchise companies and with the figures offset here. We will show that, but we will also publish a table where you can see the quarters for the last year and the difference because of that consolidation. That's why you can't compare that. And that's the main reason for that huge impact you mentioned. Equity, on the one hand, the first impact is done because of the consolidation. And the next impact on the last one depends on the purchase price because of that way of consolidation and because of control from the very beginning on related to IFRS 10. You will not see a purchase price allocation as in the past and splitting out purchase price in goodwill, intangible assets and whatever. And so at the end of the day, the purchase price will be directly booked into the equity in the future, and that depends on the purchase price at the end of the day and depends also on the way how to deal reset purchase price, but that will be an impact of the future of the next quarters, whenever we will take over a franchisee paying a purchase price, then we will see that also on the equity base. And CM2, what we can say today is that we see a stable CM2 level for the time being. For the future, it depends on the development in new business, margin development that should be stable. On the other hand, it depends also on our development of funding cost, means what is the price for our funding in the future. And maybe again to Mr. Thormann, it's also priced in, in our guidance, higher funding cost for future funding for sure. And that's also then important. When we're going in our maturity match funding for new business, for new funding, then we have to price in that funding cost in our margins, but also in our contribution margin calculation and that could be that we see maybe a bit dip in contribution margin 1 and 2 shortly because it need a time, you are aware of that, to price in fully higher funding costs in our margins, but we're having a very strong level of contribution margin, too, and we are ready to absorb that.

Just one follow-up on the equity effect of the acquisition of the franchise companies, but you don't expect any capital increase or anything, so the impact shouldn't that big on the acquisition.

That -- it's not a need from, as I mentioned in the slides, from the regulatory perspective, from the rating perspective. And we have a stable capital ratio. And to be honest, it's maybe a bit too early to discuss, we always said that we need an equity ratio from a balance sheet perspective of 16%. But that 16% includes the former way of balancing franchise companies and to take over franchisees. And now we're having less goodwill, less intangible assets. And to be honest, it's not a need to taking care for 16% equity ratio because we're having 1%, 1.3% less because of goodwill and intangibles. So from a technical point of view, it is fair to say 15% balance sheet equity ratio is enough, but we did not finally discuss that, and it's not a new guidance. We would like to cover equity ratio above of the 16%, and we think that we can have it and we'll have it also for that year also with taking over franchisees.

So we move on to [indiscernible] from [indiscernible] Asset Management.

You mentioned handling cost increases that you expect for '21. If you could elaborate a little bit more how much you put in of an increase. And in Germany today, the insolvency protection period expires. I don't know whether this is similar in other countries. But are you confident you have sufficiently provided in terms of risk provisions for receivables? That's question number two. And then do you expect a sign from BaFin for the late receipt of audited numbers? And any issues with rating agencies of downgrades and anything in that area? And then the last question on refinancing. It's probably safe to assume that the portion of bank deposits will increase. It has -- I think it has increased in '20 over '19 already. It was 28%, I think, 28% in '19. I haven't seen the exact number for 2020. But is it safe to assume that this number -- this portion will increase again in '21? That's it.

Maybe let me take the one question regarding BaFin. I can tell you, of course, we are in intense interaction and coordination with BaFin. And we don't have any indication that the BaFin will provide us with -- or yes, provide us with any fine or, I think, something like that you mentioned regarding the later provision of the annual statement. That's not the case.

Yes. We're also in contact and always talking to our rating agencies. They are aware of our numbers, our figures, the overall situation, also the impact on capital. That's quite important for rating agencies, as I mentioned. There's no material change in covering our capital requirements from that point of view. And so we are talking to them. And as always, and we are not expecting there anything from our best knowledge today. From the risk provisioning point of view, yes, we think that we are well covered with the way we're doing our risk provisioning. We are feeling comfortable taking in account the corona pandemic, of course, taking into account the deferrals and so on. And as I mentioned, the payment behavior of our clients in the first important dates of that year '21 were, from the overall perspective, very good with a stable payment behavior of 5% missed payments in January and also April. And that gives us enough flavor that we can say that we feel very comfortable with our risk provisioning. And from the cost perspective, though, as we mentioned, we will see an increase in cost, a slight increase. We will see an extraordinary impact because of the audit or the ongoing audit, and the special audits of roughly EUR 15 million for '21. That's an extra point. And the rest should be more or less in line with the year before, an increase because of the actions we took, but as Antje Leminsky mentioned, it's too early to say what are the concrete action plan is and what are the concrete costs at the end of the day will be for each action.

And on the issue of bank deposits? Sorry.

Deposit, okay. I was -- it's possible to expect it, but it's not clear and not 100% for sure because it's one way to fund our business. And when you look to our funding mix, we are taking care of diversification. And when you see the senior unsecured box, there are a lot of instruments in that box we can take, and we did in the past. And after having our financial year's results audited, we can also do that. And then it's a question of diversification on the one hand and also on market perspective what's the best way to fund our business. Today, with 30%, we have roughly 1/3 in deposit business and to being independent from each box to being independent from each funding instrument, maybe it's not a need to increase deposit business to 50%. So 30% is quite fair. It's okay. Could also be 35% or maybe 40%. It depends on the market. But it's also fair to say to taking other instruments because of that diversification. That diversification gave us a lot of space in the last year to take several instruments, to taking the right instruments for the right time to managing liquidity.

Have you done any senior unsecured or promissory note refinancings in 2021 yet?

In 2021? No.

Ready for the next question, which comes from ODDO BHF, Roland Pfänder, please.

Two questions from my side, please. First question, could you provide us with a figure of the structural cost increase linked to your headcount increase, service purchase needed for other processes? So that would be helpful. And second question, I'm wondering if you need to change your underwriting approach to the leasing business linked to client onboarding, for example. So will you be able to keep up the same speed as you had in the past in this underwriting process?

Mr. Pfänder, your question is linked to the one of Mr. Fuhrberg at the beginning. Right now, we are not feeling 100% comfortable to give you a clear outlook on the changes of the structural cost for this year. So it will be the right time since we hear your question, definitely not only today but also last time, that it is of interest for you, it is of interest for us as well. But we really want to have the whole list of measures and the broad picture, a full picture, of what has to be done. I think I indicated that there are some areas, like for instance, compliance or AML prevention where we expect the number of people in those departments to raise. But we are not talking about dozens of people. We are talking of one or the other. Same valid for internal audit. So this will be one area of interest. And at some point, for instance, along the way with, for instance, anti-money laundering processing, we can also expect that maybe additional information will have to be documented like not only the first name, but also the first and the second name of a person or the title just to make sure that identification of our customers is really done to the full extent. Those kinds of things that have to be -- or that might have effect on the processing. But what it really means in cost terms, we would rather go into details whenever we have the full list of measures and the full list of project outlines, and then we will come back to this question in terms of cost, but also in terms of the speed you asked. However, it is, of course, in our interest not to change the core of our business model to be as fast as possible towards the client.

To the underwriting and risk provisioning, the adjustment we've shown is linked to technical issues and evaluation issues, and you can always discuss said, what are the right parameters to making risk provisioning. Our models are going to calculate on our data and our database and estimation for cash flows after terminating a contract, and that's the most important thing of our risk provisioning model. And I think the most important thing from an economic perspective. And when you are then aware of your recovery rate in whatever, 1 year, 0.5 year, 1.5 years, it depends on class, depends on client and so on. Then it's a question how to discount that estimated cash flow. And in the past, to be honest, we discount that with a risk-free interest rate because the risk is priced in the model and estimation of the cash flow. And under IFRS 9, when you go very deep into the IFRS 9, there is a link that you have to discount that with interest rate of the former interest rate of the financial instrument. And then you can ask what's the interest rate of a leasing contract because interest rate is not written in a leasing contract. It's only a technical issue, and that's why we changed that and discounting now roughly -- with roughly 8% the estimated cash flows of bad debt. And that's the impact of that adjustment. From my point of view, it's not an economic adjustment, it's a technical adjustment. It's valuation. It's a question of timing because the interest stopped with terminating the contract. So that is not with interest in the future. And the technical issue of IFRS 9 is like it is, and that's a change of that EUR 4.1 million we announced in discounting the estimated cash flows for bad debts.

So does this answer your question? I hope so. Okay. Then we are ready for the next question from Bank of America, Alexei Lougovtsov.

I have 2 questions. The first one is about Grenke Bank, which has been helping fund your lead business that has been purchasing receivables from the parent company. Can this funding channel continue? In the light of what happened at a greenfield bank, is there a risk that BaFin will restrict Grenke Bank from buying receivables from Grenke AG? This is the first question. And the second question, do you expect post-pandemic changes in demand for your services? Many companies now are talking about permanent flexible work-from-home arrangement for office workers. Can that substantially affect the demand for office equipment and result in demand for leasing services in the space?

Yes. Thanks for your question. Would you take this?

Well, I can take the second one, of course.

I will start with the first one, and then we can be talking about more demand, I think. The receivables, purchasing receivables from Grenke Bank of group companies, it's ongoing. We did it in the last year, and we also planned that for that year. That's for sure. We're having a process for that to taking that receivables, the leasing receivables to Grenke Bank implemented over years. And that are -- that receivables are fully backed with our leasing contracts and as a special audit from KPMG, also from Mazars, as the leasing business is existing. It's valuable. It's a very good leasing business and with strong cash flows, and that's the most important thing. And that's why it's absolutely possible that Grenke Bank can buy that receivables. But that's one of the things why we are taking care of diversification in funding, as I mentioned before, to having several boxes in our funding mix to take several actions, not only Grenke Bank also other boxes to fund our business to being independent from nearly everything, what could happen. But again, it's part of our plan. It was part for the last year. Also in that year, we did some actions with Grenke Bank. And so we would like to continue that here.

And for your second question, Mr. Lougovtsov. I think we all learned a lot during this corona pandemic. And one thing was definitely being more flexible in terms of where you work, and that's not only valid for our customers. It's also valid for Grenke employees. We also had a home office rate up to 95% at some point in time. And we could see this in higher demand from the customer side, not only regarding respective leasing contracts for home office equipment, but also in terms of our asset broker. And if we look ahead, I think we all learned that digitalization is key in this period of time. And that's why we were extremely optimistic that we will be one source of financing digitalization for small and medium enterprises in the future even more.

So are you saying that work from home actually creates greater demand from your clients, that they need to equip their employees at all?

Well, it very much depends, of course, of -- on the industry. I mean, if we look at, for instance, restaurants, it's not the case in other industries. In the service sector and consulting sector, for instance, of course, that's the case.

Okay. This honestly is very encouraging.

Thank you. So now we'd like to move to Autonomous to Corinne Cunningham.

So most of my questions have been answered. I just had a follow-up on the purchases of the franchises. Is that going to be made with stock or cash? And why is it taking until 2022? What's the delay there?

Yes. So next step is to evaluate franchise companies with Warth & Klein Grant Thornton. It's quite important. On the other hand, we started due diligence process for each company. It's important. And that will take time for certain companies, and it's a need to do that, and we would like to do that with a due diligence process, with Warth & Klein Grant Thornton valuation, and then we will take over the franchisees. And at the end of the day, then we will make the decision what's the way to pay the purchase price. And in the past, we always paid cash with our liquidity. It could be an opportunity to pay with other things, stocks or whatever, but we don't have today own stocks. So today, I can't pay franchise companies or the shareholders to -- or franchise companies the price in stocks. So in the past, it was always cash. When we know the price at all, then we can decide what the right play is. The most important thing is the valuation of the companies and then the due diligence process. And then, let's say, when we look to all franchisees step by step, we will proceed and finally that will be done in 2022.

And just on the BaFin review. You mentioned that you weren't expecting a fine because of late submission of accounts. But in terms of more, I suppose, more broader consequences, including things like higher capital or liquidity requirements, are you expecting more of a regulatory review from the BaFin as well?

At the end of the day, it's a question to BaFin. We don't know that. Today, we -- I'm not aware of things. I think we have a very strong capital ratio when you compare us to other financial institutions or maybe to banks. We have a very strong liquidity situation. We had a very strong liquidity situation over the last year and years. And so I don't expect it, but at the end of the day, it's a decision of BaFin, and we are not aware of thinkings like that.

Okay. So we move on to Christoph Blieffert from Commerzbank.

I would like to go one by one and start with the increased transparency you've already mentioned. Will you publish the Mazars audit report?

No, we are not planning on publishing the report itself.

Okay. The second question is, on your capital and in particular, on your S&P capital ratio at year-end 2020. What is the ratio and would you consider publishing the S&P capital ratio and also your CET1 ratio on a more regular basis?

Yes, we will publish on a regular basis Tier 1 capital ratio. You will see that at the end of the day in our final report in May. We can also publish that quarter-by-quarter and from a capital ratio of Standard & Poor's, as we always mentioned, as long as we were above the 16%, we are well covered from an S&P capital ratio. Per end of last year, it was above the 15% with enough space. And because, as I mentioned, the impact of eliminating the goodwill is not an impact for that capital ratios.

Okay. Good. I've asked this question again already before, but again, is there -- are there any restrictions to further increase the deposit base just considering that the institutional investor base remains reluctant to buy granted debt?

At the end of the day, as I mentioned, it depends on the market. It depends on the situation. We would like to finalize now all the audits. We're publishing per in May, our full report of the fiscal year 2020. And then we can see what is the best way to fund our business. Deposit business is one opportunity. Asset-based funding is an opportunity. And also senior unsecured, the several instruments there are opportunity then and we have to decide. Otherwise, we also have in July, the next huge inflow because of our leasing receivables. It's also important to know. So I think we have the room and space to check our opportunities to checking also the development of the pandemic and the development of new business over the next weeks and months. And then we have to see what is the best way to fund our new business, maybe to place a capital market transaction could be to go for more deposit business, to go for asset-based funding. That's part of the future at the end of the day. But every box is possible.

Okay. So to make this very clear, there is no restriction for more deposits for Grenke Bank?

Sorry?

So to make this very clear, my understanding was correct that there is no restrictions for much higher deposit base with Grenke Bank?

Today, we have a stable deposit business at Grenke Bank. We have also stable new business. We have a good liquidity situation. So it's not a need to go for more deposit business. And again, when we finished our audits and we published our full year's results, the full report for that, then we have to decide and then we can go for more deposit business. We can maybe go for a bond and the capital market can go with transactions with banks, whatever. The most important thing is to continue the auditing process to finalize that audit. And the rest is part of the future. And from today's perspective, we're having that liquidity situation, that we can deal that new business we are having today with that liquidity.

Okay. And as a last question on the asset quality side, which loss ratio do you expect in 2021 taking your definition?

I'd say the loss rate is quite difficult in times like this because it's a ratio. And so the level of losses on the one hand and the level of the volume of the book on the other hand, and we have a decrease in new business or we had a decrease last year. That year, also bit decreased compared to 2019. That means that at the end of the day, the portfolio should be more or less stable and not growing. And that impacted also the loss rate. So it's too early to guide a clear loss rate for today, but the level of risk provisioning we see on the P&L and the level of risk provisioning we see on the balance sheet compared to leasing receivables and with idea to having more or less a stable book, a stable balance sheet, because of that assumption in new business, should you expect more or less a stable risk provisioning for that year.

So do we have a follow-up question?

No.

Okay. Thank you. Then we move on to Kepler Cheuvreux, Tobias Lukesch, please.

Yes. First, on the refinancing. Sorry, I have to touch on the deposits again. So what I would like to understand is to get a grip of this EUR 1.6 billion in deposits. So how is that split? How much of the portion is really above EUR 100,000? And could you please give a split of the customers you have, i.e., split it into private investors, into corporate money and also into public depositors, i.e., city treasurers, right? Maybe we go with that, and then I'll continue with the other questions.

Yes. Thank you. The first thing, the average ticket size is less than EUR 100,000 in our deposit business. If not 100%, the figures, how many deposits are more than EUR 100,000? You're about, I guess, that roughly 80% of the deposits are less than EUR 100,000, but we will check that in detail and give that number to you. It's a high diverse business and high diverse deposits. I think the average is in the area of EUR 70,000 to EUR 80,000, something like that. The client base is also diverse, but the main portion are private clients and I tell you, you can find everything. And also some institutional investors, but the main base are private clients in Germany. That's like always, and there is no change -- or there was no change in the last year in that business.

Okay. But the portion of, let's say, city treasurers, I mean, again, we have that Greenville example before, right, and there might be a change in the way that these people allocate the funds going forward. So how much of a portion would you have from these kind of people?

I don't get the question, to be honest.

The portion of institutional investors or city treasuries are in public money where one could create a scenario where city treasurers become more risk-averse given the Greenville experience and basically the loss of the money they place with the bank. So the question is, how much of a share you have from these people considering that, for example, private money and corporate money of EUR 100,000 is 100% safe, right? I mean there would be some chance [indiscernible]?

Yes. The portion is quite low. I don't know the exact number, but the change was, I think, 2 or 3 years ago, as there was a change in the security fund for deposit business of Germany that no longer institutional investment are covered by that fund. Only private investors. And that was a time for that change. It's not that much institutional investors and so on invested in deposit at Grenke Bank. There was the main change, has nothing to do with the other comparison you mentioned. The portion is quite low. And again, it's also a stable business we have now and we had in the past, and the main portion is private customer. Because for them, it's pretty important to having the security fund behind the deposit business. And that change, I think it was 3 years ago that institutional investors were not covered by that. Change expected.

Secondly, on the 5% payment deferrals you have, could you provide a geographic background? I guess it's around 50,000 contracts. It's the number we had in the past, right? So that potentially did not change a lot. But the geographic breakdown, could you please remind us as of where it stands now?

Yes. Of course, it's less today, a bit less than -- not today, per end of December, less than 30,000 contracts. The main portion is in Italy because the Southern European countries are affected by corona and also the sector for making business with tourism and so on is affected and roughly 1/3 of our deferrals are in Italy and also in Spain and Croatia, and the rest is more or less across the countries.

Then you mentioned the asset booker earlier. So I was just wondering if you could elaborate a bit on the gains and losses, P&L line item. I mean, on the leasing revenue you generated on the early termination fees and also the disposal losses, have there been any changes in Q4, also Q1 potentially?

From the revenue perspective, not -- no change. It's a single-digit negative result at the end of the day as it was in the past and over the last year. There are no significant changes. I think what Antje Leminsky mentioned is that we saw from a demand perspective to our asset broker from the used object, there was a higher demand to taking used screen, a used laptop, whatever, because there was not full delivery possible for new object categories. And that, we saw during the pandemic, that there was a higher demand to taking used IT equipment to covering home office, to covering schools, whatever.

Okay. Lastly, maybe again, touching on corporate governance, and you said there has been a lot of changes basically with the Supervisory Board, on the Management Board. You have a COO. You have a Head of Compliance appointed. Have there been any further interesting demands by big shareholders who asked you to act in one or the other way in terms of corporate governance, in terms of ESG, to improve basically the perception in the market? Has been any strong demand from some shareholders?

To improve reputation?

I think we are in touch with our shareholders, we are in touch with our investors. And the most important thing today is to finalize all orders to taking the actions. And also, ESG and corporate governance are quite important. And that's important for us. Looking forward to taking there the right action whenever time for that. At the end of the day, corporate governance is also part of the Supervisory Board. It's part of the annual meeting at the end of the day. And when we go for the invitation for our next annual meeting, maybe we will see something. But that's the decision of the Supervisory Board, together with the Board of Directors. And again, at the end of the day, part of the annual meeting. But we will also go forward in being better in terms of ESG, in corporate governance and so on.

A good closing remark, but we are outside our commitment to not overrun too much. But anyway, I would like to ask you, Mr. Lukesch, whether you have a follow-up question, and then we need to wrap it up somehow.

That was very last one. I mean it was, again, like last time we asked on [indiscernible]. I was just wondering, like he's giving a lot of interviews and various newspapers recently with the [indiscernible] item where the newspapers then titled that -- basically, he's finding British short sellers, the German regulator and his CEO. And I was just wondering if there is something tangible that can and should be communicated to the market and potentially also how we should see the Warth & Klein Grant going forward more as a Supervisory Board member that comes back or more as the biggest shareholder basically in Grenke.

Mr. Lukesch, I can tell you we were surprised by the interview, myself, of course. Wolfgang Grenke as well, we talked immediately with each other and the family. And as a result, there was a statement made to clarify that there is no fight here at this point and hasn't been in the past. So no reason to go further with the speculation. And I think in terms of the overall lookout and the other information and indications that Wolfgang Grenke gave, of course, we are not in a position to talk for him. We were informed, we as a Board and also the Supervisory Board, that the family is planning to announce that Moritz Grenke would like to give his position in the Supervisory Board, if possible, if there is a vacant position. That's what we know. And as Sebastian said, we are in the dialogue with investor, with the family, group of family members as -- like with other investors, and we continue to do so and look forward to the annual meeting then.

So ladies and gentlemen, thank you very much for joining us today. If questions bring to mind after the session, please e-mail to us. And just to remind you, our annual report will be published on May 21. Have a great day, and best luck. Thank you, and goodbye.

Thank you very much.

Thank you.