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

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 Franziska Randt. 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 Dr. Sebastian Hirsch, our CEO; and Dr. Martin Paal, our CFO, are here with us today. So before we're entering into the Q&A sessions, we will start with the presentations. And with that, I would like to hand over to our CEO, Sebastian, please go ahead.

Thank you, Franziska, 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 first half of 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 and 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 our 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 first half of '25, our leasing business performed strongly and according to plan. Our new business came in at EUR 1.6 billion 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 EUR 7 billion. And it includes also our new collaboration with Intesa, which slowly but steadily starts to bear first fruits. On an operational side, we also saw good progress in the first half of 2025. With the successful placement of our next 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 grenke 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, it's important for you since 20 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 2 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 process, which we started in 2020 and brings this chapter to a successful conclusion. We've signed the first contract and the next one, we will sign over the next couple of weeks. And secondly, the transfer of our factoring business to Teylor 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 mid of '26 as we announced earlier in this year. Our overall performance in the first half of '25 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 cost/income ratio to 56.4%. At the same time, the loss rate came down compared to the first quarter in '25, 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 first half of '25 of EUR 26.2 million at a stable equity ratio of roughly 16%. With 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 insolvencies 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 EUR 60 million 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 EUR 71 million to EUR 81 million. 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.

Yes. Thank you, Sebastian, and also a very warm welcome from my side. Allow me now to dive deeper into the figures. In the second quarter of 2025, we continued on our strategic growth path, achieving a leasing new business of EUR 867 million at a CM2 margin of 17.1%. And this was within our expectations and puts us well on track for our annual target of EUR 3.2 billion to EUR 3.4 billion leasing new business at a CM2 margin of above 16.5%. Overall, we are on target on the cost side, while 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 cost/income ratio for the first 2 quarters of 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 first half of 2025 by 14% to roughly EUR 318 million, 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 EUR 139 million. Settlements of claims and risk provisioning remained elevated compared to the previous year as anticipated and communicated at EUR 94.7 million. And consequently, our operating result reached EUR 36.5 million in the first half of 2025, EUR 21.9 million below the previous first half. And with other financial results widely stable, group earnings finally came in at EUR 26.2 million, 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 the expected continuous increase in operating result before settlements of claims and risk provisioning, which has reached EUR 71.5 million after EUR 67 million in Q1. And at the same time, we expected our settlements of claims and risk provisions to have surpassed their peak, coming in at EUR 47 million, 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 EUR 1.4 billion. And in the first half of 2025, we repaid EUR 1.8 billion in refinancing while adding EUR 2 billion of new refinancing, including our recent benchmark bond and the deposits from grenke Bank to finance our leasing new business of EUR 1.6 billion. Consequently, our cash from operating activities remained balanced in the first half of 2025, resulting in a continued strong cash position of EUR 950 million. 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 slide, 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 Intesa Sanpaolo 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 EUR 2.3 billion or 28% and ABCP programs make up 14% or EUR 1.2 billion. 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.

Yes. Thank you, Martin, for the details. Ladies and gentlemen, Grenke is performing as planned, and we are on track for our guided targets, but it is a path to go. With a strong CM2 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 cost/income 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 path 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 EUR 26.2 million in the first 6 months, we are well within our projections and we see continuous growth quarter-on-quarter through the coming quarters. The first half of '25, 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, grenke is performing according to plan, and we are on track. Thank you very much for your attention, and we look forward to your questions.

Yes. Thank you very much, Sebastian and Martin, for your remarks, your presentations. Ladies and gentlemen, we will now enter into our Q&A sessions. [Operator Instructions] And we have our first question coming from Simon Keller from Hauck Aufhäuser.

Thanks for sharing the encouraging figures. I have a couple of questions. Firstly, starting with net interest income. I noticed that growth slightly slowed down compared to Q1. Is there any particular reason? And especially looking forward, what's a fair growth pace that one should expect for the full year on net interest income?

Well, there is no specific reason for -- if you might have seen a slower growth on NII in the first -- 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 EUR 300 million. So that always then levels out over the year. So it's not always the same. If you just compare quarter-to-quarter, you have always see the smoothing over the year of NII. But there is no special effect apart from that, what I just mentioned.

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 EUR 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 Intesa Sanpaolo and new business will be finance lease. So it's, let's say, a temporary impact and a smaller country in Croatia, we have also operate lease. So roughly 3% of our leasing book is operate lease and 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% in interest expenses normally should account to the revenues of operate lease, which is in the line service business.

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 get all your questions.

I hope it works now.

Yes, perfect.

Yes, my second question is on 2 P&L lines, which basically appear to very much reflect the very current dynamics and are not necessarily indicative of the long-term trends. And that's, firstly, the gains and losses from disposals, which was really positive in H1. And secondly, also the impairment losses within the settlement of claims and risk provisions, which had a negative impact. And I wanted to hear your thoughts on these lines, what you expect for H2 and also maybe even looking into 2026. And yes, maybe I should directly ask the questions that I still have left. Otherwise, there's this mute, unmute difficulty. So my second -- my third question now really is, the pickup in net profit momentum in H2, what basically -- how should it be split between Q3 and Q4? Is it pretty much as you have shown in this one slide? And what's the visibility on net profit in [indiscernible] looking into H2? And maybe what would enable you to reach the upper end even of the net profit guidance?

So I'm going 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 4 years ago after the pandemic, which now come to an end. And in this result of gains and losses from disposals is always shown as a small portion of subsequent lease business. And because now relatively less lease objects come back because we had some lower new business portfolios 4 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 these 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 0, a little bit negative. But this year, we see still this positive impact on our P&L lines. On the second one, on impairment for losses, well, that's still the effect that we see since 3 or 4 quarters, where we write down our lease receivables, for example, on the one hand, if they are performing and then enter into our Stage 3 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 3 and get another impairment loss or, yes, provisioning in so far on the P&L line. So the overall effect of this EUR 47 million in the second quarter is still reflecting this elevated risk level overall what we see since the last 2 or 3 quarters.

I may add for the outlook. That's right, it was a momentum increase in the 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&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, 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 Intesa 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.

So we have a next question lining up from Tobias Lukesch from Kepler Cheuvreux.

Also 3 questions from my side, please. Touching again on the NII trajectory, I was just wondering if a ballpark number of a kind of EUR 400 million or EUR 420 million of NII looks reasonable to you and potentially what is rather a base case on your side? Secondly, on the gains from disposals you just mentioned, it's EUR 10 million so far in H1. So if that was the run rate and kind of continued well, it would be easily 25% of the earnings before tax and make a huge part of the net profit. So I was wondering 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 16% or the 15% we talked in the past, like what is the kind of ratio you would not want to undershoot? And in terms of the close to EUR 1 billion cash and cash equivalents, maybe you could remind us like how you deploy this cash? Is it sitting with the Central Bank? Or is it deployed differently?

Okay. 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 EUR 200 million 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 EUR 10 million 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 Intesa portfolio -- from the Intesa transaction. On the other hand, our balance sheet got longer because, as Sebastian just mentioned, we are consolidating now this EUR 200 million operate lease portfolio from Intesa. So the 16% is a ballpark, be it a little bit below the 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 EUR 1 billion cash is more or less with Bundesbank effectively. There are some million euro with our partner banks also, but the largest -- by far the largest part, EUR 900 million or so are with Bundesbank.

I would like to add 2 things in terms of equity. We would like to finalize that here all the consolidation impacts and things we have to do in M&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 my feeling, it will be lower than 16% as we had in the past because of higher goodwill, and we don't see that high goodwill anymore. So it will be lower. So a 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 0 there because we would like to meet with our expectations, the residual value at the end of the lease term. And whenever there is a deviation, then it's also the question, should we adjust for the next business, for the new business 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 0. 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 4 years average, it will improve the interest income from the methodology of IFRS. So the goal is to have a 0 there. And the realistic scenario is that sometimes it's a bit negative, sometimes it's a bit positive.

We have a next question from the audio line coming from Mengxian Sun from Deutsche Bank.

So 3 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 EUR 12 million increase in your profitability. 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 3 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 would 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 the equity ratio?

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 EUR 5 million net profit to reach the lower end of the guidance. I mean we have basically 3 levers where we see our operating -- 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 a 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 goodwill, 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 or so 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&L perspective where we have to live with. But as I said, we feel comfortable that we have surpassed this peak.

And in terms of growth rate for the future within normalizing in loss rate closer to the long-term average of 1.5%, with a better cost/income 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&A things, we should have a clear picture on equity, on equity needs and equity ratio. But for the feeling, 10% growth rate is absolutely okay with the existing equity with a payout ratio of 25% and a growing profitability.

And we have a next question from the audio line coming from [ Mr. Roberto Canzoni ].

Some 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 2 or 3 years, what is the operating leverage we could expect from this company in a 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, you still need to recruit and to increase your FTEs by 5%, 7%. I mean, does 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 nonperforming 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 trouble makers? And where should we be landing basically on this ratio in 2, 3 years' time in a normalized world, which will never materialize possibly.

Yes. Thanks for your question. I would like to start and may Martin will add something. With the first thing, you're absolutely right. It's not about -- 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 5%. That's absolutely the goal because our business is built for that. It's a business built on data. 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 loss rate, Martin will add some more details about some countries which are the drivers. But from a long-term run, as you always mentioned, 1.5% seems to be a fair loss rate from a long-term average in our new business. Why for 4 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 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 were not taking 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 4 years on 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 1.0% 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.

Yes. Just let me add one point to the loss rate. While we have seen towards the second half of last year, especially insolvencies and higher defaults in our 3 largest countries, Spain, Germany and France, what we are seeing 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 the 1.5% or 1.6%. It is, again, important that it is part of our CM2 margin that our salespeople can take the right decisions in writing new business.

And we have another question coming from our audio line, which is [ Dr. Philipp Haessler ] from DZ Bank.

Philipp Haessler from DZ Bank. I have 2 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 EUR 400 million to EUR 420 million realistic? Or do you see the EUR 420 million realistic? So that's the clarification question. And the technical question is on the minorities. They turned positive compared to Q1, both on the balance sheet and the P&L. I assume that's due to the Intesa 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?

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 turn from negative to positive. The impact of franchise companies in the -- 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 your first question on the NII outlook, I mentioned that it is a realistic ballpark, EUR 400 million to EUR 420 million. This is, as I said, a realistic one, could also be towards the upper end of this ballpark.

We have some questions from our Q&A chat. One of this was already answered regarding the franchise companies and how they're accounted for in our balance sheet and P&L. And now moving on a little bit more on the Intesa 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 grenke Locazione that we have in Italy with the deal, with regards to Intesa.

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 Intesa was the so-called funding agreement, namely that Intesa 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 funding bank funding, we are talking about roughly EUR 200 million just coming from the Intesa 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 grenke Locazione, 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 Intesa Sanpaolo brought in Rent Foryou, its Italian business is around EUR 80 million positive in the equity components in the second half or in the second quarter after closing.

And last question from our written Q&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.

Yes. The new business is running as planned, as expected. It's summer, but it's a normal time for us. And July 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 expectation. So the July was as we expected and as we planned for our full year at the end of the day. So everything is on track.

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 [email protected]. 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 -- over 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 2nd of October, 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.

Bye-bye. Thank you.