GRENKE Stock

Welcome, ladies and gentlemen. Good morning from Baden-Baden to our today's earnings call regarding the half year financial report 2026. My name is Franziska Randt. I'm Head of the IR Department. And I have the extreme pleasure that today here with me is both CEO, Dr. Sebastian Hirsch, and CFO, Dr. Martin Paal. Welcome. We will start with the presentation. And right after, we will enter into our Q&A session. Before we get started, let me remind you that this presentation contains forward-looking statements based on current assumptions and expectations, which are subject to significant risks and uncertainties. The key assumptions and influencing factors are explained during the presentation and in the disclaimer at the end of this material. Please take this into account when assessing the information provided.

With that, I will now hand over the call to our CEO, Sebastian. Please go ahead.

Thank you, Franziska, and a warm welcome also from my side. Ladies and gentlemen, when we last spoke, we discussed an environment characterized by uncertainty, geopolitical tensions, weak economic growth and persistently high insolvencies. And this environment has not fundamentally changed. Nevertheless, we have increased our profit by nearly 25% and our return on equity by 80 basis points in the first half. We are in line with our plan. So I could simply hand over to Martin right here and let him take you through the details and figures. But that would be too easy because the situation deserves a closer look and, more importantly, some perspective. There are 2 sides of our first half performance. On the one hand, the risk environment remains challenging. On the other hand, our operating business is getting stronger.

But before we put this into perspective, let me start with what matters most to me. We are on track. Four facts explain why, and they also capture the 2 sides of our first half performance. First, investment activity remains weakly globally. Despite this environment, we generated new business of around EUR 1.6 billion. Second, we are winning market share, particularly in Germany, France and Italy, but also in North America. We are seeing momentum. So even in a weak investment environment, GRENKE continues to expand. Third, insolvencies remain high. Our loss rate of around 2% reflects us. We take this seriously, and we will come back to how we're addressing it later on. And fourth, and this is particularly important to us, our operating leverage is clearly visible. Our income is growing faster than our cost, and our cost/income ratio has improved significantly.

So yes, the environment remains challenging, but our business is getting stronger. And that is why I say we are on track. So these are the 4 facts of the first half 2026. That's why the earnings are increasing compared to last year. We don't want to downplay a challenging environment, quite the opposite, like in our daily business. But we also need to put what we see today into perspective. And to do that, I would like to take a step back and look at how our business has developed over the last past 6 years because 1 quarter alone does not tell the whole story.

Let's start with the foundation of our business volume. After the decline during the pandemic, you know that we returned to growth. New business has increased significantly and with the usual time lag, this has translated into growing asset base. Our total assets have grown to EUR 9.2 billion. And this matters because today's asset base is a foundation for tomorrow's income. And this is exactly what we see in the next step. Our asset base grows, our income follows. Operating income has increased to EUR 182 million, roughly 50% since the low point in 2022. The growth we generated in previous years is increasingly translating into income today. Before we add the next dimension, let me take one crucial point. This happens because of a robust portfolio. The fact that it generates this level of income is not only strong evidence of its underlying quality, it's evidence of its power. Of course, we are seeing elevated losses, and I will come to that in a moment, but there's no doubt about the fundamental strength of our portfolio, and that distinction matters.

Now let's add risk. And here, we should not sugarcoat what we see. The risk environment has deteriorated and the loss rate is too high. But when we look at the absolute risk expense over time, this also reflects the significant growth of our portfolio. More volume naturally means more absolute risk. But that's only one part of the picture. What is putting pressure on us today is the elevated loss rate, and that is driven by the macroeconomic environment.. We take both into account when we're steering our business, the current macro data and our volume development. Finally, let's add costs. And now look at what happens when we bring income and costs together. The gap is widening. That is operating leverage. Following years of investments and consolidation, costs have broadly stabilized while income continues to grow. And this widening gap is where our operating leverage becomes visible.

And now let's zoom in on the last 2.5 years. And there's a reason why I'm showing you the period. Around 3 years ago, may you remember, we started to systematically strengthen our operating performance. And over the last 6 quarters, that work has become increasingly visible in a clear trend emerging. Income has grown significantly, while costs have remained broadly stable. This is operating leverage we have been working towards. And you can see the impact on our cost/income ratio. It has improved steadily from 64.4% at the end of '24 to 50.6% today. And this is not a quarterly effect. It is a result of disciplined work and fundamental improvements that are increasingly taking effect. And this creates flexibility we need to navigate even in a challenging environment.

And at the same time, gives us confidence that we are on the right track to increase our return on equity. So what does that mean for the full year's guidance 2026? First, we confirm our earnings guidance of EUR 74 million to EUR 86 million. For new business, given the continued weakness in investment activity, we currently expect to come in at the lower end of our guidance of EUR 3.4 billion to EUR 3.6 billion range. There are, however, 2 important underlying parameters I would like to point out where our expectations have changed and which is important for our earnings. On risk, the macroeconomic environment has proved more challenging than we expected at the beginning of the year. We, therefore, expect the loss rate to remain elevated. Although portfolio growth should help bring the full year's ratio below 2%. On cost efficiency, it is the opposite. Our operating leverage is developing faster and better than expected. And now we expect our cost/income ratio to come in below our previous assumptions.

In other words, higher risk is being offset by stronger operating income and stronger operating performance. And that is why we remain on track for our earnings guidance 2026. Martin will later give you some insight on contribution margin 2 and equity ratio for 2026. But ladies and gentlemen, 2026 is not our destination. It is one step on a longer path. Our ambition remains unchanged: 10% return on equity by 2030. And what I've shown you today is also how we intend to get there. First, income, we continue to grow our portfolio selectively and translate that growth into sustainable income. Second, risk, we will manage risk with discipline based on data and clear decisions. And third, cost efficiency. We will continue to expand our operating leverage through digitalization and standardization. Income, risk, cost.

These are the 3 levers on our path to create value and achieve 10% return on equity. The environment remains challenging. We do not ignore that. But our business is getting stronger and our measures are working. This gives us flexibility to absorb the elevated risk burden and steer our business with composure and discipline. We remain on track for '26 and on our path towards 10% return on equity. Thank you.

And with that, I hand over to Martin.

Thank you, Sebastian, and also a very warm welcome from my side. Now let's take a closer look at our financial figures regarding the first half year of 2026. Following our strategic value levers, I would like to start with our operating income side. The foundation for our operating income creation is our leasing new business, not only of the past quarter, but the overall running lease portfolio, as Sebastian just showed you a second ago. In the first half of 2026, we achieved an increase in leasing new business by 1.4% to EUR 1.6 billion despite the continuous challenging environment. And with that, we are quite pleased.

Leasing new business growth was mainly attributable to our core markets with a strong performance in Germany, followed by France and Italy. And as you can see on this slide, new business in our DACH region rose by 7.5%, up to EUR 405 million, while Western Europe increased by 3% to EUR 429 million. And Southern Europe recorded a 3.1% growth to EUR 422 million. In our Northern Eastern region, however, we saw a decline in new business by around 11% compared to the first 6 months of last year to EUR 273 million. And alongside a strong first half year in 2025 in this region, this primarily stemmed from the end of subsidies for e-bikes in Finland in the second half of last year as well as a greater steering towards higher local overall profitability in other countries such as, for example, Denmark or Sweden.

Our other regions, which include our future core markets like the U.S., Canada and Australia, however, maintained their growth with 3.3% to EUR 116 million. And especially here, our U.S. business, which doubled in size as well as Canada with around 10% growth, drove the performance in this region over the past 6 months. And this development underlines the growing relevance of these markets for us. So overall, we achieved growth across our markets despite, in some cases, a significant decline in overall investment activity, allowing us to increase our market shares in many countries. This performance enabled us to maintain our leasing new business at a solid level. We use our CM2 margin as a key metric to steer quality or, in essence, profitability of our leasing new business during the period. At 15.9% for the first half of 2026 and 15.6% in Q2, our CM2 margin accounts especially for 2 facts.

The interest rate environment, reflecting the newest increase in ECB interest rate, which we saw at the end of the second quarter. In the previous year's first half, we still profited from some tailwind of lowered interest rates. And second, our CM2 margin also reflects the currently elevated level of risk provisions. Since Germany continues to achieve a strong performance in new business, its share in the overall new business portfolio also increases. And with traditionally lower CM2 margins there, this slightly affected our group CM2 margin as well. Most important for our steering of our CM2 margin is that our measures for risk-adequate pricing and proactive management of our portfolio are taking effect. And with roughly 16% CM2 margin for the first half of 2026, we feel comfortable given the macroeconomic environment we face today. And reflecting this, we expect our CM2 margin to reach around 16% for the remaining year.

Let's move on to our P&L. In the first 6 months of this year, we saw strong growth in our operating income by 11% to EUR 353 million, driven by both our growing net interest income of EUR 250 million as well as a strong profit from new and service business of EUR 138 million, including gains from disposals. At the same time, we managed to keep our cost development on a slow level with costs of EUR 182 million, increasing only by 1.5% compared to the first half of 2025.. Our continuous efforts in cost discipline as well as efficiency measures showed satisfactory effects. And this led us to a significant improvement of our operating result before settlement of claims and risk provision by roughly 23% to EUR 171 million. And our cost/income ratio improved from 56.4% to 51.6% accordingly.

So throughout 2026, we will continue on this path, strengthening our operational efficiency towards higher profitability. After operating income and operating costs, I'm now heading over to our third strategic key lever, risk. So let me also be frank, the first half of 2026 was characterized by continued uncertainty in the economic environment, also impacting our customers and their payment behavior. In consequence, we observed persistently high insolvencies and a still elevated level of defaults. Therefore, the settlement of claims and risk provisions rose from EUR 95 million to EUR 119 million, resulting in a loss rate of 2%. Even though our loss rate remains notably elevated above our long-term average of 1.5%, our operating leverage largely compensates for this increase.

And as mentioned some slides before, we have already accounted for higher loss rates in our newly settled leasing contracts while continuing our efforts in debt collection for defaulted contracts such as AI solutions with call agents. Ladies and gentlemen, our goal remains clear: to sustainably increase our return on equity to 10% by 2030. Throughout the first half of 2026, we already registered notable progress. Our group earnings came in at EUR 32.6 million compared to EUR 26.2 million in the previous first half year. Worth mentioning in that context is a slightly higher tax rate with 26.4%, which was influenced by a one-off effect in Q2, but also resulting from current shifts favoring our core markets of Germany, France and Italy.

At the end, our group earnings led us to a return on equity after taxes annualized of 4.6% or as Sebastian just mentioned, a plus of 80 basis points. As you know, return on equity can fluctuate since it is an annualized figure, but what genuinely matters is the profitability curve over time. And we are on the right track since we have advanced consistently. Primarily, we improved our cost/income ratio significantly. The combination of a strong revenue growth with strict and disciplined cost management are crucial for our path towards higher profitability, no matter the macroeconomic environment.

And in the light of this development, we maintain ongoing confidence that our return on equity will continue to improve throughout the second half of the year. Before we enter into our Q&A session, I'll now turn a short look to our funding mix, which provides the financial foundation for our leasing growth. As you are aware, our funding mix relies on 4 debt pillars. After our debt debut issuance with the first local bond in Australian dollar in last year's Q3, we achieved a successful placement of our first Canadian dollar bond in May this year. The new bond issued with a volume of CAD 100 million provides dedicated refinancing for our local leasing activities in Canada, underlying the relevance as one of our future core markets next to Australia and the U.S. So at the end, our senior unsecured pillar now stands at EUR 3.5 billion, accounting for 47% of our funding mix.

To move on with our pillars, deposit business accounted for EUR 2.3 billion, while our asset-backed pillar totaled almost EUR 1 billion. And completing our funding mix, external bank funding amounted to nearly EUR 600 million. This pillar also includes revolving credit facilities we have in place, for example, with our partner Intesa Sanpaolo in Italy. Ladies and gentlemen, in the current volatile market environment, we place particular importance on maintaining a funding base that offers sufficient liquidity and reliable execution capacity. Our funding mix gives us a solid refinancing foundation to support our future growth ambitions in leasing new business. And with an expected equity ratio of around 15% by the end of the year, we are well equipped to support further growth.

And with that, we are now looking forward to your questions. Thank you very much for your attention. Now back to you, Franziska.

Thank you very much, Sebastian. Thank you, Martin, for your presentation. Ladies and gentlemen, we will now enter into our Q&A session. Now, depending through which link you've joined us today, you can ask a written or oral question. If you see a little hand symbol at the top of your screen, you're welcome to raise your hand in case of questions to ask another question. Please note at this stage that all lines are muted. I will call up your name. Your line is being unmuted. And then don't forget, please unmute your device. But you're also welcome to use the chat function for the Q&A you might have. So we have a first question coming from Marius Fuhrberg from Berenberg.

A few of them if I may. The first one on the cost-income ratio, which developed quite well in Q2. Would you consider this stable? Or did you put extraordinary effort on costs in order to protect profitability in the quarter, which means could the cost development catch up once loss ratio is coming down? Second question on new business. Apart from the Finland base effect, do you generally see lower demand from broad customer base against the backdrop of the overall economy? And the third question here to -- once again, a bit more color, please, on Sweden and Denmark. You mentioned active steering in those countries. But have those countries showed significantly lower profitability in the past?

Because looking at the CM2 margin in Northern Europe, it appeared fairly high. And also with your chart just recently shown with the risk development, it appeared that Northern Europe have remained fairly stable with regards to risk costs. And therefore, please give us a little bit more color why you have steered down new business against this setup. And the last one on the disposal side, which were a record high in Q2, whereas you mentioned in previous calls that it will sooner or later come down. Any feeling when we should expect a respective development and or when -- how long we should expect those to remain as high?

Thanks for the first question. I will take the first 2 and then Martin will add the answers. First, cost/income ratio. From the trend perspective, we guess that it is sustainable. Quarter-by-quarter, there will be maybe a bit migration because of different income development and maybe some cost impact in a single quarter. So it's important to putting it more in a long-term or midterm perspective as we did at the beginning of my presentation, but that ratio and that operating leverage should be sustainable. And there's no link between cost and the performance in risk.

So I don't see there any link that when risk come down, then costs are going up or something like that, that will not be the case. To be honest, when new business is growing faster when we're expanding new business, and we may see also some special costs for sales that is more linked to that, but there's no link between risk and cost.. So the cost/income ratio is more or less free from the risk development. For Finland, it's -- on the one hand, the lower demand because of the macroeconomic environment and the down in the leasing for bikes, for e-bikes is also sustainable because it was stopped in the middle of last year, if I'm right. So we also see the base impact is now running off. So in the second half of the year, especially in the fourth quarter that year and then next year, we will not have that base impact from the e-bike business.

So that is sustainable. In terms of the overall demand, Finland is more or less in line with all the Nordic countries. Maybe Martin will give some color to Sweden and Denmark. And also to the disposals, just one comment from my side. In a long-term perspective, you should always see the profit or losses of disposals together with the interest income because at the end of the day, it's a gambling between the expected residual value at the beginning for the interest calculation of the leasing receivables and only the difference between the expected residual value at the beginning and the realized residual value at the end is then in that profit line. And when there is a difference, we always adjust our expectation. So interest income or interest earnings and that line on a long-term perspective, you should put together when you analyze that.

Yes. Mr. Fuhrberg, happy to answer the third question regarding Sweden and Denmark. Well, I could have pointed out maybe also other countries in Northern Eastern region because this region is, in general, not performing well. You have seen it in the new business figures. But especially pointing to Denmark and Sweden means that we steer a country specifically if we see a difference between maybe the macroeconomic challenges that affects the country or affect all countries or whether we see in the specific countries kind of, as you mentioned, low profitability, for example, where we then even more go in and are more selective in our reseller network, where we are more active in taking them out of our reseller portfolio.

And that, in the first instance, always has an effect on our leasing new business because it directly has an impact on this leasing new business production. And then boarding on new resellers where we build up trust with them takes some while, and that's why I pointed out here, Sweden and Denmark specifically. Maybe just one addition to the disposal gains, which Sebastian just explained. Factor is also that we see that our customers are going on to lease for a longer period of time, their contracts, maybe because they think the objects are still working, while changing them. Maybe there are in the delivery change, some issues that we do not get the objects -- this has all to do at the end with the customer behavior, how long they continue to use their objects. And the longer they use it, the higher is the disposal income. We are evaluating this clearly. This is not a one-off effect in this quarter.

We have seen that over the last 5 to 6 quarters that we have that elevated disposal income. And also, as Sebastian just mentioned, it is always the situation that it is either in the -- on the interest income side or in the disposal income at the end, depending on the residual values we are estimating at the beginning of a contract.

Thank you very much. We have another question coming from the audio line from Roland Pfäender from ODDO.

Some questions from my side, please. First of all, could you comment on the loss rate according to your major countries you operate in? So where are the biggest deviations to your expectations you had in, let's say, in the beginning of the year? That's the first question. Now coming back to cost development. Yes, you had some improvements there. But do you see it even differently now as your leasing business or leasing volume looks like to grow less than maybe expected earlier? So will you do more on cost development? Could you even see costs really declining year-over-year going forward in this scenario?

What's your stance here? And the last question on tax rate. You have a new business mix. What is the underlying tax rate to this business mix?

Thanks for the second round. I will start again. And take the first one, the loss rate. Martin mentioned it in the presentation, I guess it is Page 17. There you see the settlement of claims and risk provisioning by regions, and they can also point out the region behind the DACH region is Germany is the biggest country, Western Europe is France and Southern Europe, it's Spain and Italy. And to make a long story short, that are the main drivers because of volume. Martin mentioned it as well across regions, we have a deviation in our expectation from the beginning of the year because of the macroeconomic environment. And then it's clear that the most important regions and countries of volume are also the driver in terms of deviation. And maybe one comment to the loss rate.

The lower new business as maybe expected at the beginning of the year, and you're also saying now that we will reach the lower end of our guidance range. It has a small volume impact and has also an impact on the loss ratio because the ratio we divide the settlement of claims and risk provisioning through the volume and the volume is a bit lower and that drives a bit. It's not the main driver, but when it will continue over the year, we're talking about 10 basis points loss ratio because of lower risk -- lower losses. And that maybe is a link to the next question. Martin can answer some things about the cost development improvement. We are taking care on volume and quality. And that overall should bring us to growth of the total assets and growth of the relevant volume for the income. And for sure, the growth pace at the moment in new business is not that high.

It was a very slow growth rate for the first half of the year, but steered by quality, selective by countries. You see that Germany or the DACH region with different pace than Southern Europe and Northern Europe, it depends a bit on the demand perspective, but also on our steering. And we would like to growing our portfolio, growing our overall substance for the income. That is the most important thing and mixing that the right volume with the right risk appetite, so to say, will bring us to more volume, more substance and at the end of the day to a growing income.

Mr. Pfäender, happy to add something to the second one on cost development. When I remember in the last years and quarters, we were -- or we were coming from cost increases of almost double digit or even higher. Then we took it down to only single-digit expectations of cost growth. Now we are seeing 1.5% on a half year basis comparison. I think we have really done a lot of efforts there. I do not see currently that a nominal decline of costs compared to the last year. We are happy with this development. If we end up there at the end of the year, somewhere in the low-digit cost growth, then the cost/income ratio will reflect also this what we currently see, namely a cost/income ratio below 55%.

Regarding the tax rate of our business mix, our 3 largest countries which have a high contribution currently, especially Germany, Italy and France, have high tax rates, especially Italy, we are talking about something around 30%, Germany and France in the higher 20s. And if they have a large contribution, then the tax rate increases. However, we had in this quarter, especially a one-off effect in our tax rate regarding -- there was a tax audit in France, which resulted in expenses that were not tax deductible, contributing also to this higher tax rate in that quarter.

Just one follow-up. I was actually asking regarding the loss rate. Do you see one single country behaving worse than others in comparison? Or is it, yes, the movement across the board like you mentioned before?

It's more across the board. The smaller countries are different because the portfolio is different and the portfolio is maybe not showing the overall macroeconomic environment. But in the bigger countries where we are having losses more or less across the landscape of industries, it's more or less the same. And it's -- from a statistical point of view also, when you have a lower expected loss, your today's unexpected loss, so to say, or your realized loss deviation is absolutely lower than when your absolute risk at the beginning was higher.

So in euro, it means in Germany, the realized deviation is lower in euro than in France or in Spain, for example, because we're talking about 3.5% in previous year, our expected loss estimation at the beginning in Germany. In France, it was around 6%. And in Spain, it was about 7%, 7.5%. And so the euro deviation is, of course, because of that higher starting level also higher. But when you take it into account countries measuring industries is more or less the same in the bigger countries.

Okay. So we have a next question coming from Mr. Lukesch from Kepler Cheuvreux.

First question would be on the loss rate and the decrease you -- kind of expect or imply with your guidance for H2. Why is that given the negative trend that we have seen over the last quarters? And what loss rate exactly have you now factored into your CM2 margin calculation?

Okay. That's single question, single answer. Thanks for that, Mr. Lukesch. We expect a loss rate below 2%. On the one hand, the volume will increase because of the portfolio impact and of the ongoing new business and the estimated growth. On the other hand, we are more selective with the current data. We are adjusting as often as it is sensible from our perspective with the current data, with our current measurement.

So the quality of the portfolio is more fitting to the today's macroeconomic environment. The leasing portfolio we set 2 years ago was not fitting maybe perfectly to the today's environment because we are not aware of the situation in 2 years, we can estimate that. And that is why the loss rates should come down on the one hand. Volume will increase. The settlement and risk provisioning should be more or less in euro on the same level. And that gives us, on the one hand, confidence. On the other hand, it's the estimation for a decreasing loss rate below 2%.

So it's fair to assume that it's up from kind of 1.6% to 1.7% towards, let's say, 1.9% in your model, if you say below 2%, that this is reflected? Or is it just really a little increase to 1.7% or 1.8%?

It depends on the volume expectation at the end of the day. And -- but it's fair to say 1.8%, 1.9%. It depends on the volume. I guess the fair assumption is to say, okay, let's assume that the absolute expenses for settlement of claims and risk provisioning will be on the same level as it was in the first half of the year.

Second question would be on -- again on the gains from disposals. Usually, we do see an uptick throughout the year. You mentioned that this is a kind of mechanism to be read together with the NII. I was just wondering if you see that uptick trend to continue throughout the year with now the EUR 10 million jump or hike we have seen or to EUR 10 million. And I would be interested in what kind of volumes you disposed in order to make that gain and if these volumes were very different to earlier quarters? And also if you do have some decreasing about the timing of the disposals.

Let me start with the volumes that are now part or form part of this disposal income. You can have a look approximately 4 years back into our new business portfolios of 2021, 2022 because these contracts that are running out -- that were settled then are running out today or in these days, in these quarters. And at that time, we had new business portfolios that were significantly lower as opposed to portfolios today.

So lower relatively volumes as opposed to other years are now coming into this -- or entering into this disposal income. And this has, because of this portfolio effect, already a positive effect on gains of disposal because Sebastian just mentioned it, we assume a residual value for the whole portfolio. And if then a relatively lower part of the portfolio comes back, coupled with relatively more contracts that go into subsequent lease, this triggers at the end, the higher disposal gains in this period.

And as I said, this is not a one-off effect in this quarter. We have seen positive disposal income over the last 5 to 6 quarters. We expect that we see positive one over the next quarters as well. But what is also the truth that this will go down over the next years because then new business portfolios with higher business volume, namely '22, '23, especially will run out and then the direction will be the other way around.

Some flavor to the portion of the business. We are seeing now a lease volume, so the initial running contracts with a net acquisition cost of roughly EUR 12 billion, if I'm right. And roughly 5% of that is a leasing contract and disposal. It's very stable over the period of years. There are sometimes a bit more, sometimes a bit less. It depends on the macroeconomic environment. And Martin mentioned that before as your colleague asked the question to the earnings of disposal. There's one thing important. In times like this, when you are an entrepreneur and you say, okay, my leasing contract is running to an end for my whatever IT infrastructure for machinery or something like that, it is working.

And now I can make a decision, okay, I can go for new investment or I can say, okay, a running system, the situation is not clear what will happen tomorrow, uncertainty environment, may I will stay with that. I know what I should pay and I go forward and make a retention for half year or full year. And to expect that, that is a sustainable behavior and to price that in today's or tomorrow's leasing contract in the expected residual value is not that easy. We had said some years ago after the pandemic, may you remember there was a bit the same impact.

We saw a lot of secondary rentals because of the bottlenecks in the supply chain at that time. And it's a bit the same in some cases that and to find there the right level, okay, what are we taking as a sustainable trend -- as sustainable taking it into the new contracts for the interest calculation and some things like what I described is maybe more or less a trend we see today, and it's too early to say if it is a sustainable value driver, sorry, for the residual value.

Maybe last question, Mr. Lukesch.

Yes. Last one would be on the other comprehensive income line. The shareholder profit was reduced by EUR 2 million due to hedging this quarter. I was just wondering like how this could play out for the next quarters to come, if you do have any visibility here? And maybe a very last one to follow up on the tax rate. You mentioned the impact. Could you maybe quantify the impact due to the one-off in France?

The one-off in France makes up a low single-digit number in the tax rate, 1, 2 percentage points in the tax rate. The effect in the other comprehensive income relates to our hedging in an economic sense. We see FX in the P&L and other operating income, namely other operating expense, so to speak, because there are the value changes in the derivatives in the FX derivatives that we use for hedging of FX currency risks.

And the other part is shown in the equity under other comprehensive income, namely that results from FX translation if we go from single audits from single accounts of our entities to the group account when you translate this at the end of the quarter. This is economically not an issue, but we sometimes see some differences in the quarterly accounting or recognition within P&L and within other comprehensive income directly in equity.

Any view for H2?

Sorry?

Any view for H2, how this will develop over the next quarters to come, supportive or rather a drag?

In the total period at the end, this levels out between P&L impact and OCI effect. From quarter-to-quarter, the fluctuation is a result of the FX changes in the currencies where we are operating in.

So we have the next question coming from Dr. Haessler from DZ Bank.

Two short quick questions. On the disposal gains again, sorry, you said that this is linked to NII. Do I interpret it correctly that because you have somewhat lower new business and therefore, lower NII because your customers don't renew or don't sign up for a new contract, but continue the old contract? Is this the right way to see it because you said it's linked to NII?

I will start directly because I opened the box earlier. It's linked to -- what you are saying is very interesting because it's more linked to the new business performance. And so each contract, which is in retention is a potential new contract for tomorrow. That's right, but it's more a tactical question in terms of sales. What I mentioned is NII. The NII and the interest income in leasing is calculated by an average 4 years leasing installments.

And then we estimate the residual value based on our statistical data. And that cash flows, the leasing installments plus at the end, the expected residual value, you're looking for the discount rate to the net investment, and that is the initial cost we have. So the net acquisition value we pay for the asset. And that's why the estimated residual value drives the interest. And with that interest, we are calculating the interest income each quarter, each month, so to say, because you split the leasing installment in an interest part and amortization part like in the loan. But you have to take in account in line with IFRS estimated residual value.

And the deviation between your estimation at the beginning and the realization at the end. So after 4 years, you estimate it EUR 500 million as residual value and you can earn EUR 600 million, you have a deviation of EUR 100 million, and that's a profit of EUR 100 million because EUR 500 million residual value is on your account on your asset. You get EUR 600 million from disposals from whatever as cash in and the difference, EUR 100 million, that is your profit.

When you get EUR 400 million, you have a loss of EUR 100 million. And for all the contracts which are running into the end of the lease term, we are doing that from an accounting perspective. And each -- in minimum each year, we check, okay, is our residual value estimation fair? Is it right? Or is there an adjustment needed based on country, lease term and object category because it's different a copy machine and notebook or a dentist chair is -- there's a different estimation of that residual value.

Okay. Second question would be, I mean, I know that you only give normally the development of risk costs on a country basis, but could you maybe comment a little bit on how risk costs develop by object type or whether you see any objects where risk costs are particularly high? Or is it also relatively even spread?

Object type is maybe not the main driver of what we see or what we saw over the last couple of quarters is that bigger tickets are, so to say, far more risky than the smaller tickets. It could also be linked to, okay, when you have to pay more monthly, it's more burden to bring the cash and to pay that in the today's situation for the small, medium enterprises more that bigger tickets are risky, but it depends also a bit on the region and it depends also on the industry and on the country and overall, and that is why we are focusing on small tickets is that the diversification in the small ticket area is pretty high, and that's the best shield against risk.

So again, it's not an object type. It's more linked to a bigger ticket as bigger the tickets are more you will get, let's say, a higher absolute risk realized in your P&L at the end of the day. So one fail in the bigger ticket is more absolute deviation than one fail in the small ticket environment.

Now we have another question from the audio line again from Mr. Roland Pfaender.

Just a follow-up. You mentioned you're gaining market share in your leasing business. I'm wondering, is this also due to pricing? And if yes, why would you undercut, for example, market pricing? I would actually expect that the market would need to push for higher pricing, looking at the volatility in the market also coming from macro shocks, loss volatility. Why is not the market pricing in general higher, also looking at your returns not covering cost of capital? And I guess for the industry, it should not be very different.

Yes, good question. Thanks. First, when we look to that, we have to split CM2, and CM1 and CM2. CM1 is pretty stable. I guess CM1 was a bit higher than Q4 last year, and that reflects more or less the market price for the lessee, what is the leasing installment I've to pay, what is our funding cost on the other hand. And if I'm right, CM1 is nearly 11%, and it's pretty good for that environment because interest rates rising and there's always pressure on CM1 normally.

So when I look to the market price, I would like to say, okay, the market price is a bit higher than in previous quarters. In CM2, we adjust expected credit loss from today's knowledge from today's performance of the portfolio. And so the expected credit loss in CM2 is higher than in previous quarters and previous years, and that is pressure on the CM2 margin at the end of the day.

And in the market, there you have 2 groups of clients demanding for leasing, the healthy client and the not healthy client. And at the beginning, it's always the same, you don't know that. But a client who is healthy today, is strong, have a good performance, maybe also in that environment, and there are some small and medium enterprises in that environment, they are performing well. They are not willing to pay much for funding or for leasing because they know they are strong.

On the other hand, you have a weaker -- maybe industry is a weaker client, and they are able to pay a higher market price, as you mentioned. And in our business, a bit a mixture of that. So we are not willing to winning market shares in that environment via pricing. It's more winning market shares to being present to being there for a fair price, a good balance between risk and income for us and winning market shares means 2 things in our business. On the one hand, when we're looking to that customer, and on the other hand, also looking to the dealer to making a business with a reseller and dealer in times like this, it's also a sustainable relationship to dealers and resellers. And that is trust and that trust is building future and that future is a base for new business of tomorrow when hopefully, the macro environment is more stable, maybe better, but more stable would be also better than it is today.

So winning market shares has always 2 sides, the end customer on the one hand, but also the long-term relationship to resellers and dealers. And we know that from the pandemic, we know that from the financial crisis and several things that, that strong relationship we are covering today is the base for future.

So we're moving to some written questions from our chat, which are regarding our balance sheet. And there, the person asked why the cash balance was reduced and what are our plans for the second half of this year regarding any bond issuances?

Yes. When we have a look at our cash balance, this is always a date effect or to date issue because we make the cut at the 30th of June and then we see what is on our cash balance. We deliberately steer it over the year depending on when we make, for example, larger capital market transactions. It is, on the one hand, important to have some cash buffer if we need it for our new business, when we expect higher growth and to fund that.

On the other hand, having too much cash on our balance sheet on the one hand, weighs on some ratios. And on the other hand, we want to deploy it in more earning in higher return earning leasing contracts. So having too much cash on the balance is not helpful at the end as well. So at the end, it is a balance and between a trade-off between cash buffer and the return side, but this is deliberately steered by us.

When we stick to ratios, the question is about the regulatory CET1 ratio, if we already know how high that is.

Yes. We have a CET1 ratio currently, which is above 14%. We have a total capital ratio, which is above 17%. There is quite some buffer above what is required from a regulatory perspective, which we feel comfortable with.

And there was a follow-up question regarding the steering of Sweden and Denmark and the decisions and the steering we took there. Was it more CM2, new business, cost of risk driven? What were really the factors why we needed that active steering?

At the end, this is always a mixture of everything. If you imagine a scenario where we have extensively higher risks at the end realized than we expected at the beginning of a contract, then it comes back on the one hand to the customer, but also to the reseller who brought us this business. And then we take measures to, at the end, get rid of that reseller, as I mentioned, and go for new ones. And to having this relationship established means at the first time, shrinking new business instantaneously. And with the buildup of this new relationship with new resellers, this takes quite a while to have this buildup then also in new business.

So thank you. I don't see any questions from the audio line or in the chat function. I will just give it some seconds. So seems to be there are no further questions. Thank you very much for joining us today. Thank you, Sebastian. Thank you, Martin, for your presentations and answering all those questions.

Please do not hesitate to get in touch. If there are further questions that spring to your mind, we're always happy to help just drop us an e-mail at [email protected]. So in the upcoming weeks, we will be quite busy traveling to different conferences in Frankfurt, Munich and Hamburg. So I kindly invite you to check out our corporate calendar.

On November 12, we will issue our Q3 report. So you're also welcome to stay tuned. And as Sebastian mentioned, we're on track. So stay tuned. And this concludes the conference for today. You may disconnect now. Take care, and goodbye.

Thank you very much. Bye-bye.

Welcome, and good morning, ladies and gentlemen, to our Q1 earnings call 2026. My name is Franziska Randt. I'm Head of the IR Department, and I have the pleasure that today here with me is our CFO, Dr. Martin Paal. Martin, welcome.

Good morning.

We will start with the presentation by our CFO, and then right afterwards, we will enter into our Q&A session. With that, I would like to hand over the call right away to Martin. Please go ahead.

Yes. Thank you, Franziska, and also a warm welcome from my side for the first quarter results of 2026. I would like to start with the highlights of the past quarter. The first 3 months of 2026 were characterized by an unchanged challenging macroeconomic environment and geopolitical tensions. This resulted in a still elevated insolvencies in many European countries as well as generally some reluctance to invest among SMEs. This environment made it all the more important for us to manage our business strategically with a focus on profitability, risk management and sustainable growth.

Today, I can say we are delivering. Firstly, our strict measures for cost discipline are positively affecting our cost/income ratio, while operating income continues to grow. Secondly, we achieved a good increase in leasing new business in the first quarter and grew at a solid CM2 margin despite the current market environment. And thirdly, we proactively strengthened our liquidity position in the first quarter. We achieved this with a successful placement of another bond of EUR 500 million at the beginning of this year. The new collaboration with the German state-owned development bank, KfW, with a volume of EUR 200 million further supports our position and underlines the high relevance of our services for SMEs.

In the currently volatile market environment, these measures were more than just business as usual. In fact, the volume and timing of the raised liquidity were important as they provide us with sufficient headroom for continuous new business growth, especially in times of heightened uncertainty. Overall, my message to you is clear. With group earnings of EUR 15.5 million, we are on track, and we are taking the necessary measures to steer grenke towards its targets.

If you have watched our full year presentation in March, you will be familiar with this slide already. We run grenke by utilizing the 3 value levers, operating income, operating cost, and risk to generate sustainable value growth and return on equity. Our goal is to reach 10% return on equity by 2030. In other words, we have to increase our ROE by around 1 percentage point per year until 2030. Our first strategic lever, operating income is strongly influenced by our leasing new business, which forms the foundation for our future profitability.

In the first quarter of 2026, we achieved an overall increase in leasing new business by 4.2% to EUR 786 million, taking us to a total volume of leased assets of EUR 11.7 billion. Our growth was driven by a strong performance in our 3 biggest core markets, Germany, France and Italy. Correspondingly, new business in our DACH region, which includes Germany, rose by 11% to EUR 186 million, while Western Europe and Southern Europe grew by 4.7% to EUR 210 million and 6.1% to EUR 202 million, respectively.

In our North and Eastern region, we saw a decline in new business by 9% to EUR 132 million. This resulted from the end of subsidies for eBikes in Finland in the second half of 2025, a greater emphasis on local overall profitability in these markets as well as general higher reluctancy in investment behavior among our customers.

Our other regions, however, which include our future core markets like the U.S., Canada and Australia, continued on their strong growth with 10% -- 10.8% to EUR 56 million, increasingly contributing to our leasing new business. Against the backdrop of the market conditions, our performance can be considered very solid. And more importantly, we have proven that we are capable of managing our new business in a highly targeted and situational manner, not solely based on volume at any cost, but above all on quality.

And quality or in other words, profitability is measured with our CM2 margin. At 16.1% in the first quarter, our CM2 margin reflects both the current interest rate environment as well as the continued increase in risk provisions since the calculated risk costs are already factored into our CM2. In the previous first quarter of 2025, we had still profited from tailwind from decreasing interest rates, while risk provision had not yet reached the current levels. What is most decisive here for us is the trend over time. Compared to the second half of 2025, our margin remained stable and increased compared to the fourth quarter of 2025.

This is an important indicator that our measures for risk adequate pricing and for the proactive management of our portfolio are having an effect. Coming from our new business, I would like to shed some more light on one of our key achievements in the first quarter. In the first 3 months of 2026, we achieved a significant improvement of our operating result by more than -- by nearly 21% to EUR 81 million. Our cost/income ratio improved in the same time from roughly 57% to 53%.

Using the strategic levers, operating income and operating cost, we implemented measures to increase our operational efficiency. While our operating income increased by 10.2% to EUR 171 million, driven by our growing net interest income of EUR 107 million as well as our strong profit from new and service business of EUR 64 million, our cost discipline measures showed effect. With an increase by only 2.2% to EUR 90 million, mainly attributable to slightly higher staff costs of EUR 54 million, our cost base grew by only a fraction of our income base. So throughout 2026, we will continue on this path, gearing grenke towards a higher profitability and our long-term goal of 10% return on equity.

This slide illustrates the quarterly development of our operating income before losses as well as the settlement of claims and risk provisioning over the last 2 years. As you can see, our loss rate has remained above its historical average since the first quarter of '25 and stood at 1.9% in Q1 2026. Our settlement of claims and risk provision amounted to EUR 57 million in the same quarter. But -- and that is even more important, the substantial growth in our operating income base to EUR 81 million has largely offset the elevated losses observed since their initial rise in the third quarter of 2024.

Against this backdrop, it is essential to strike the right balance between profitable new business growth management and our ability to capitalize on attractive market opportunities. Ultimately, writing new business is not about avoiding risk altogether, but about assessing it appropriately and pricing it correctly. We have no influence on the current level of insolvencies and on the contracts that have defaulted within our portfolio. Therefore, our focus is on intensifying our debt collection efforts for the existing portfolio and more importantly, taking the learnings from those defaulted contracts and refining our scoring and ECL assumptions regularly and going forward.

Our overarching goal remains clear to sustainably increase our return on equity to 10% by 2030. We already made tangible progress towards this target in the first quarter, with group earnings amounting to EUR 15.5 million compared to EUR 10.2 million in the previous first quarter, our return on equity after taxes, however, annualized, reached 4.4%, over 1 percentage point more than 1 year ago. As you know, return on equity can fluctuate from quarter-to-quarter since it is an annualized figure. What truly matters, therefore, is the trajectory of profitability over time.

And against this background, we have continued to move in the right direction. This progress has been primarily driven by a steady improvement in our cost/income ratio. We achieved this through disciplined cost management while generating solid revenue growth. And as a result, we are confident that our return on equity will continue to improve over the course of the year. In short, we are firmly on track. A tactically important and business critical aspect of our financial is our liquidity and refinancing position. With the successful placement of another EUR 500 million benchmark bond at the beginning of the year, we deliberately strengthened our liquidity position at an early stage, as mentioned earlier.

Worth mentioning is also the favorable coupon of 3.875%. Our senior unsecured pillar in total now stands at EUR 3.4 billion, accounting for 46% of our refinancing mix. Our deposit business stood at EUR 2.4 billion, representing 32% of our funding mix. And additionally, we secured a EUR 200 million global loan from KfW in Germany in January '26. This strengthened our asset-backed pillar, which reached EUR 1.1 billion. And our fourth pillar, external bank funding stands at nearly EUR 600 million, supported by a new EUR 150 million revolving credit facility with Intesa Sanpaolo signed in January 2026.

So in a volatile market environment, our liquidity management goes beyond purely operational considerations. Our funding mix provides a solid refinancing base to support our future leasing new business growth ambitions. Ladies and gentlemen, we remain committed to our annual targets of EUR 74 million to EUR 86 million in group earnings and leasing new business of EUR 3.4 billion to EUR 3.6 billion. We remain committed to these targets despite the continuing adverse conditions and the persistently high level of uncertainty. Above all, because we have demonstrated our ability to stay on course even in such a challenging environment.

Our confidence to deliver on our target is grounded in 3 clear strategic priorities that continue to guide our actions. First, we continue to grow, but in a disciplined manner with a clear and firm focus on profitability. Second, we are strengthening our earnings power even in a challenging market environment. Third, we are expanding our strategic flexibility for the future, both by further strengthening our refinancing base and by continuing the operational and technological development of our business model. Thank you for your attention. I'm looking forward to your questions.

Thank you very much, Martin. Now we will enter into our Q&A session. [Operator Instructions]. So we have the first question coming from Marius Fuhrberg from Berenberg.

I have 3 of them, if I may, regarding different topics. The first one, with regards to new business, do you expect the drag in new business in Northern Eastern Europe to persist through the remainder of the year? And should we expect the delta comparable to Q1 in the following quarters? Second, with regards to risk costs, which markets are you most concerned about right now? And where are you seeing first signs of improvement? And also, can you give us a sense of the quarterly trajectory you expect? So do you anticipate a meaningful step down already in Q2? Or is the improvement more H2 weighted? And lastly, with regards to CM2, we saw a slight recovery against Q4, but what gives you the confidence to reach the guidance -- guided 16.5%. And in your view, what are the key drivers for this development?

Good morning, Mr. Fuhrberg, happy to take -- to answer your questions. Let me start right away with the new business development. We do not expect to remain this slower growth in Northern and Eastern Europe or this decline compared to the last year because we have seen this effect of especially in Finland with the cancellation of subsidies for eBike business that came in, in the second half of last year.

So this is currently in Q1 and Q2 base effect, so to speak, but we are expecting an increase in volumes in the Northern and Eastern countries over the remainder of the year, especially in the second half of this year. Regarding the risk development, I can say that risk costs are driving more or less our P&L, the risk provisions in basically all countries. There are no countries where it is especially good or especially bad, I would say. So this is really a situation where we are confronted with in more or less every country. And it is not foreseeable currently in the short term that we will see an instantaneous positive development in risk provisions.

That's why we have already in our guidance, forecasted a loss rate of 1.6% to 1.7%. That is more or less the level that we reached last year from a P&L perspective as well. The loss rate of 1.9% currently is also driven by a pure mathematical view, I would say, because we have the numerator, which is the Q1 risk provisioning that is then just multiplied by 4 for the whole year, and it is compared to the leased volume only of Q1. But as we are growing in new business, the leased volume, which currently stands at EUR 11.7 billion will increase to above EUR 12 billion towards the end of the year.

So this will only from a technical perspective, bring down our loss rate from our expectations right now. And regarding the CM2 margin, yes, we have seen pretty good, if not too good CM2s in the first quarter, especially of last year because we have -- we have had, at that time, still decreasing interest rates and our conditions were not yet priced in to our customers because we have always this somehow delay in conditioning, passing on increasing or even decreasing interest rates.

So the CM2 margins of above 17% at the beginning of last year are not comparable to a normal environment of CM2s. Also in our current CM2 of over 16.1%, there's already priced in the higher level of risk we have seen, and that makes us confident that we will reach also our target of 16.5% in CM2 towards the rest of the year.

So we have the next question coming from Roland Pfäender from ODDO.

Could you provide us maybe an update on your cost management? Did you push forward more measures? The cost income ratio looks quite good in the first quarter. The question is here also, is it sustainable going towards the upcoming quarters? Or do we have some positive one-offs in the quarter influencing it? I'm looking here at the profit from service business. I think there's also this Intesa interest rate in there, but is this a normalized number? Or -- are there any, as I said, one-offs in which should we need to consider?

Then second question, cost of risk. Could you maybe also explain what you see in your Stage 1 and 2 and 3 provisioning pillars, how the movements are there? The question is, do you see just the beginning of a wave of insolvencies? Or is it rather going sideways? Or what is your view there? And maybe a last question, CM2 margin. I think market consensus is short-term interest rates will go up in Europe. Do you see some pressure for the CM2 margin in the next quarter if this happens?

Yes. Let me start with your last question. We do not currently see any pressure from that end on increasing interest rates because we always have a, so to speak, daily view on our interest rates, how they would affect our CM2 margins. As I said, it's more from an operational point of view, how fast can we put that -- pass that on into our customers' condition rates. But currently, we do not see a pressure on CM2s, honestly. Then your question on cost management and maybe one-off effects resulting from the Intesa deal with the assumption of the Rent ForYou portfolio.

I mean, with roughly 60% of our total cost base, staff costs are the most important driver of our cost base. And here, we are implementing and have implemented already strict measures that is, for example, really thinking about whether to replace employees if they are leaving us, for example. It's also about driving forward our digitalization in terms of bringing our applications into cloud technology that makes business faster, that makes processes easier for our people. So it's really the idea to here take on the staff cost at the end, to have strict cost discipline here, and that is the main driver of our good cost/income ratio in the first quarter.

We expect the cost/income ratio to remain around 55% regarding our guidance we published. So now one quarter is over, we are satisfied with that. As I said, the cost/income ratio will be in that range where we are up to 55%. That is our expectation right now. When it comes to the influence or the impact of Rent ForYou, yes, last year, in the first quarter, there was not yet Rent ForYou portfolio on our balance sheet, and this drives, to some extent, also the service business, that is right.

On the other hand, also from an interest expense perspective, we have also assumed the refinancing part of this Rent ForYou portfolio. So from an interest expense point of view, there are also some low number, low single-digit number of millions in our interest expense. This weighs a little bit or compensates a little bit this one-off effect in service business, but it is already part of our income side and also on the cost/income ratio. So as I said, expectation for cost/income ratio between where we are and 55% as guided.

And the third one was on provisioning, on the stage movements and so on. Honestly, the wave that we are now seeing of insolvencies is not new. It has already started, I would say, 1.5 years ago towards the second half, third quarter of 2024. And we are seeing this elevated level of insolvencies since then. So there has nothing changed, not to the worst, so to speak. So our view on insolvencies has not worsened, but it has not yet enhanced. And as I said, our loss rate looking forward of 1.6%, 1.7%, which we assume for the full year of 2026 already takes that into account that we are seeing at least in this year, in the short term, this heightened level of insolvency still.

Maybe a follow-up from the chat because it's -- you've been mentioning the consolidation effects of Rent ForYou for the first quarter. You mentioned that it is shown in the interest expenses. Now the question is net interest income, is it impacted by the consolidation also on the operating income. So where are the effects shown?

Yes, that is a little bit tricky. The Rent ForYou portfolio is recognized as operate lease portfolio. The operate lease income side is reflected as part of our service business. So the interest, however -- interest expense, however, is shown in -- yes, interest expense, but there is no interest income on the other hand, coming in from the rent portfolio.

So the effects are in interest expense in the service business and also below operating income, below operating result at the end, also some part in the risk provisioning as well. And we are talking about roughly EUR 3 million to EUR 4 million in the service business. We are talking about EUR 1 million to EUR 2 million in interest expense and more or less the same number also in risk provisioning from the Rent ForYou portfolio.

We have another question in the audio queue from Tobias Lukesch from Kepler Cheuvreux.

Two questions on my side, please. First, on capital. Could you remind us, please, of the MDA buffer where it currently stands in terms of basis points and how you do see that development and how it basically -- or what kind of comfort you have also in discussions with the regulator? And secondly, again, on the loss rate, you mentioned this kind of technical effect and the fact that the denominator will increase, obviously, with a bigger leasing portfolio. However, in my view, this gives you maybe still a 1.8% plus loss rate, even so if the denominator grows. So I was wondering what brings you to the assumption that you keep that 1.6% to 1.7% and therefore, also the guidance?

Thank you for your questions. Let me start with your question on the capital side. We are, as I mentioned in various calls, very confident that we will not -- or will have enough buffer above everything that is required from the regulatory side as well as our rating agencies for the next 2 to 3 years, not requiring any additional equity. Currently, we have buffers in terms of total capital ratio, which are above 200 basis points. In terms of CET1 ratio, the buffers are even higher. We are talking about more than 300, maybe also 400 basis points buffer currently that makes us, as I said, very confident that we do not need any capital increase.

This has not been a critical point with regulatory bodies or with our rating agencies. We just recently had our annual talks with the rating agencies Fitch and Standard & Poor's. There was nothing critical on that. And also, what has to be considered is that in this -- in last year, we had some one-off effects from the consolidation of the Rent Foryou portfolio of the Intesa goodwill at the end, which weighed on our capital ratios, also other transactions that we closed, the buy of the B2F company in Italy as well. These were all one-off effects weighing, bringing down our total capital ratio, and we do not foresee such one-offs for this year.

That's why we are so confident with our capital ratios. Regarding the loss rate, to some extent, this is a mathematical question, as you mentioned, because our lease volume will increase towards the end of the year. However, also in the first quarter, we assume that the risk provisioning is a little bit higher as compared to the other quarters. This was also the case last year. The effects or the reason for that is, for example, in the first quarter, the installments for the service business for the insurance like part of our contracts have to be paid. They are then accrued over the year, but they have to be paid in the first instance for the full year. And that could lead to some customers that are defaulting, especially in the first quarter more than in the following quarters, weighing to some extent on our Q1 risk provisioning. And taking both reasons together, we are confident to land at the end at our loss rate of 1.6% to 1.7%.

To add a follow-up question here on the risk side from the chat. The question is on how many basis points the cost of risk were embedded in our contribution margin to now in this quarter, maybe higher than last year's quarter.

Yes. The ECL component of our CM2 or the ECA component is part of our CM2, so already deducted. At the beginning of last year, we were talking about 6.2% to 6.3%. It has elevated a little bit by 30 to 40 basis points where we currently stand, something above 6.5%, and that is the level that corresponds also to our assumption of the loss rate between 1.6% and 1.7%.

Thank you very much. We have another question coming from the audio line from Marius Fuhrberg again.

Yes. One follow-up question, if I may, a little bit different topic maybe. With the current speed of AI development, what is your current view on those tools? And have you started any larger initiatives in this field? And do you expect any significant operating efficiency gains over the next few years from this?

Yes. AI is a very important topic also for us, and you can imagine that we have started initiatives on that. Something that is, I would say, quite normal with which many companies are working is, for example, in the daily business that we're using AI for internal chatbots, for example, supporting our people by writing e-mails or summarizing calls or meetings, something like that, that saves time at the end. Another very -- also from our point of view, very important and very -- already very successful use case is that we use this in the debt collection process.

So we have installed AI agents, for example, in some pilot countries where we call up our customers no longer by real people, so to speak, but by AI agents. And the customers we are approaching know that they are talking to an AI and the AI then friendly reminds them that there are installments still open and that we would be happy that they pay and so on. And this also is a very, very promising initiative we are currently implementing on the AI side. As I said, we have 1 or 2 pilot countries, and we are continuously rolling that out to other countries, for example. And that, again, is one example for the efficiency gains that we expect from especially staff cost perspective.

Speaking of the future, we're talking about the ROE target for 2030 and the question on how this target is defined. So maybe walk us through about the numerator, denominator on that. So which equity is taken? Is it deducted -- deducting minority interest and interest expenses on hybrid bonds?

Yes. This is straightforward. Our ROE target is defined as it is presented in our current quarterly statement or also in our financial statements at year-end. So this is the net income, our earnings after tax from a group perspective, they are still included the minorities, and there is included also any payments on AT1. Also on the equity side, this is then divided by the average volume of equity, just taking year-end plus beginning of year divided by 2 as average equity on our balance sheet and then these figures are divided.

So just to give you an example, last year, we had an ROE of 5.2% after tax, and this is just coming from the EUR 72 million after-tax earnings divided by the average volume of equity in total we have on our balance sheet from an IFRS perspective.

We have a next question from the audio line from Dr. Philipp Hässler from DZ Bank.

I have only one question left on the net interest income, which went up by 7% in Q1. Maybe you can also give some guidance for the next quarters, how you see the development? Will this positive trend continue? Or is there maybe any headwind or anything which we don't see yet in Q1?

Yes, there was, especially in Q1, I would say, a base effect. I just mentioned it because in the interest expense, we have seen the effect of the Rent ForYou portfolio of EUR 1 billion to EUR 2 billion. If you take this out of the net interest income increase, that would be higher, nearly double digit, not yet double digit, but towards double digit. And that's more or less what we are expecting for the full year growth in NII from 2025 to 2026.

[Operator Instructions]. Maybe wait a few seconds. I see that this is not the case. Ladies and gentlemen, thank you for joining us today regarding our Q1 2026 results. It was a pleasure having you, and thank you for your questions. We will attend several conferences and road shows over the course of the next month. So I kindly invite you also to check out our corporate calendar on where to meet us, and we would be delighted to meet you there. Our next quarterly statement will be for the second quarter on August 13 this year. And this concludes our today's conference. Take care, and goodbye.

Thank you very much. Bye-bye.

Good morning, and welcome from Baden-Baden, ladies and gentlemen, to our financial year figures 2025. My name is Franziska Randt. I'm the Head of IR Department, and I have the pleasure that today here with me is our CEO, Sebastian Hirsch; and CFO, Martin Paal. Welcome.

We will start with the presentations. And right after that, you will have the opportunity to ask questions. Without further ado, I will now hand over the floor to Sebastian.

Thank you, Franziska, and a warm welcome from my side. Thank you, ladies and gentlemen, for joining our earnings call today. Ladies and gentlemen, looking back at 2025, the year was once again shaped by a challenging environment and ongoing geopolitical tensions, and it seems to be persistent. But despite these challenges, we successfully navigated our business through the year.

Let me briefly summarize last year's performance step by step. First of all, we are proud to have achieved the goal we set for 2025, even so forecasts were and remain difficult. With group earnings of EUR 71.8 million, we have delivered under tough circumstances. Above all, we increased our profits quarter-after-quarter last year, which I will come back later.

That said, we also remain self-critical. We are not there yet, and we know we must do better. We know that we need to increase our return on equity, but 2025 was an important milestone on our path, but we are not at the finish line yet in terms of profitability.

Secondly, geopolitical tension, macroeconomic uncertainty and the highest level of corporate insolvencies in 2 decades created a complex environment, which we navigated well. Our loss rate remained at an elevated level of 1.7% compared to the historic average level of 1.5%. But we were able to almost entirely offset this by a significant increase in our operating result before damages.

At the same time, we remain confident. Even in a tense macroeconomic and geopolitical environment, we remain firmly in control. It is one of GRENKE's strengths to deal with such situations. Third, a major turning point was the good development of our cost/income ratio. And this is not a one-off event, but rather a reflection of our commitment to increase our profitability by efficiency.

It demonstrates that our digitalization program, our strict cost discipline, our process optimization and automation in conjunction with our strategy, with our growth strategy are delivering results. Fourth, with a clear strategy and the right team and a well-defined road map ahead, we are confident in our path forward.

With Isabel Tufet joining us as new COO in September, our Executive Board team is now complete. Welcome, Isabel, again. #5, for us, 2025 was also a year in which we manifest important fundamentals and brought critical unresolved issues to a close. So it was particularly important for me that we also delivered the financial purchase of our remaining franchise company and the initiation of the sale of our factoring segment.

And finally, we have achieved again a solid growth in the past year. With EUR 3.3 billion, it's technically a new record because we never have achieved sales figures like this before. But the crucial thing is that we have recorded the future income through our contribution margin too and that the portfolio will continue to generate in the coming years with rising income.

And that's the foundation for our ultimate goal. We are aiming for 10% return on equity after tax by 2030. And this is a path and not a walk in the park, a path we have chosen and we are pursuing with our strength and determination. Our Compass needle is pointed in that direction to a double-digit return on equity. And again, 2025 shows that we are on the right track.

Ladies and gentlemen, this slide reflects the balance sheet substance and the growing income of recent years. You can see how our new business growth translates into our annual figures. Our leasing receivables are growing constantly, and we have surpassed EUR 7 billion last year. This is important since it is expressed in the increase in our operating income to now more than EUR 660 million.

And we won't stop here. We continue to set ambitious growth targets because we are convinced belief, especially in uncertain times that leasing is the solution of necessary small ticket investments. for small, medium enterprise, entrepreneurs, doctors and the public sector. But it's more than leasing volume growth and operating income.

Our focus and mission are clear: increase our holistic profitability and grow our return on equity to a sustainable double-digit level, as I mentioned. It means specifically, we are aiming for 10% in 2030. To achieve that, we have 3 key levers that are important for steering our business.

First, operating income, as shown before. Second, our operating cost; and third, risk and risk management. You may know them already since we introduced and presented this logic last year. Proper capital allocation is equally important because return on equity is not a question of the group perspective. We brought it down to each subsidiary to each unit. And on the top is our ultimate KPI return on equity.

So let's move on step by step. Operating income is expanding. We've seen that 2 slides before. This part is driven by volume growth and margin in our business, and we expressed that in our contribution margin, too. And the continued expansion of our leasing business directly drives operating income. But there's a second reason why growth and leasing volume from a strategic point of view is important and a strategic pillar for us.

By sending with our customers and partners even in that challenging times, we build trust, reliability and long-term partnerships. And this strategy has a long proven track record in past crisis. And so we can outperform the market and gain market shares. When it comes to our cost structure, we not only feel that we are on the right track, but the figures also prove it.

We are now seeing the results of what we have constantly focused in recent years. Income growth should exceed cost growth by a factor of minimum 1.5. With an increase of only 7% year-on-year of our cost against an increase of more than 14% of our income, we have outperformed that goal last year. Now we must do everything we can to ensure that cost/income ratio does not rise again.

And at the same day at the same time, lay the foundation for further efficiency gains, not least through digitalization and constant reevaluation of our processes right through controlled self-disruption. Every euro spent must contribute to our return on equity. At first glance, it's not that easy.

Therefore, every euro spend must add value in terms of customer benefit or competitive advantages. And if we are unable to determine this, we must also have the courage to consciously decide not to do certain things. We are starting doing this and want to continue it because in addition to digitalization, this mindset is central to success in our small ticket business.

Ladies and gentlemen, over the last quarters, we have reported extensively on the topic of risk. And yes, it remains an important factor for us, too. On the one hand, we cannot ignore developments as evidenced by the significant increase in risk provisions. Exactly. But we can also say with conviction that we can handle it exactly.

We have the data and the tool to assess the current portfolio sensibly. Above all, however, we can draw the necessary conclusions for the future because 2 facts are decisive. Firstly, yesterday's insolvencies cannot be changed, not even by me, even if I'd like to do. And secondly, the crucial element is to determine whether these developments are systematic and whether the structural changes are taking place. And what does that insight mean for us when our customer, namely a small, medium enterprise submit a leasing request to us today.

And this is happening more than 10,000 times a week, a leasing request. And that's a critical point where we can make a difference with data-driven insights. Today, we can reject the request what we would have approved based on yesterday's data and knowledge. And that is what we have done. We have become more selective and cautious when it comes to accepting new business in that environment. However, this also means that in case of doubt, we now accept slightly lower growth rates for new business.

With regards to development of our risk provisions, I would like to underline that also the increase of almost 50% looks somewhat steep, but not all of it will end up in real defaults. Martin will tell you more about in detail later. And I would like to make one point clear based on our empirical evidence and my experience. It would be the best and the most stable in principle, if we consistently set aside 1.5% each year as risk provision in good times and bad times.

As an entrepreneur with a long-term perspective, this leads to a fair picture, which is also confirmed by our statistics. You can see this level in the dotted line on the right chart. Of course, this is not compatible with IFRS regulations and accounting principles. That is why these fluctuations are also part of the picture for a certain extent. But it is important to take a step back and classify the deviation from the normal level in good times and bad times.

And then to keep a cool head in times of both of overperformance and underperformance. And it means today, yes, our loss rate is higher than long-term average of 1.5%, as mentioned and explained. But first, we have seen worse, and we feel confident to be able to steer our business also through these times of uncertainty. But second, the fluctuations are not nearly as severe for us as elsewhere because we have strong safeguards, thanks to our diversification.

So adding all 3 components, income cost and risk, we were able to increase our group earnings to roughly EUR 72 million last year. Our return on equity after taxes remained at the same level of 5.2%. Nonetheless, we are back on right course to improve profitability. And what I mean by that, I will demonstrate to you on the next slide.

Ladies and gentlemen, challenges are not new over the last couple of years, so to say, 2024 was also such a year. The sharp rise in insolvencies at that time means that our quarterly profits in the second half of the year and even into early '25 were relatively low. You may remember. But here comes an important fact and maybe the most important one for 2025. We have been able to increase our group earnings steadily quarter -- every quarter throughout 2025. And this underscores the fact that we have regained the necessary momentum to increase our profitability.

And it proves beyond doubt that we have made it. We initiated and we executed the turnaround in our earnings, thereby laying the foundation for improving our return on equity on the path to the target of 2030. And with that, I would like to hand over to Martin for more details for the last year's figures.

Yes. Thank you, Sebastian, and also a very warm welcome from my side. As Sebastian lined out, 2025 was a challenging but also a successful year for GRENKE. Following our strategic levers, I'd like to start the financial figures for 2025 with our operating income side.

Looking at our top line performance for '25, we saw continued solid growth in our leasing new business, reaching EUR 3.3 billion after EUR 3.1 billion in 2024, mainly driven by our top 3 markets, Germany, France and Italy. The increase by 7.8% is a strong signal as we were and are operating in a macroeconomic environment of high uncertainty, volatility and ambiguity, resulting in hesitant investment behavior by businesses.

In Germany and France, we saw an overall contraction of the leasing sector. And despite these challenging circumstances, we achieved significant new business growth in these markets and we were thereby able to expand our position. Our third biggest market, Italy, we grew in line with the market development, maintaining our leading position.

And as just mentioned, the improvement of our top line performance in 2025 was largely driven by our strong growth in the DACH region of 13.7% or EUR 96 million, of which our home market, Germany made up the lion's share. But also Western Europe and Southern Europe saw solid increases in a continuously challenging environment, growing by 8.5% and 8.9%, respectively.

In contrast to these positive developments, our Northern Eastern Europe region experienced a normalization of new businesses coming in some 5% below last year's results. This development is mainly attributed to 2 factors. Firstly, a base effect after very strong growth in the previous year in this region, which was significantly above long-term average.

And secondly, the sudden end of subsidies for e-bike leasing in Finland and an adjustment of our reseller network in the U.K., which resulted in a softer new business there. Our future core markets, on the other hand, in the other regions, however, continued on their anticipated steep growth trajectory, increasing new business by 21.2% or EUR 41 million. And driven by a strong performance in the U.S. and Australia, our future core markets developed steadily and according to plan, continuously gaining momentum.

After this detailed view of our top-line performance in '25, let's now move on to our operating result before settlement of claims and risk provision. Under the impression of elevated insolvencies in our markets and a high cost/income ratio at the end of '24, we set out to improve our cost efficiency in 2025.

Accordingly, we applied strict cost discipline measures and we are vigilant regarding our spending. At the same time, we continued necessary investments into our future, such as into further digitization. These investments, especially into our digital infrastructure are now showing first effects and will continue to add to an improved cost efficiency. At the end of 2025, we can report our measures are working and showing significant effect.

In 2025, we grew our operating income by 14.7%, driven equally by higher net interest income from our existing portfolio as well as by improved profits from new and service business, including disposals. In other words, the growing new business of the past years translates increasingly into a solid operating income supported by our most recent new business.

Looking at our cost development, we see clearly the effect of our efficiency measures. Our cost base increased by only 7%, mainly driven by higher staff costs remaining significantly below our operating income growth. So consequently, our operating result improved by 26% compared to last year, while our cost/income ratio improved by 4 percentage points to 55.2%.

So we are proud to have achieved such significant increase in the operating result before settlement of claims and risk provisions and strongly improving our cost efficiency. Increasing profitability will continue to be our path in 2025 -- sorry, 2026.

In 2025, the high level of macroeconomic uncertainty, erupting conflicts and disruptions to global trade continued to impact our customers. Accordingly, insolvencies and defaults remained elevated. And while we saw a stabilization of defaults throughout 2025, they, however, remained on a high level. We took measures to address this development, working closely with our customers to enable them to fulfill their contracts. Still, the impact of these insolvencies and defaults showed in our figures.

Our settlements of claims and risk provisions rose, as Sebastian already lined out from EUR 131 million to EUR 196 million in 2025, resulting in a loss rate of 1.7%. Despite this steep increase, risk provisions in Stage 3, which contain our nonperforming loans increased by some 23%.

So what I would like to stress, even though our loss rate remains elevated at 1.7% above the long-term average of 1.5% our coverage ratio in Stage 3 remained stable at almost 60% or in other words, 60% of the nonperforming lease receivables were and are already provisioned for. And as mentioned in earnings calls throughout last year, we have already accounted for higher loss rates in our newly settled leasing contracts.

Let us now come to our capital allocation, and I understand this is a topic that many of you are eager to hear more about. For that reason, let me start with the most important message right away. Our equity is growing, and we have sufficient headroom for continued growth over the coming years.

Consequently, we do not plan a capital increase in the midterm. With an equity ratio of 15.6%, we have continued to improve the use of our existing capital, striving for a more efficient capital allocation. We will continue on our path of retaining roughly 75% of our profits, while paying out 25% in dividend, further expanding our equity base as a foundation for future growth.

And given our growth targets and our clear bottom line focus, our current structure provides sufficient headroom for the years to come. Coming from the equity to debt capital, we continued our proven diversified funding mix strategy. Relying on our 4 debt pillars in 2025, senior unsecured made up around 43% of our debt as we issued our next 2 benchmark bonds of each EUR 500 million in May and September 2025 at a 5.25% and 3.875% coupon, respectively. So we view this as a success on many layers since, firstly, it shows the trust of our investors to invest in GRENKE bonds.

Secondly, our own credit spread is coming down gradually. And thirdly, and most importantly, we are raising sufficient capital for our ambitious growth targets. Furthermore, I am happy that we successfully launched our first bond of AUD 125 million in August last year, underpinning our strategic ambitions in Australia as a future core market. And the deposit business of GRENKE Bank remained an essential pillar of refinancing for us, covering 31% of our debt.

Asset-Backed refinancing such as through ABCPs and global loans made up 17% or roughly EUR 1.2 billion. Here, it's worth mentioning is a new global loan of EUR 200 million by the German state-owned Investment and Development Bank, KfW, which was granted early 2026. And this underlines the strong trust and good reputation GRENKE has regained in recent years.

With the proceeds, we support SME customers in Germany with favorable leasing conditions, enabling investments in their businesses. And lastly, our most recent pillar external bank funding accounted for 9% of our refinancing. In this category falls also the EUR 150 million revolving credit facility with our Italian corporation partner, Intesa Sanpaolo, which was signed in January this year.

So overall, we are well equipped with our funding mix to finance our growth ambitions and maintain a strong cash position. So ladies and gentlemen, allow me to provide you with a short summary of the financial highlights that I just presented. What is most important, we achieved a modest group earnings growth to roughly EUR 72 million and met our guidance of EUR 71 million to EUR 81 million for 2025.

This achievement was driven by a strong increase in operating income, outperforming our cost development and vastly compensating for a higher loss rate. In the volatile macroeconomic circumstances we are operating in, this is a real success. Our return on equity after tax remained stable -- of course, we are not satisfied with that. We still have some way to go, but we are making clear operational progress towards greater profitability.

And with that, I give back to Sebastian.

Thank you, Martin, for your remarks. And also thank you to your team to Franziska to giving us that structure. And may you got it the navigator on the right top, pretty impressive to having that structure.

Ladies and gentlemen, it's only March, and there have been already so many events that cause a high degree of uncertainty. At this stage, we don't see any immediate impact of the recent strike against Iran or the bombardament in the region on our business. We remain in close contact with our colleagues in Dubai. Most importantly, all our employees are safe and for the time being, our local operations continue without major disruption.

However, the extent to which ongoing conflicts such as issues in Iran or Ukraine may affect supply chains and consequently, economic growth in our key markets, Europe cannot yet be fully assessed. We will continue to monitor developments closely as the situation evolves. Also, we can neither control nor influence these developments. We will continue to focus on our business and how we can steer through it successfully.

Regardless of the terrible wars, and I personally pray fervently for peace in the world. But also in peace, one thing will remain. The world is changing. Technology is changing faster and faster. Competitiveness for regions, countries, companies as well as small, medium enterprises are decisive. There's a need to invest and leasing is one part of the solution.

Last year, 324,000 investments became true because of our partners and us with leasing. This is a way we will continue. And we are aware of, by the way, we are part of a changing world and need to disrupt ourselves in technology, processes, not only our customers' world is changing.

To summarize the outlook for '26, it's driving on site. And that has nothing to do with caution, but with common sense. This also includes the fact that we issued our first benchmark bond in '26 a few weeks ago, as Martin mentioned, with foresight in order to secure liquidity for our new business, but also with the experience gained in the recent years of actively exploiting relatively core market -- capital market windows.

Even if we accept that the -- that the excess liquidity will probably cost us a small single-digit million amount in additional interest expenses over the course of the year. One thing is certain. This decision has already proven to be the right one and has also been incorporated into our forecast. For 2026, we aim to reach a group earnings between EUR 74 million and EUR 86 million and the leasing new business growth of between EUR 3.4 billion to EUR 3.6 billion.

As a basis for these targets, we assumed a range in our loss ratio between 1.6% and 1.7% and a cost/income ratio of 55%. We will continue our profitable growth path, utilizing our strength and expanding globally. Ladies and gentlemen, now it is important to drive on site, as I mentioned, but it's only one part of the metal. It's at least as important to be clear in the long-term goal.

Our focus remains clear. As I mentioned, we are aiming for 10% return on equity for 2030, and we want to achieve a double-digit return on equity on a sustainable and regular basis. And this means that we must increase our return on equity, our levers. We must increase our return on equity 1 percentage point every year. Yes, this will be a challenge, but a challenge I am convinced and confident we will master.

We continue to focus all our efforts on our bottom line profitability, namely our group earnings. To achieve this, we continue to review and optimize our processes, further digitize, where possible and make sure to use the potential of new technologies such as AI. Equally important to us is the continuous growth of our leasing portfolio globally. Yet we will not grow at the expense of a higher risk profile.

We are and we will be selective in our approach regarding markets, customers and margins. But we will also take market opportunities. And at the same time, we want to use our existing capital base more efficiently. And allow me to make clear what Martin mentioned, it's very clear for us that we do not need any additional equity in the midterm to finance our growth ambitions. Our focus is to expand return on equity and with retained earnings building the capital foundation for growth. Thank you very much.

Thank you, Sebastian. Thank you, Martin, for your presentation. Ladies and gentlemen, we will now enter into the Q&A session. [Operator Instructions] So first one, Marius Fuhrberg from Berenberg.

Actually, a couple of them with regards to the guidance. So for 2026, you basically guide for a flat cost/income ratio, considering that your top line will probably grow on the back of expiring lower volumes automatically basically. What exactly is driving the cost line accordingly so that you expect flattish cost-income ratio instead of a further improvement?

The second question is regarding your new business guidance. You mentioned that you will not -- or that you deliberately sometimes do not accept new business in order to keep your portfolio clean. But have you considered a more dynamic pricing instead of declining requests and accepting lower growth rates? So because when you price higher, the DP2 basically should remain unchanged.

And then a last question from my side is the franchises -- sorry if I missed that, but did you mention that you bought back the last franchises. So for the P&L, should we expect no minorities going forward?

So I would like to start maybe with the new business guidance. You're absolutely right. You have always both in as possible you can drive us to your business with pricing with the conditions. And at the end, it will express in your contribution margin, too. On the other hand, you can also say, okay, no, and we don't do the business. We would like to care for the overall risk portfolio, for the overall risk mix at that time. And so as I mentioned, we do both.

And we have also take care that pricing is let's say, you have to be very careful with pricing because we would like to have good risk portfolio. So we would like to have the very good rating, so to say, and they are not willing to pay the highest price and the highest risk premium. And we will avoid, let's say, worse business. And then pricing could be also dangerous and then you're running in an adverse selection and that we would not like to do. So it's not only about pricing, it's more about a clear risk assessment, and we would like to keep our cost sorry, our contribution margin more or less stable over the group average.

I think Martin will say something about the cost/income ratio, made one point there. We have one impact which will be part of our P&L that year, the last double cost in terms of our digitalization program moving into the cloud on the one hand and having no physical data center on the other hand, and that will run off per end of that year. There's a double impact we have that year in our thing. So the cost of cloud and at the same time, the, let's say, old cost depreciation of our data center, and that will be not the case in '27 and in the ongoing years. And the other things, I think you will go for it.

Yes. Thank you, Sebastian. I just follow-up on your question on the cost/income ratio. Sebastian already mentioned the cost side. It is also driven by FTE growth where we are really careful on how much FTEs we will add to our current FTEs, but this will also be part of the cost growth. The other side is the income side. And if you had look at our P&L in 2025, you saw, for example, a large part of gains and losses, especially gains from disposals, which we do not expect at that range going forward. So this will then lead to a lower growth rate in terms of the income side. And taking those together, we will end up with this cost/income ratio for 2026 with a guidance of around 55%.

Your question on franchiser, yes, you are right. We have bought the last franchiser with one caveat. There's one minority stake of our franchise in the U.S. of the former U.S. franchise, which is near to be closed, but that doesn't have such impact. And then from the franchiser side, the minorities will leave, so to speak, our balance sheet. However, since last year, we have new minorities, namely the 17% stake of Intesa Sanpaolo in our Italian company, which will be going forward, have some effect on the equity side of the balance sheet in terms of minorities and also when it comes to the income side or the result of noncontrolling interest -- noncontrolling minorities here.

Let me make one point here in the U.S., it's Managing Director, there's no institutional investors or something like that involved in the franchise company.

Okay. So if there are no follow-up questions, we have the next person in line, Roland Pfäender from ODDO, please.

Some questions from my side. I would like to come back to operating cost growth. Looking at your staff costs, I think they increased close to 9% more than new leasing business growth. So midterm leasing -- midpoint leasing growth, I think it's 6% for the current year. So what would we need to expect for staff cost growth? Is there any chance that it's 5% or lower? So what's your planning on this number? I think it's an important point.

Second, you touched on AI disruption. Did you pencil in any disruptive effects on small and medium companies going insolvent the next some years out of this movement? Or is it not yet into your figures? Or what are your expectations here? And the third question on your equity ratio. Could you maybe mention the buffer you still have regarding the level your rating agencies are requiring?

Yes. Mr. Pfäender. Let me start right away with your first question on the operating cost side regarding staff. Yes, what I can say is that we plan for staff cost of not double digits. So we really expect a single-digit growth. I would say something between 5% and 10% to really land at the end below 5% is, from my point of view, too optimistic from today's view, but somewhere single digit, but between 5% and 10% would be worth a planning figure.

On your last question on the equity -- on the regulatory equity ratios, Well, we have last year had some transactions, especially the Intesa transaction that I just mentioned, other smaller transaction, which put a lot of goodwill on our balance sheet. And that doesn't affect our balance sheet equity ratio, but at the end, the regulatory capital ratios, which has to be deducted from this technical point of view. And that was one reason or the most important reason why our regulatory capital ratios have come down to 15.2% currently.

For what is regulatory really required, we have around 150 basis points headroom, and we feel pretty comfortable with that. We are using all optimization figures from our data quality to always make sure that we have enough headroom and stay to have enough headroom on our regulatory capital ratios.

Yes. Thank you, Martin, and thank you for your question. And may to AI, I believe in that AI is more an opportunity also for small, medium enterprise and especially for the small ones, maybe to deal better with all the regulations we have to fulfill, especially in Europe, maybe to burning down bureaucracy.

Internally, we call it, don't run your bureau crazy and AI could be very helpful. And especially for small, medium enterprises and the small companies, it's not that easy to find employees at the right time -- at the right time, at a right place. And therefore, AI could be very, very helpful. But of course, there would be a disruption and a huge disruption. But overall, I see more opportunities as it was always when a technology disruption was pretty strong in the past.

So we have the next question in our audio line from Mr. Lukesch from Kepler Cheuvreux.

Three questions, if I may. One on costs. I realize that the selling and admin costs were down 2% quarter-on-quarter, and that compares to a kind of seasonal increase of 10% to 25% in Q4 over the last 4 years. So I was wondering like what was driving this? You mentioned some efficiency gains, but it would be great if we have a bit more detail on Q4, especially and also how this then evolves in '26.

On the capital side, maybe 2 follow-ups. I didn't fully grab the comment on the minorities with Intesa. So maybe you can highlight again what is changing for '26 compared to '25 minorities? And in terms of the regulatory buffer, you just mentioned 150 basis points based on a 15.2% equity ratio. Could you please also here like elaborate a bit more what was requested by the regulator, why you think 150 basis point buffer to which level is sufficient -- because thinking in bank terms, we usually see more reference to the SREP ratio, the core Tier 1 ratio, where we usually see 250 basis points plus as a buffer taken by management.

And then on the loss rates, I was wondering, you mentioned the 1.6% to 1.7% after having reported 1.7%, you're highlighting the high defaults, you're highlighting the uncertainty. So what makes you believe that this number goes down this year? And maybe you can also give us a split about the regional trends that you're expecting, you say you factored in a kind of 1.5% normalized cost rate. I think that is potentially also for the CM2 margin calculation.

How do you think that this will evolve? And yes, with a 60% coverage ratio, I was just wondering like how regulator is looking at that because I remember you saying that in general, it's not so easy to collect the residual value of defaulted assets.

I would like to start and may -- or I'm sure that Martin will add some more details. At first, quite easy answer for the first question regarding to the cost in Q4. The effort for selling, especially for selling is the highest one in Q4. And therefore, you will always see a bit more cost linked to that. The new business is very strong in Q4. And also in Q4, we are laying the foundation for the next year in building relationships with new dealers, with existing dealers and so on. So there's something like a correlation that you have always to keep in mind, especially when you look to the selling cost.

And regarding to the loss rate, the loss rate is a tricky thing, as I mentioned in my speech, a loss rate of 1.6% or 1.7% means at the end of the day, with the rising volume we have an increase of bad debts of nonperforming loans of 10% to 15% at the end of the day, means the decrease in loss rate, it looks like a decrease in loss rate means not a decrease in new defaults because we're expecting more or less the same level of defaults in comparison to last year, but we are not expecting an increase as we saw last year and in the second half of the year in '24 compared to the previous years. So compared to last year, it's more or less a slower increase.

But overall, it's an increase. And that means at the end of the day that the loss rate looks stable. And Martin mentioned it in the chart, and that is very important. You have always to look in the balance sheet. So what is the level of risk provisioning overall and what is the difference between risk provisioning last year, this year and the year to come. And the difference is expressed in our P&L, and this difference divided through the leasing volume is our loss rate.

So it looks stable. But overall, we are expecting the same level, more or less the same level as we saw in the last year. And also from a region perspective, the assumption is more or less the same over the region. So we expect that South Europe and also France, as it was expressed by Martin in this chart will be nearly on the same level.

Yes. Thank you. So let me just add one comment to the SG&A you just mentioned. Not direct an effect in the fourth quarter, but which was steadily increasing and will also increase over the next quarters and years on SG&A is everything related to our cloud infrastructure.

So usage fees for cloud services, license fees, everything that builds up the foundation for, for example, our platform business that we are now enforcing with our transaction of B2F that we acquired last year, bringing these platforms to other countries, Italy, Spain and other countries are to follow. What is also an effect over the last year in SG&A was on the legal and advisory costs, given the transactions that we performed, selling factoring, buying and purchasing B2F and this transaction together with Intesa.

So there are various effects driving SG&A in last year. Let me add also or let me answer your question regarding regulatory capital. We, as a financial institution and not as a bank are sure that 150 basis points buffer is enough. And we are also in -- as always, in contact with our regulatory bodies like BaFin. So we do not see an issue here with this capital buffer of 150 basis points.

Your question on the minorities of Intesa in more detail. Well, if you have a look into our balance sheet in last year, we saw minorities in the equity capital of roughly EUR 20 million minus, and that was the equity of all the franchise companies that we have now assumed in last year. And now you see a swing, so to speak, to [ EUR 66 million ] plus in equity. And this is basically what we have to account for the 17% stake of Intesa holding on our Italian company. So that's the swing that you see in minorities from a balance sheet perspective.

So we have a follow-up question from Marius Fuhrberg in our audio line.

Yes. Another question on your midterm targets of 10% return on equity until 2030. I mean, looking at your equity right now, EUR 1.4 billion, and let's say, you have raised this until 2030 to EUR 1.6 billion or so. So that basically implies that you are targeting your net income to more than double to a ballpark area of EUR 160 million, right?

Can you give us a little bit more color on the background of that? So especially also with cost growth, I mean, the top-line growth is basically quite self-explanatory. But I mean, you're targeting for a stable cost/income ratio right now. But in order to reach the 10% ROE, one driver of that will probably be a normalization of risk costs. But how do you think of costs in the midterm, please?

Yes. Of course. For the midterm, you can do it like -- we can do it like you did to say, okay, what's maybe our equity in 2030 going forward? I think it's a bit easier to take today's equity. It's EUR 1.4 billion, as you mentioned. Let's assume a 10% return on equity. It means EUR 140 million. And when we see today the roughly EUR 70 million, it's a lack of EUR 70 million, okay?

So when we're talking about normalization in risk, it's a minimum EUR 20 million. So we have now 20 basis points, the 1.7% loss rate to 1.5% loss rate. So normalization of risk is one part, but it's the smallest one. And when we add this -- or we have this in account for the EUR 70 million, we have EUR 50 million to allocate. And then we can make a huge mathematics or something like that, but we can make it easy divided by 2. And the first block is income and the second block is cost.

So on the one hand is to improve cost/income ratio further with all the things we mentioned and we have to do. So we are talking about EUR 25 million impact on the cost/income ratio from today's perspective. And on the other hand, we would like to improve our income means growth, a stronger income growth and cost growth and cost/income ratio, so to say, this linked income and cost, you know it. So you can say 25% is growth, more effective growth, more income, a stable margin of contribution margin. The other half is cost efficiency gains and of course, a normalization from a long-term run in risk.

We will see fluctuations year-by-year as we've seen in the last couple of years. That is part of the game. I mentioned that, but that is a very simple way to think about that. And in reality, it comes to, okay, it's EUR 30 million in income and just EUR 20 million in cost or the other way around, that is not decisive. Decisive is that in each of the levers, we have to make our homework further. And I guess the development of cost/income ratio, the development of income, especially in the last year proves that we are on the right track.

So we have another follow-up question from the audio line from Tobias Lukesch.

Just touching back on the capital question. I mean, if I understand correctly, I mean, on your report, you were kind of consuming 200 basis points of capital of regulatory capital ratios basically, both on the total and on the [ quieter ] Tier 1. I was just wondering how much of that was driven by consolidation effects and which was just like on the operating business?

And then again, on the requirements that you have and like since you, let's say, could or consumed the kind of 150 basis points buffer you had in easily 2 years. I'm just wondering why you are now so outspoken about being able to internally fund the additional growth over the midterm, which potentially implies the next 3 years.

I remember you saying in the past that, yes, potentially at one point, you would need more capital in the midterm. So what has changed? Yes, you're cutting a bit back on the new business that is understood. At the same time, loss rates get higher, RWAs get higher on the credit exposure. So I'm just wondering how we square the circle here?

May I start with, let's say, to make one point here. You're right. We mentioned we have to think about a capital increase in the midterm. 1, 2, 3 years ago. And -- but we always said, okay, we need to clean the table in terms of all the M&A transaction. We always said we need to clean the table with the franchise companies. We need to clean the table in terms of factoring business, and that was very important, especially to finish that in the last year.

We have now a very clear view also in terms of factoring. And then we said, okay, after that, we are able to calculate from a mid- and long-term run, what is our capital need short and midterm and what is our growth pace to being clear with the existing capital. And when we're exceeding that growth pace, okay, then we will need capital again. And with our return on equity target of 10% -- we are not there yet, but we are improving. We would like to improve it year-by-year. And a growth pace of 8% to 10% is absolutely comfortable with our today's equity by increasing our earnings and our returned earnings in the same level of growth, and that's important. And I would like to make that clear. But Martin, you can provide more details with the basis point numbers?

Yes. Especially with the first question, where comes the consumption from? Well, it was basically what Sebastian already mentioned. We had last year the transaction with Intesa Sanpaolo and other transactions, which imposed an additional goodwill of roughly EUR 70 million, EUR 70 million to EUR 80 million on our balance sheet, also some intangible assets as well. And all these goodwill and intangible assets have to be deducted from our own funds from a regulatory capital perspective.

So from this 200 to 250 basis points, at least 150 to 180 basis points consumption comes from these transactions, and they will not further or not higher impact the capital ratios going forward because we have not a plan next year to assume another goodwill of EUR 100 million from today's point of view. So this is the explanation why we are confident that we won't need equity in the midterm and why the capital equity ratio has come down over the last year. So that doesn't worry us.

So thank you. There were a lot of questions that were already asked orally that were also asked in the chat. Nonetheless, there are some questions open in the interest of time, I will keep it short. So one is about ambitions. The lower end of our group earnings guidance for this year seems somewhat cautious. How do we view that? Also, how do we view the development of the disposal gains going forward?

Yes. Ambition, our ambition is expressed on the long-term target, I guess. And from a short-term point of view, it's not the easiest thing to give an outlook for that year, especially with the macroeconomic environment, we would like to grow our new business in the level we mentioned today with cautious, but also with growth ambition with the right level between risk and contribution that is very important for us.

And we would also like to achieve a growth in profit, again, to continue our path we did, but we also know that the overall uncertainties are that high, and that's also why we have to decide to give us a bit wider range of EUR 12 million, not EUR 10 million as it was in the last year. And we are working on that every day, and we will do the best to bring the best result for that year. But again, we are going for profit growth and very important, the long-term goal ahead.

This answers partly already. The next question when it comes to our ROE ambitions. Why does it have to be 2030? Why can't we achieve it earlier?

As I mentioned, it's not a walk in the park. It's a long-term goal. It's 2030. We need to make it step by step. It was a bit of pushback in 2024, to be honest, with a sharp increase of insolvencies. That's also part of the short-term story of us, that's right. But we are there where we are. It was important to improve profit quarter-by-quarter last year, and we would like to continue that way.

But on the other hand, we need to find the right way to grow in several regions. We need to see the overall risk assessment, as I mentioned before. And so we need to make a long-term strategy step-by-step because it's not -- the goal to achieve 1x a 10% return on equity. It's the goal to staying on that level on a sustainable and regular basis to having a double-digit return on equity.

And maybe as a last question since we're already past our time regarding our own treasury shares, what our strategy are in this regard?

Yes. In these times of macroeconomic uncertainties, we do not plan to cancel them right away. So it's always good to have them as -- just as an option, if we would need them, but really a large if because we mentioned quite a few times that we do not plan for a capital increase, but we could use them.

But as I said, what makes it unnecessary to do so currently is the share price, which is not attractive for us. And secondly, we have enough capital on it. So we do not really plan to issue them again to the market, but there is also no plan to cancel them directly right away.

So in the interest of time, again, thank you very much for all your questions. If there are questions that weren't answered today, you're more than welcome to write us an e-mail at [email protected]. We're always happy to answer them.

And as previously communicated, please also note that we will not publish a Q1 new business figures, since we will report this together with the Q1 report on May 13. So please have that in mind. Should you have any questions, as said before, please just write us an e-mail.

And also, please note that our Annual General Meeting, where you can meet us here in the lovely Baden-Baden, where the sun is shining and ask a lots more questions to the Board and the Supervisory Board on April 24. So please join us there. And this concludes our today's call. Thank you very much for your attention. We wish you a pleasant day, a pleasant week, and talk to you soon. Bye-bye.

Thank you. Bye-bye.

Good morning, ladies and gentlemen, from Baden-Baden, and welcome to our earnings call regarding our quarterly statement for Q3 and the first 9 months of 2025. My name is Franziska Randt. I'm Head of the IR Department. And today here with me is, again, as just before for Q1, our CFO, Dr. Martin Paal. We will start with the presentations. And afterwards, we will enter into our Q&A session. So with having said that, I would now hand the floor over to our CFO, Dr. Martin Paal. Martin, please go ahead.

Yes. Thank you, Franziska. And ladies and gentlemen, a very warm welcome to our earnings presentation for the third quarter and the first 9 months of 2025 from my side. Today, I'd like to start my presentation with an update on the 3 strategic levers, operating income, cost and risk. On the operating income side, we saw our new business improving steadily in the first 9 months. Our leasing new business volume grew by over EUR 200 million or 9.3% to EUR 2.4 billion. At the same time, our CM2 margin, which measures the profitability of our new business, also came in stronger at 17.1%. And with both factors continuously improving, we are laying the foundation for our future earnings growth.

On the cost side, we achieved a solid improvement across the year through consequent cost discipline and efficiency measures. With a cost/income ratio of now 55.4%, we are not only 2 percentage points below last year, but also well within our target of below 60% for the whole year 2025. The risk side, however, remains challenging. We see continued elevated losses in our portfolio, reflecting the currently difficult macroeconomic environment. With a loss rate of roughly 1.8% in the first 3 quarters, we are above our predictions. But our figures indicate that we have left the peak of losses behind us, and we continue to strengthen and grow our operating income. Accordingly, we achieved the compensation of the higher loss rate in Q3 and with group earnings at EUR 48.6 million, we are right on track for our annual targets.

Let's now take a brief look at our top line figures with our new leasing business performance on a quarterly basis. As you can see, we continue on a clear growth path. In the third quarter of 2025, which is traditionally the weakest quarter in our business year, our leasing new business reached EUR 781 million after EUR 739 million in 2024. And at the same time, our CM2 margin normalized to 16.6% after 3 very strong quarters. In sum, this puts us well on track for our annual targets of EUR 3.2 billion to EUR 3.4 billion in leasing new business at a CM2 margin of above 16.5%.

Looking at the bottom line on a quarterly level, the trend reversal in our earnings development becomes clearly visible. After 4 quarters of earnings below EUR 20 million, we have, as projected, returned to our earnings growth path. While losses remain elevated, our strong earnings performance was driven by the solid operating income from our portfolio as well as our effective focus on cost discipline and efficiency measures, which resulted in a significantly improved cost/income ratio.

Looking forward, we expect our group earnings to continue on this track in the fourth quarter. Regarding our annual earnings guidance, we are confident to reach the projected corridor of EUR 71 million to EUR 81 million. A mere repetition of our Q3 result in the last quarter would take us past the threshold. Should our loss rate, however, remain elevated at the current level of 1.8%, we expect group earnings at the lower end of our annual guidance for the full financial year 2025. As I just touched upon, the still elevated losses in our portfolio, I would like to cast some light on how we are dealing with this situation.

Since we experienced the first higher losses in Q3 last year, which resulted in increased settlement of claims and risk provisions since we have implemented measures to compensate for this trend and improve our profitability, both on our cost side as well as our risk side. The effects of these measures are shown in the widening gap between the 2 bars, driven by the strong development of our operating income, coupled with our focus on cost discipline, our operating result before settlement of claims and risk provisions increased by EUR 7.2 million to EUR 78.7 million compared to the previous quarter.

And during the same period, our settlement of claims and risk provisions increased only by EUR 4.4 million to EUR 51.5 million in the third quarter, thus being overcompensated by our higher operating result. We will continue our measures for higher profitability and expect a further strengthening of our profitability in the upcoming quarters. Now I would like to turn to our income statement in more detail. In the first 3 quarters of 2025, we saw a continuous improvement of our operating efficiency. While income from operating business increased by EUR 68.1 million, driven equally by growth in net interest income and profits from new and service business, our operating expenses only rose by EUR 25.9 million. This solid overcompensation translates into our improved cost/income ratio of 55.4%.

Taking this together, our operating result before settlement of claims and risk provisions grew strongly by roughly 20% to EUR 217.2 million. And this positive trend stood in contrast to the continuously elevated settlement of claims risk provisions, which reached EUR 146.3 million. Consequently, our operating result came in at EUR 67 million, while our group earnings for the first 3 months reached EUR 48.6 million. With this result, we are, as I said, well on track for our annual target of EUR 71 million to EUR 81 million.

I would now like to draw your attention to our cash flow statement. We started the year with a strong cash position of EUR 973 million. And throughout the first 3 quarters of 2025, we saw an increase of over 9% in payments from our lessees to EUR 2.1 billion. Repayments of refinancing of EUR 2.9 billion stood against EUR 3.1 billion in new refinancing, while our deposit business remained widely stable. Resulting from EUR 2.4 billion of investments into new lease receivables, our cash position on the 30th of September this year normalized, reaching EUR 775 million. This continued strong cash position, combined with our diversified funding mix, provides us with a solid foundation to finance our future new business growth.

Now before we come to our guidance for 2025, I would like to also share some insights on the just mentioned funding mix. As you are aware, we continue to rely on our well-diversified, well-established 4 debt pillars to finance our new business. Senior unsecured with EUR 3.1 billion made up 36% of our funding mix. Our newest addition to this pillar is our fifth benchmark bond of EUR 500 million at a favorable coupon of 3.875%, which we launched in September. Further, we successfully placed our first Australian dollar bond of AUD 125 million also in the third quarter this year, which underlines our continuous growth ambitions in our future core markets.

The deposit business of Grenke Bank remains an integral part of our refinancing mix, accounting for EUR 2.2 billion or 25% and our asset-backed pillar, including especially ABCPs and global loans made up 14% or EUR 1.2 billion. And last but not least, external funding, such as through our cooperation with Intesa in Italy, for example, accounted for around EUR 650 million or 8% of our whole funding mix.

Yes, ladies and gentlemen, our outlook for 2025 remains unchanged. In a continuous challenging macro environment, which is shaped by economic uncertainty for many of our customers, we have successfully maintained our strategic course. With a strong new leasing business at a solid CM2 margin, we are laying the foundation for our future profitability and are well on track to meet our annual target of EUR 3.2 billion to EUR 3.4 billion in leasing new business. Given the still elevated loss levels, we are satisfied that our measures are effective.

By growing our operating income while implementing stringent cost discipline and efficiency measures, we keep improving our operating leverage and have compensated for the higher loss levels. And this is reflected in our current cost/income ratio, which is well below our annual target of below 60%. Now should the full year 2025 loss rate remain just under 1.8% as it has so far for this year, we expect group earnings to come in at the lower end of our annual guidance of EUR 71 million to EUR 81 million. Lastly, before entering into our Q&A session, I would like to inform you of a change in our reporting. In the future, we will align our communications more closely with our strategic focus on profitability and enhance efficiency in our reporting.

Therefore, starting with our 2026 financial year, we will publish our new business figures for the respective quarter within the scope of our regular reporting publications and no longer publish quarterly new business figures separately. Yet, we will publish our new business figures for the full year 2025 on January 7 of '26. You can find all our publishing dates in our Q3 report or on our website alike. And with that, I would like to thank you for your attention and look forward to your questions.

Thank you very much, Martin, for your remarks and your presentation. Ladies and gentlemen, we will now enter into our Q&A session. [Operator Instructions] So with having said that, I would now like [ Mr. Fender ] to go ahead. We will unmute your audio line. Please do not forget to unmute as well. [ Mr. Fender ], please go ahead.

Some questions from my side, please. First of all, net interest income, it's hovering around EUR 100 million for the last 3 quarters. I would have expected a little bit better or faster development upwards. So are there some points behind this you could highlight? Second question, could you give us an update on the digitalization initiatives and the efficiency gains you are planning to get out of this next year? And maybe you could also indicate headcount growth and staff cost growth for next year, just to see if this allows for operational leverage going forward?

Yes. Thank you, [ Mr. Fender ]. Happy to answer your questions. Let me start with your first one right away. The Q3 of this year was actually the first quarter where we fully had in our P&L the whole business of the Intesa part of the Rent ForYou business, which we assumed at the end of the second quarter. And with the Intesa business, we also assumed, as I showed in our funding mix, a couple of loans, and these are shown in the interest expense, which weighs a little bit on net interest income with a low single-digit million effect. However, the income side from this portfolio because it's an operating lease portfolio is shown in a different line from a P&L perspective, which is shown in the service business. So you have to take this in account when evaluating the evolution of our net interest income.

Your second question on the digitalization program, yes, we are making very good progress there. We have already implemented some measures regarding everything that is around regulatory requirements on borrower unit checks, which are now easier to do not only -- no longer manually, but really automatically, which helps our sales guys in saving time to concentrate on settling new contracts and to make new business. And also from a cost perspective on our digitalization program, we are in plan there, spending around these roughly up to EUR 10 million for the first 3 quarters, where we expect a little bit more than EUR 10 million, maybe up to EUR 12 million, EUR 15 million for the whole year.

So there, we are both on a good way, not only from a cost spending side, but also from the implementation side, also which when it comes to our transition to cloud services to the migration more from hardware-related IT systems into the cloud, which is integral part of our digitalization program. And your last question on the headcount and staff costs, well, we have not out any plans for next years out there. The guidance will be published, as you know, at the beginning of next year. What I can say is that roughly 60% of our costs are related to FTEs, our staff costs. If you take all costs in the P&L into consideration, it might be even more. So you can imagine that we really need to be careful when it comes to FTE increases. What we can say is that we expect FTEs and staff costs to increase at a lower pace than 10%, so at a really single-digit cost growth only there.

So [ Mr. Fender ], do you have follow-up questions? Your line is still open.

Maybe just one follow-up. Obviously, this quarter was helped by disposal gains again. How sustainable is this? I think you guided that the expected value is rather close to 0. Nevertheless, the last quarters were quite supportive. And maybe you could just again shed a light on what's going on there and what you expect maybe for next year?

Yes, the result from disposal gains is a lasting effect still from the lower new business portfolios around the corona pandemic of 2020 and 2021, where relatively less objects coming back because relatively less contracts were settled, which have come to an end now 4 years later with our average maturity. And on the other side, relatively more contracts are still in subsequent lease and contributing also to this result of disposals, which would be otherwise if they would be still in a normal leasing contract shown in the interest income, but it is currently higher than in a normalized world, I would say. And we expect these -- what we have seen as a fading in effect, I would call it, over the last 4 to 5 quarters, we expect this as a fading out over the next quarters as well. We do not expect this high level of disposal gains for the next quarters.

Okay. We will move on with the next question coming from Mr. Lukesch from Kepler Cheuvreux.

Also 3 questions on my side, please. Firstly, touching on the consolidation effect of Intesa you just mentioned. Could you maybe run us quickly through the P&L lines, which are really affected here and give us the impact just from Intesa? Secondly, on the risk provisioning, which was clearly at a higher level, you guided that this might be higher than we would only reach the lower end of the earnings guidance or pretax profit guidance for the year. Could you maybe elaborate a bit more on the economic environment? You mentioned the macro. What changed?

Why is the amount up probably on also larger business because impairments were a little bit down on the quarter. But how do you expect that to continue combined with the macro effect? And thirdly, on the cash balances, you run us through the cash flow. Where do you see the minimum threshold for cash balances since you reduced cash by EUR 200 million this quarter? And together with that, where do you see then the equity ratio? I think you have the target of around 16% still for the year. So would that imply an additional reduction of cash?

Yes. Thank you, Mr. Lukesch. And also starting with your first question, I just mentioned the Intesa effect shows up, firstly, in our interest expense, which weighs on net interest income, as just explained. The second one is then with the other way around with a positive sign in our service business, namely the income from the operate lease of the running out portfolio of Intesa, which we still have on our book which were around EUR 200 million running out smoothly over the next years. And the new business, that's also important to mention, new business coming from Intesa is already treated in our Grenke , namely as finance lease receivables under IFRS. Also, we have effects from -- on the cost side, from the consolidation of the Rent ForYou company, especially staff costs and other costs. So these are the 3 main line items from a P&L perspective. And also, you might have seen that from a balance sheet perspective, there are minority stakes that is also affected or reflects the transaction with Intesa, where Intesa holds 17% of our Italian subsidiary.

Could you maybe quantify the amount on the interest expense and also on the service business? As I understand, I mean, on the service business, it's -- going forward, we will see a kind of normalization of that line, right? That was a onetime effect or which -- or will it phase out? Is it a onetime or which will disappear next quarter? Or is it a phase out over the next quarters?

On the interest expense side, this will remain, so to speak, because this is part of our whole funding and all of the funding is reflected in our interest expense. However, the effect on the operating lease income, which is part of the service business, this will fade out over the next quarters and years. And on the cost side, these effects will remain because they are now integral part of our Italian subsidiary. On the risk provisioning side, yes, we have this elevated -- still elevated level of risk provisions on that end. However, we have first signs that the losses, the termination of contracts has reached its peak, and we are seeing some positive signs there that it will no longer increase, which is a positive one.

You have already also mentioned that the impairments have come down a little bit. That's right. In the third quarter, the increase in Stage 3 loans has increased to a much smaller extent as in the quarters before. That is also a positive sign. However, which also weighs still on our risk provisioning is that within the Stage 3, these loans, whether they will recover or not, could have also continuing also fading out effect on the risk provisioning. But overall, we expect this risk provisioning level to be stable. And currently, we have this loss rate of 1.8% for the whole year. But if we would add another digit to that number, it would be 1.7% high. So we are also near to 1.7%. That could be possible, but rounding-wise, it has to be shown as a 1.8%.

On the cash balances, Yes, we have now EUR 700 million on our balance sheet. It's also some date effects, if you wish, because if there is a new benchmark bond just in that quarter or just 1 day after the end of the quarter, the cash balances are fluctuating. We feel very comfortable with this EUR 775 million currently. Maybe EUR 900 million is a little bit too much. However, we have a growing business, though there always needs to be some EUR 100 million of cash balances at least. Also, we have some regulatory requirements for which we have to hold cash on our balance and a rough number between EUR 500 million to EUR 1 billion would be a good ballpark.

However, EUR 775 million is a good one currently. Also, it shows that we have a better deployment of our cash, if you wish, into the new lease contracts, shifting from cash to lease receivables to higher earning assets on our balance sheet contributing to the P&L. And lastly, coming to your last question on the equity ratio, that strengthened our balance sheet and with that also strengthened our equity ratio, which is currently at 16%. I wouldn't say that we have a target equity ratio of 16%. Balance sheet equity ratio, it's more orientation figure for us. If it would be below 16%, which could be expected because our fourth quarter is traditionally the strongest one in terms of new business. So we expect the equity ratio to come a little bit below 16%, but that's nothing where we have to matter about because we are always looking at our regulatory requirements where we have enough headroom and take this balance sheet equity ratio more from an orientation perspective.

So Mr. Lukesch, your line is still open. Do you have follow-up questions?

Yes. Last one, if I may. I mean, on the Intesa, it would be great if you could quantify a bit so that makes the modeling a bit easier going forward. And then secondly, on the loss rate. So I -- in my notes from the last quarter, I noted down that you expected 1.6% as a loss rate, and that was quite decisive to reach the target. So now you're reaffirming targets saying, yes, it goes to the lower end if we do see the 1.7% to 1.8% loss rate. So just to understand what is then underlying fundamentally better in the business compared to last quarter, which still gives you the support for the guidance.

Yes. Your first one on Intesa, we have a single-digit one on the interest expense side. We have with a negative sign, a positive one on the operate lease portfolio on the operating lease income in the service business which is also single digit with a positive sign, as I said, and more low roughly EUR 1 million, not more on the cost side relating to staff costs and so on from the consolidation of Rent ForYou into the Italian Grenke business. And the second one on the loss rate, yes, we are currently at 1.7%, 1.8% or expecting that towards the end of the year, which would bring us to the lower end of our guidance towards EUR 71 million. What is better compared to the last quarters is that our efficiency measures, especially on the cost side, are working.

They are becoming effective now, which drives especially our cost/income ratio to already 55% point something, which is honestly our mid -- or which was our midterm target, and we have reached it right now in that quarter, whether this is lasting is another question, but especially we have this 55%, expecting to below -- significantly below 60% towards the end of the year. And this operating leverage, combined with a strong income side coming from our new business coming from our portfolio, which we have on our balance sheet, that taking all together makes us confident to also for the full year overcompensating a little bit higher loss rate, even if it's 1.7% or 1.8% to really come into this corridor of our earnings guidance.

We're moving on now to our Q&A through our chat function, where Mr. Hässler from DZ Bank handed in some questions. First, on the risk development, if there are some particularities region-wise. So is there a risk cost, especially in our core markets, Germany, Italy, France, U.K., below or above the 1.9% risk cost? This is the first question. The second one is that the -- our cost-income ratio in Q3 is very low. If there are any one-offs included in that development? And the third one is about the overall economic development, which -- about Germany and the outlook here. There are some optimistic comments as Mr. Hässler mentioned, if we see this development as well in our numbers.

Yes. Thank you, Mr. Hässler, for the first question on the risk cost development, compared, for example, to last year, where we had this effect, especially in the largest markets in France, in Germany and in Spain, we can say or what we see is that we have still elevated level of losses on risk provisions all over our portfolio. There's no special region or country that is hidden more or less in a significant way by risk provisions or risk costs. So it's an overall effect that hits the whole portfolio, first of all.

The second on your cost/income ratio, there are some smaller one-offs, if you wish, but they had been planned, especially when it comes to a deconsolidation effect of our factoring business from Poland, which was planned for because we were going into this transaction and anticipated that we would deconsolidate the Polish entity. However, we expect also these effects for the next entities that are going to follow, namely U.K. and Ireland in the fourth quarter and some provisions that were released because they were no longer necessary. If you wish, these were one-off effects.

Overall, from a macroeconomic perspective, the overall situation in Germany, especially from, for example, new business side is very positive. We mentioned that also in our new business calls and new business figures that especially the larger countries like France and especially Germany, which drives the DACH region is -- has a strong development in new business, and that gives us confidence for the next years because this shows then up this new business in our P&L for the next years. However, from a risk perspective, as I said, there is still this elevated level of losses, but not only in Germany, also in the rest of the world, so to speak.

Ladies and gentlemen, there are no further questions for the moment. So I once again kindly invite you to use our Q&A function in the chat or raise your hand and there it goes, [ Mr. Fender ], you have a follow-up question.

Just a very theoretical question. You pointed to this CM2 margin normalization, what's going on? Looking at, let's say, challenging macroeconomic environment and high volatility in the loss rate, wouldn't you need to price for a higher CM2 margin just to be on the safe side or to reflect this in the overall cushion?

Yes, the CM2 margin normalization comes from the interest income side -- comes from the interest side, sorry, from the interest rate side, meaning that we have seen interest rate decreases over the last months and our competitive landscape, and we, at the end, had to come down a little bit with our conditions. That's just a question of conditioning on the rates that the lessees have to pay on the funding side that brought the CM2 margin to a more normal level. As I said, the CM2 margins of above 17% for the last quarters were a little bit higher than we normally see. So that's on the CM2 normalization. On the macro side and the volatility, we have already priced in higher expectations of loss levels into the CM2. So meaning that the expected credit loss, which is anticipated to be higher is already part of the CM2 margin, what you see. So when we are talking about the CM2 margin of 16.5% to 17%, there's already factored in a higher expectation of losses.

So if there is no follow-up question from your side, [ Mr. Fender ], I will just wait a second. That doesn't seem to be the case. We have another question from our chat where it says that the staff cost rose less than the headcount despite salary inflation. Has there been any change in bonus accrual? Or what is driving this in Q3? And what is our estimate going forward for Q4?

Yes. One effect is the consolidation of the Rent ForYou, which I just mentioned. The other one, there has been no special bonus. However, we have to take care, given the development of our whole earnings performance and our expectations for the whole year where we have provisioned for staff costs, and this has been done in Q2 also, but -- already, but also in Q3, and that drives a part of the staff costs to be higher as opposed to last year.

Then there is a follow-up question where we should -- we are invited to shed some light on how the timing impacts of lease rate pricing compared to funding cost will develop going forward, given the comments you made, Martin, on becoming more competitive on lease pricing on new business. I don't think you said that, but should we expect the interest element of the CM2 margin to be coming down going forward?

No. What we have seen 1.5, 2 years ago was that we had in a very short time, very steep increases in interest rates. And that meant that we had some delay to move on these higher interest rates into our asset side into our customers' rates from a CM2 margin perspective. But that was a very special time, as I said, 1.5, 2 years ago. Now with these levels, with these time gaps between interest rate decisions by central banks and with these smaller steps, especially in interest rates, we are -- we feel very comfortable. We are very good in pricing them into our asset side, and there is no further delay expected. So we expect a stable CM2, as I said, between 16.5% or above 16.5% for the full year, which is a normal, a good CM2 margin for us.

So thank you for handing in all your questions, whether it be orally or written. I kindly invite you once again to ask your questions at this stage. I will wait just a second here whether we will have further questions. That doesn't seem to be the case. In this case, ladies and gentlemen, thank you for joining us today for our Q3 earnings call. If you have further questions that will spring to your mind later, please don't hesitate to drop us an e-mail at [email protected]. You will hear from us again at the beginning of January on the 7, where we report once again new business figures for the entire fiscal year of 2025, and the annual report will be published on the 12th of March.

If you want to see us personally, you're happy or you're invited for us to meet in Stuttgart with the forum, we're going to hold the presentation here on the IR level. We're going to be at different conferences. We're going to host a roadshow. So you are always invited to meet us personally. With having said that, this concludes our call for today. We wish you a pleasant time going ahead. Take care. Have a lovely Christmas time and talk to you soon. You may disconnect now. Thank you.

Thank you very much.