2007 Change 2006 Unit
Key figures of GRENKE Group including franchise partners
New business of GRENKE Group 509,171 11% 459,996 EURk
- of which: Germany 301,786 2% 296,855 EURk
- of which: International 207,385 27% 163,141 EURk
New business of franchise partners 96,306 75% 55,002 EURk
- of which: Factoring business (Germany) 48,799 117% 22,500 EURk
Key figures of GRENKE Group leasing business excluding factoring
New business GRENKE Group leasing business 460,372 5% 437,459 EURk
Contribution margin 2 of new business 65,120 7% 60,730 EURk
Number of new contracts 60,000 5% 56,955 Units
Share of IT products in the lease portfolio 87 -- 87 %
Share of corporate customers in the lease portfolio 100 1% 99 %
Mean acquisition value 7.7 -5% 8.1 EURk
Mean term of contract 45 -2% 46 Months
Volume of leased assets 1,512 11% 1,365 EURm
Number of current contracts 201,854 9% 185,413 Units
GRENKELEASING AG Group, consolidated figures
Net interest income from leasing business 62,389 1% 61,696 EURk
Expenses from settlement of claims -17,139 13% -15,148 EURk
Profit from insurance business 16,733 10% 15,228 EURk
Profit from new business 20,418 8% 18,875 EURk
Profit from disposals (income exceeding the calculated residual value) 1,892 -41% 3,185 EURk
Result from currency translation difference -76 -- -5 EURk
Other operating income 1,170 33% 879 EURk
Costs of new contracts 12,834 2% 12,564 EURk
Costs of current contracts 4,781 13% 4,236 EURk
Project costs and basic distribution costs 10,723 25% 8,559 EURk
Management costs 10,089 3% 9,837 EURk
Other costs 1,736 20% 1,448 EURk
EBIT (Earnings before interest and taxes) 45,224 -6% 48,066 EURk
Other interest result -393 34% -293 EURk
Income/Expenses from market valuation of financial instruments -16 -136% 44 EURk
EBT (Earnings before taxes) 44,815 -6% 47,817 EURk
Net profit (consolidated net profit pursuant to IFRS) 32,125 5% 30,510 EURk
IFRS earnings per share 2.35 5% 2.23 EUR
Dividend 0.60 9% 0.55 EUR
Embedded value of the lease portfolio (incl. Equity before taxes) 320 10% 291 EURm
Embedded value of the lease portfolio (incl. Equity after taxes) 293 14% 257 EURm
Cost/income ratio 47.3 9% 43.4 %
Return on equity (ROE) after taxes 14 -- 15 %
Average number of employees 411 8% 384 Persons
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SUPERVISORY BOARD REPORT
CORPORATE GOVERNANCE
CORPORATE SOCIAL RESPONSIBILITY
STOCK AND INVESTOR RELATIONS
BUSINESS MODEL AND HISTORY OF GRENKELEASING
GROWTH STRATEGY
FINANCIAL REPORT
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0 2 . 0 Supervisory Board Report 8
0 3 . 0 Corporate Governance 14
0 4 . 0 Corporate Social Responsibility 20
0 5 . 1 The GRENKELEASING Stock in 2007 26
0 5 . 2 Investor Relations 28
0 5 . 3 The Stock at a Glance 29
0 6 . 1 Growth Strategy 32
0 6 . 2 Development of the Industry and the Competitive Environment 33 0 6 . 3 Development of the Domestic Market and the Major Foreign Markets of GRENKELEASING 34
0 7 . 1 History of the Group’s development 40
0 7 . 2 Highlights 2007 42
0 7 . 3 GRENKELEASING Locations in Europe 43
0 7 . 4 Overview of the Group 44
0 7 . 5 The Board of Directors of GRENKELEASING AG 45
0 7 . 6 Business Model 46
0 7 . 7 The GRENKELEASING Franchise System 47
0 7 . 8 Optimal Financing Strategies 49
0 7 . 9 Transparency in Financial Reporting 51
0 7 . 1 0 Positioning on the Refinancing Market 54
Glossary 56
0 8 . 1 Group Management Report for Fiscal Year 2007 62
0 8 . 2 Consolidated Financial Statements for Fiscal Year 2007 86 0 8 . 3 Notes to the Financial Statements for Fiscal Year 2007 93
LETTER TO SHAREHOLDERS
SUPERVISORY BOARD REPORT CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY STOCK AND INVESTOR RELATIONS GROWTH STRATEGY BUSINESS MODEL AND HISTORY OF GRENKELEASING GLOSSARY
Dear Shareholders,
Ladies and Gentlemen,
We are pleased to report on another successful year for the GRENKE Group in this Annual Report.
On our way to becoming the European leader in small-ticket IT leasing, we have made great progress
and have been able to highlight the success of our strategy once again.
Europe was the focus of our developments for 2007 and at the beginning of 2008. With the
formation of four new franchise companies, our geographic expansion has been more rapid than
ever in the history of our company.
We also took over franchise partners in the UK and in Poland, thus completing a full development
cycle in our franchise system for the first time – from the formation of a company through a partner,
to its development by the partner, to our takeover of the company. This document highlights the
success of this system when it comes to tap quickly into new markets for GRENKELEASING. In both
countries, the annual volume of new business under the GRENKELEASING brand has already
exceeded EUR 10m.
We have also reached the cell division stage in Italy, founded an additional location, and added
another sales location in France, our most important foreign market, where we now have eight
offices across the country.
We are present in 19 European countries. Additional areas for expansion in the EU include Finland,
the Baltics, and selected countries in southeastern Europe. In the next few years, we want to use
the momentum that the GRENKELEASING brand has gained in Europe primarily to solidify our
presence here.
The high growth rates send a clear message: We have completed the start-up phase related to
market entry in an increasing number of countries and are now beginning to profit from our
growing recognition. This is how we have been able to increase new foreign business in fiscal year
2007 for the GRENKE Group, including franchises, by 27.1 percent to EUR 207.4m and experience
significant growth in both our new markets as well as our well-established foreign markets, such
as France.
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We have also been successful in our domestic market in Germany: We launched new products at the
right time to supplement our traditional leasing business. Thus, our factoring portfolio grew
considerably while lease financing was burdened in the first half of 2007 by uncertainties regarding
the German corporate tax reform, and then only saw subdued development in volume in the second
half of the year.
As the uncontested market leader in small-ticket IT leasing, we are developing with the market – a
larger market share would only be possible at the expense of profitability, which is not our strategy.
Overall, however, we were able to increase new business in Germany for the GRENKE Group,
including franchise partners, by 1.7 percent to EUR 301.8m in the fiscal year.
Our clear focus on earnings is obvious in the above-average increase of the contribution margin 2
(DB2) – which is the key performance indicator for our business: With an increase in new business
for the GRENKE Group’s leasing division, including franchise partners, of 5.2 percent to EUR
460.4m, we further expanded the contribution margin 2 of the leasing business by 7.2 percent to
EUR 65.1m. The earnings power of the GRENKE Group also increased.
Accordingly, the embedded value of our contract portfolio on a pre-tax basis increased considerably
by 10 percent to EUR 320m and, including the positive effects resulting from the corporate tax
reform in Germany, by 14 percent to EUR 293m.
The foreign expansion of the GRENKE Group required investments in personnel and office space.
Furthermore, the new countries must be integrated into our central IT infrastructure. This will
temporarily burden our earnings before taxes, which amounted to EUR 44.8m for the Group in the
fiscal year after totaling EUR 47.8m in the prior year. The result therefore stayed within our budgets
and, accordingly, we reached our original goal of net income of EUR 30.5m before one-off tax
effects. If the tax effects are included, net income increases to EUR 32.1m.
Thus, we also had a very high return on equity after tax of 14.2 percent in fiscal year 2007, based on
an equity ratio of 17.9 percent, which exceeded our target equity ratio of 16.0 percent.
positive overall development and the convincing prospects for growth for GRENKELEASING will in
the future be better reflected in the value of the stock.
We thank you for your trust in us and invite you to join us in experiencing the future success of
GRENKELEASING in Europe.
Wolfgang Grenke
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SUPERVISORY BOARD REPORT
Prof. Dr. Ernst-Moritz Lipp
Chairman of the Supervisory Board
During the fiscal year, the Supervisory Board performed its tasks in accordance with the law and the articles of incorporation of GRENKELEASING AG. It worked with the Board of Directors on an ongoing basis, providing it with regular advice, and monitored the management of the Company’s business. The strategic focus of the Group was pursued in close cooperation between the Board of Directors and the Supervisory Board.
Based on reports from the Board of Directors and minutes from its meetings, the Supervisory Board was provided with detailed and comprehensive information on the financial situation, strategic development, status of business planning, current events and the personnel situation. The Supervisory Board was directly involved in all fundamental decisions relating to the Company.
It also received regular information on the Group’s risk situation and on its risk management and its further development. Additional agenda items at the
meetings of the Supervisory Board included the approval of the financial statements and the consolidated financial statements as of December 31, 2006, the presentation of new methods for sales management, the situation and development of foreign sales, the acquisition and performance of the franchisees Grenke Leasing Ltd., Guildford, UK, and GRENKE LEASING Sp. z o.o., Poznan, Poland, as well as the German Corporate Governance Code, as amended, and the declaration of compliance with the version dated June 12, 2006.
Where required by law and the articles of incorporation, the Supervisory Board voted on the reports and proposals for resolutions made by the Board of Directors following careful examination and consultation.
In accordance with the articles of incorporation, the Supervisory Board of GRENKELEASING AG has six members. The members of the Supervisory Board in fiscal year 2007 were:
Prof. Dr. Ernst-Moritz Lipp, Chairman Mr. Gerhard E. Witt, Deputy Chairman Mr. Dieter Münch
Dr. Oliver Nass Mr. Erwin Staudt Dr. Brigitte Sträter
All members of the Supervisory Board have voluntarily agreed to observe the corporate governance principles effective in the fiscal year.
In accordance with its rules of procedure and for the efficient discharge of its duties, the Supervisory Board has established two committees, the audit committee and the personnel committee (presidium committee). At the meetings of the Supervisory Board plenary session, the chairmen of the committees reported extensively on the work of the committees.
The audit committee has three members with specialist accounting knowledge. It deals primarily with external and internal accounting issues, the Company’s risk management, auditor independence, the audit priorities, and the fee arrangements with the auditor.
The audit committee also prepares the Supervisory Board’s resolution on the approval of the financial statements and the consolidated financial statements. The audit committee met three times during fiscal year 2007.
The personnel committee has three members. It deals with the Supervisory Board’s personnel decisions and is responsible for concluding, amending and
terminating the contracts of employment with the members of the Board of Directors.
The personnel committee met twice during fiscal year 2007. It discussed the appointment of Dr. Uwe Hack as Deputy Chairman of the Board of Directors and recommended his appointment to the Supervisory Board. At its meeting on April 30, 2007, the Supervisory Board appointed Dr. Hack as Deputy Chairman of the Board of Directors, replacing Mr. Konprecht.
The Supervisory Board met a total of four times in fiscal year 2007. All members of the Supervisory Board attended almost every meeting. Between its regular meetings, the Board of Directors provided the Supervisory Board with detailed information about significant events.
As the Chairman of the Supervisory Board, I was personally in regular contact with the Chairman of the Board of Directors and the Deputy Chairman of the Board of Directors in addition to regular appointments and was kept informed of the major transactions and the current course of business.
The financial statements of GRENKELEASING AG as of December 31, 2007 prepared by the Board of Directors, the management report for the Company for fiscal year 2007, the consolidated financial statements as of December 31, 2007 and the group management report for fiscal year 2007 were submitted to the Supervisory Board for review at its meeting on January 28, 2008. The proposal on the appropriation of profits of GRENKELEASING AG made by the Board of Directors was submitted to the Supervisory Board.
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The financial statements were audited by the audit firm elected for the fiscal year by the Annual General Meeting on May 8, 2007, Ernst & Young AG, Wirtschaftsprüfungsgesellschaft Steuerberatungsge -sellschaft, Eschborn/Frankfurt am Main.
The accounting policies used in preparing the separate financial statements of GRENKELEASING AG were in keeping with the provisions of German commercial law. The audit of these financial statements for the year ended December 31, 2007 was conducted pursuant to Sec. 317 HGB [“Handels -gesetzbuch”: German Commercial Code] and in compliance with the generally accepted standards for the audit of financial statements set forth by the Institute of Public Auditors in Germany (IDW). The consolidated financial statements and the group management report for the fiscal year from January 1 to December 31, 2007 were prepared in accordance with Sec. 315a (1) HGB and based on International Financial Reporting Standards (IFRSs) as adopted by the EU. The audit of the consolidated financial statements was conducted pursuant to Sec. 317 HGB in compliance with the generally accepted standards for the audit of financial statements set forth by the Institute of Public Auditors in Germany (IDW AuS 200). An unqualified audit opinion was rendered on both the financial statements of GRENKELEASING AG and the consolidated financial statements of the GRENKELEASING AG Group. The aforementioned documents and proposal for the appropriation of profits made by the Board of Directors were distributed to us in due time by the latter. The Supervisory Board reviewed the financial statements presented to it by the Board of Directors and the auditor and discussed the results in its meeting on January 28, 2008.
The responsible auditor attended the audit committee’s meeting to discuss the financial statements and explained the significant findings from the audit. The audit committee satisfied itself of the auditor’s independence.
The Supervisory Board reviewed the financial statements presented to it by the Board of Directors and the auditor and discussed the results in its meeting on January 28, 2008. The auditor attended the meeting and reported on the main audit findings. Having duly conducted its own examination, the Supervisory Board raised no objections to the findings from the audit of the financial statements conducted by the auditor and thus approved and adopted the financial statements of GRENKELEASING AG and the consolidated financial statements of GRENKELEASING AG on January 28, 2008. The Supervisory Board concurs with the proposal for the appropriation of profits made by the Board of Directors.
At the meeting on January 28, 2008, the Supervisory Board also addressed the mandatory disclosures pursuant to Secs. 289 (4) and 315 (4) HGB and the report regarding these disclosures. Reference is made to the relevant explanations in the management report of GRENKELEASING AG and in the group management report. We reviewed these disclosures and explanations, which the Supervisory Board believes to be complete, and adopted them.
In the past fiscal year, the GRENKELEASING AG stock was unable to escape the crisis on the financial markets, despite the fact that our business performed as planned. In fact, the foundations of our business improved both in terms of quality and quantity. In terms of its structure, the leasing business is a growth industry in the European economy.
Based on costs per contract and the cost-income ratio, GRENKELEASING has significant cost advantages on a European scale compared with institutional competitors such as banks. Foreign operations are expanding strongly, some of them at high, double-digit rates. The new business divisions Factoring and Auto Fleet Leasing have also developed positively. We therefore share the disappointment of our shareholders over the performance of our stock. Despite the difficult refinancing conditions, the Company’s refinancing is not at risk and has not become significantly more expensive. Due to our low-risk business model with a wide spread of minor individual risks and a highly professional risk management system which has a long-standing track record, we do not see any reason to change our assessment for the future.
The Supervisory Board would like to thank the members of the Board of Directors and all company employees. The Group’s continued success would not have been possible without their personal commitment in the past year.
Baden-Baden, Germany, January 28, 2008 For the Supervisory Board
Prof. Dr. Ernst-Moritz Lipp Chairman
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CORPORATE GOVERNANCE
The principles of value-oriented and transparent corporate governance are very important for the assessment and rating of listed companies. The Board of Directors, Supervisory Board, and executive employees of GRENKELEASING AG identify with these principles. Responsible corporate governance is a top priority at GRENKELEASING. We consider our commitment to corporate governance to be an important measure to build confidence among our present and future customers, shareholders, lenders, employees, business partners and the general public.
GRENKELEASING AG complies with all of the recommendations of the German Corporate Governance Code as amended in June 2006.
The Board of Directors and the Supervisory Board have addressed compliance with the Code at their meetings and adopted the declaration of compliance with the German Corporate Governance Code reprinted on page 18. This declaration is found on GRENKELEASING AG's website.
Group Management and Monitoring
GRENKELEASING AG has a Board of Directors comprising five members and a Supervisory Board with six members.
Supervisory Board
In fiscal year 2007, the Board of Directors regularly provided the Supervisory Board and its committees with detailed and comprehensive reports on the economic situation, the status of business planning and recent events at the Company. The Supervisory Board coordinated the strategy and discussed issues relating to risk provisions and risk management with the Board of Directors.
The Supervisory Board’s functions include appointing and monitoring the directors, approving the financial statements of GRENKELEASING AG and the Company’s consolidated financial statements with due regard to the auditor’s audit reports and the audit findings by the audit committee (cf. the report by the Supervisory Board on page 10). The Supervisory Board’s rules of procedure stipulate the formation of committees. The Supervisory Board of GRENKELEASING AG has set up two committees.
Audit Committee
The audit committee has three members with specialist accounting and compliance knowledge. It deals primarily with external and internal accounting issues, the Company’s risk management, auditor independence, the audit priorities, and the fee arrangements with the auditor. The audit committee also prepares the Supervisory Board’s resolution on the approval of the financial statements and the consolidated financial statements.
Beginning in fiscal year 2008, an additional responsibility of the Audit Committee within the scope of the tasks of the Supervisory Board according to the German Corporate Governance Code is handling compliance issues. In this regard, the Board of Directors will also report regularly on the compliance situation in the company in addition to its regular reporting obligations.
Personnel Committee (Presidium Committee)
The personnel committee has three members. It deals with the Supervisory Board’s personnel decisions and is responsible for concluding, amending and terminating the contracts of employment with the directors. The personnel committee also performs the duties of the nominating committee.
Board of Directors
The Board of Directors is responsible for managing the Group and determines its strategy and business policy. It is also responsible for the preparation of the quarterly reports, the financial statements of GRENKELEASING AG, and the consolidated financial statements. The Board of Directors informs the Supervisory Board regularly and in detail in its directors’ reports and discussion papers on the Company as a whole, questions of strategy and its implementation, planning, performance, financial position and results of operations, and on business risks.
The Board of Directors’ rules of procedure list a number of transactions that require approval. Major directors' decisions, e.g. on acquisitions and financial measures, are subject to the approval of the Supervisory Board. The Board of Directors and the Supervisory Board are liable to pay damages to the Company in the event of a negligent breach of the duty of care. GRENKELEASING AG has concluded a directors’ and officer’s liability insurance police with a reasonable excess for the Board of Directors and the Supervisory Board.
Compensation Structure and Remuneration
of Directors and Supervisory Board Members
The compensation system for the Board of Directors provides for a fixed basic annual payment and a variable compensation component. Variable compensation is calculated with reference to the Company’s earnings for the current year and criteria which are of relevance for the Company’s long-term success. The individual composition of the remuneration of directors is broken down into fixed and variable components and stated in the management report.
Stock Option Programs
The first employee stock option program (IPO stock option program) was launched in connection with the flotation of the GRENKELEASING AG stock. A second stock option program was launched in 2002. These employee stock option programs are intended to allow members of the Board of Directors and the other employees of the Company and of its affiliated companies to participate directly in the future growth in corporate value.
The stock options exercised by directors and the valid options still held by directors as well as detailed information on our stock option programs are stated in the management report.
Supervisory Board Remuneration
The compensation paid to members of the Supervisory Board is defined in the articles of incorporation and was determined by the Annual General Meeting. In accordance with the articles of incorporation, the members of the Supervisory Board receive a fixed annual compensation of EUR 6,000, the Chairman receives EUR 9,000. On top of this, a variable component is paid if a dividend in excess of EUR 0.20 per share is paid to shareholders.
In this case, the fixed compensation is increased by one quarter of the percentage by which the dividend per share exceeds the amount of EUR 0.20. The variable compensation component may be no more than 50% of a Supervisory Board member’s fixed compensation. Supervisory Board members who sit on a committee receive an additional EUR 600 and the chairman of a committee receives EUR 900 each fiscal year. The individual composition of the remuneration of members of the Supervisory Board is broken down into fixed and variable components and stated in the management report.
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Accounting, Auditing and Financial Disclosure
The group accounts for the fiscal year from January 1 to December 31, 2007 are prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the EU. In addition, in preparing the consolidated financial statements and the group management report, the Company must observe the provisions of Sec. 315 a (1) HGB [“Handelsgesetzbuch”: German Commercial Code] and has done so. The audit of the consolidated financial statements was conducted pursuant to Sec. 317 HGB in compliance with the generally accepted German principles for the audit of financial statements adopted by the Institute of Public Auditors in Germany (IDW AuS 200).
The audit committee ensures that the auditor is independent and nominates an auditor to be elected by the shareholder meeting. The auditor is elected by the Annual General Meeting in accordance with the relevant legal requirements.
Transparency and Shareholder Information
GRENKELEASING uses the internet to provide detailed and timely information to all shareholders, capital market participants, financial analysts, shareholders’ associations and the media. We publish all ad hoc releases and press releases, annual and quarterly reports, and reports made in accordance with Sec. 15 WpHG [“Wertpapierhandelsgesetz”: German Securities Trading Act] in German and English. Our declarations of compliance with the Corporate Governance Code are published on our website.
Our shareholders can find information about the Group, its management and organizational structure on the internet. The Company’s announcements are published in the electronic version of the Bundesanzeiger [“German Federal Gazette”]. At the Annual General
Meeting, shareholders can watch the Board of Directors’ report and the general discussion on the internet. Company-appointed proxies can be asked to exercise voting rights, also in the shareholder’s absence. The dates on which the regular financial reports are published are listed in the financial calendar. We report in detail on the GRENKE share in the chapter entitled “The GRENKELEASING Stock in 2007” on page 26.
Financial Control and Risk Management
The risk management system at GRENKELEASING AG has the function of systematically identifying, assessing, documenting and disclosing risks. It is designed to enable employees and management to address risks responsibly and make the most of the opportunities that present themselves. The risk management system introduced in 2003 has been continuously expanded and is operated using a risk management tool on the GRENKELEASING Group’s intranet.
The function of the risk management system and the result of measures taken are reviewed by the internal audit department. The internal audit department reports directly to the Board of Directors. Details regarding the risk management system are stated in the management report.
Declaration of Compliance
The Board of Directors and the Supervisory Board of GRENKELEASING AG issued the following declaration of compliance on April 30, 2007:
The Board of Directors and the Supervisory Board of GRENKELEASING AG declare in accordance with Sec. 161 AktG [“Aktiengesetz”: German Stock Corporation Act] in conjunction with Sec. 15 EGAktG [“Einführungsgesetz zum Aktiengesetz”: Introductory Act of the German Stock Corporation Act]:
GRENKELEASING AG complies with all of the recommendations made by the Government Commission on the German Corporate Governance Code in the version dated June 12, 2006.
Baden-Baden, Germany, April 30, 2007 GRENKELEASING AG
The Supervisory Board The Board of Directors
The Supervisory Board
Name Activity Other Supervisory Board/
Advisory Board Functions
Prof. Dr. Ernst-Moritz Lipp Chairman of the Supervisory Board, BOA Holding GmbH, Karlsruhe, Stuten-Age: 57 Professor of international finance see, DE; TFL International GmbH, Weil a. First elected: 2003 General manager of ODEWALD & Rhein, DE; Burkart Verwaltungen GmbH, Elected until the Annual General Meeting 2008 COMPAGNIE Gesellschaft für Betei- Singen, DE; Oystar Holding GmbH, Karls-ligungen mbH, Baden-Baden, DE ruhe, DE; SG technologies GmbH,
Wa-dern, DE; SG Holding GmbH, WaWa-dern, DE Gerhard E. Witt Vice Chairman of the Grenke Investitionen
Age: 63 Supervisory Board, Verwaltungs KGaA, Baden-Baden, DE First elected: 1997 Public auditor and tax advisor,
Elected until the Annual General Meeting 2008 Baden-Baden, DE
Dr. Brigitte Sträter Member of the Supervisory Board,
Age: 68 Owner and manager of
First elected: 2001 the PR agency CENA, Elected until the Annual General Meeting 2010 Dusseldorf, DE
Dieter Münch Member of the Supervisory Board, Grenke Investitionen
Age: 65 Retired bank officer, Verwaltungs KGaA, Baden-Baden, DE, First elected: 2000 Chairman of a foundation, Weisenburger Bau + Grund AG, DE, Elected until the Annual General Meeting 2010 Weinheim, DE Halle/Saale, DE
Dr. Oliver Nass Member of the Supervisory Board,
Age: 40 Commercial general manager
First elected: 2005 of ESG France, Paris, France Elected until the Annual General Meeting 2010
Erwin Staudt Member of the Supervisory Board, PROFI Engineering Systems AG, Age: 60 Economics graduate, President Darmstadt, DE,
First elected: 2005 of the soccer club VfB Stuttgart USU AG, Möglingen, DE,
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GRENKELEASING is conscious of its corporate responsibility and committed both within and outside of the Company to promoting both the professional and cultural development of young people.
Working in a Knowledge Society
Knowledge is everything at our company: Without well-trained and committed employees, our company could not grow or be successful. Because only with their personal commitment, knowledge and ideas which stem from their knowledge, can we maintain and expand the competitiveness of the entire GRENKE Group. Our employees create a basis for additional jobs, quality of life, and purchasing power at each of the Group’s locations. In 2007, 411 employees contributed to the success of the company; in the prior year this figure was 384.
At the same time, at both the national and international levels, there were 25 employees of GRENKELEASING in a training phase for different professions or were in various degree programs at a University of Cooperative Education [Berufsakademie] in Lörrach, Mannheim, and Karlsruhe. This meant that the percentage of employees receiving training through GRENKELEASING was 6 percent.
The GRENKELEASING Academy is currently being set up. An extensive range of training courses, both internal and external, will expand the professional horizon for future challenges.
Chess Sponsoring
Chess is often used in corporate communication as a symbol of strategic thinking and tactical, well thought-out approaches - qualities which also determine the action principles of management. Therefore, one of our main focuses of our social
activities is also on the game of chess. We are pleased to have motivated employees in our company in this way, many of whom have celebrated their successes as chess players at numerous national and international tournaments.
For more than ten years we have supported the Chess Center in Baden-Baden and the Ooser Schach Club.
We have also sponsored the unofficial speed chess world championships, the “Chess Classics”, which have been held every year in Mainz, Germany, since 2005. In France, the subsidiary GRENKE LOCATION SAS sponsors the premier-league chess club “Cercle d'Echecs de Bischwiller”.
The Chess Center in Baden-Baden is a training center and organizer of numerous tournaments for beginners and talented team players. Since 2006 the Chess Center is a recognized federal base of the German Olympic Sport Association [Sportbund].
Today, the Ooser Schach Club is one of the leading chess clubs in Germany. The Ooser Schach Club’s team won the German Chess Cup in 2003 and 2005, the German Championship in 2007, and took fourth place in the European Team Chess Championships in 2007. The women’s team was the German team champion in 2003, 2004, and 2005. In addition to the other numerous sporting successes, we were particularly delighted at four victories in 2007: Winning the second national league German team championships, winning the German Team Chess Cup, winning the title of German Blitz Chess Champion, and Frederick Beck winning the German Youth Championship.
Music Appreciation for Children
GRENKELEASING supports the educational program “Kolumbus: Discover the Classics!”, which introduces
children to classical music. Classes discuss the music from the concerts during their lessons, participate in orchestra rehearsals, and then experience a festive concert in the evening at the Festspielhaus in Baden-Baden as a final highlight. GRENKELEASING subsidizes the tickets to make them more affordable. In the past few years, the number of students who have participated has far exceeded 10,000.
Thanks to greater public relations efforts, interest on the part of students has increased significantly, particularly at the start of the 2007/2008 concert season. 2007 was a very successful year in the short history of the “Kolumbus: Discover the Classics!” program. More than 2,100 students were able to experience classical music at its best at some 50 events. Anne-Sophie Mutter, Thomas Hengelbrock, Julia Fischer, Mischa Maisky, musicians from the Venice Baroque Orchestra, and numerous other artists took time to explain and hold “lessons” on the stage of the Festspielhaus.
Since the beginning of season 2007/2008, groups of students have also been allowed to register for the “Columbus” program without a teacher. They can download information from the internet in preparation for the events. That these materials are beeing used regularly by the students has been confirmed by numerous teachers in a teachers’ meeting.
Almost 60 teachers reported on their overwhelmingly positive experiences with the educational program and related enthusiastic reactions from their students after visiting the Festspielhaus in Baden-Baden. The fact that there was an assignment related to the program at the Festspielhaus in Baden-Baden in the 2007 university entrance examinations (Abitur) proves the
particular value of the educational program.
Medecins Sans Frontieres
In 2007, GRENKELEASING made a five-figure contribution to the Medecins Sans Frontieres aid organization. The donation will benefit various projects in Africa.
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On balance, the GRENKELEASING AG stock price dropped significantly during fiscal year 2007. The reason for this unsatisfactory development, however, is not so much attributable to our business performance – the published forecasts for the development of business were met – nor were there any signs of a tail-off in future business. On the contrary, there was double-digit growth in the volume of new business. General market forces were mainly responsible for the stock performance, particularly in the second half of 2007.
After its relatively volatile performance, GRENKE -LEASING’s stock price was more or less the same in the middle of the year as it had been at the beginning of the year. The benchmark index SDAX had increased by approx. 20 percent by that point in time. Subsequently, when the financial market crisis became apparent starting in August, the market corrected itself, taking with it not only financial stocks, but also leading to profit-taking in the small-cap sector, which had been preferred up to that point in time.
THE GRENKELEASING STOCK IN 2007
Jan. 07 Feb. 07 Mar. 07 Apr. 07 May 07 Jun. 07 Jul. 07 Aug. 07 Sep. 07 Oct. 07 Nov. 07 Dec. 07 Jan. 08 Feb. 08 200,000 150,000 100,000 50,000 0 Source: Bloomberg
No. of shares traded (XETRA and floor)
130 120 110 100 90 80 70 60 50 – GRENKELEASING AG
– PRIME FINANCIAL SERVICES (Performance Index)
– SDAX Performance Index
While financial stocks were able to rebound significantly by the end of the year, the small-cap correction continued unabated. The GRENKELEASING stock was unable to escape the effects of this correction: While the SDAX was correcting, it developed essentially parallel to the index.
The relative performance of the GRENKELEASING stock compared with SDAX and the Prime Financial Services Index shows that GRENKELEASING is clearly seen as a small-cap stock by the market rather than as a financial stock. Our capital market relations activities underline this perception by showing that the GRENKELEASING stock is a good alternative for investors in the German small-cap market looking for value investment with growth prospects.
Dividend Policy
GRENKELEASING’s dividend policy is focused on continuity, earnings, and securing the equity base for future growth. Thus, as an investment, the GRENKELEASING stock offers investors regular income combined with attractive prospects for growth and a high intrinsic value.
With persistently sound profitability, we have continually increased our equity ratio during the last few years and currently exceed our target of 16 percent: The ratio was 16.81 percent at the end of 2005, 17.09 percent at the end of 2006, and
increased to 17.93 percent by the end of 2007. This ensures a high-quality rating with favorable refinancing costs and allows us to maintain dividends at the upper end of our target rate without restricting growth opportunities in the future. As such, the Board of Directors and Supervisory Board of GRENKELEASING AG will again recommend to the Annual General Meeting on May 6, 2008 that the dividend be increased from EUR 0.55 per share in the prior year to EUR 0.60 per share in fiscal year 2007. A dividend of EUR 0.50 was paid for fiscal year 2005.
Investment Case
In addition to our growth strategy, the market leadership in our core business, the optimized management of risks, and its high intrinsic value based on the return on equity are the key factors for determining the positioning of our stock on the capital market.
In fiscal year 2007, the dynamic development of our foreign activities was again impressive. The international expansion strategy is clearly starting to bear fruit. We have also made good progress in terms of earnings in Germany.
By managing our business in accordance with the contribution margin 2 (DB2), our focus has clearly Source: Bloomberg
Jan. 07 Feb. 07 Mar. 07 Apr. 07 May 07 Jun. 07 Jul. 07 Aug. 07 Sep. 07 Oct. 07 Nov. 07 Dec. 07 Jan. 08 Feb. 08
– SDAX PERFORMANCE - PRICE INDEX – DAX30 PERFORMANCE (XETRA) - PRICE INDEX
0 -10 -20 -30 -40 -50 -60 -70 -80
shifted to the high-margin business areas. Furthermore, important regulatory aspects in Germany have been clarified, allaying fears about future development. Uncertainties regarding the future tax treatment of lease payments have also been eliminated as have most of the uncertainties related to taxes at GRENKELEASING AG itself.
Our clear goal is to generate profits for new business in the medium term. This calls for efficient controls on costs and risk. Our refined risk management strategy allows us to quantify effectively risks so that we can take risks in a controlled manner and manage them actively. This facilitates flexible responses to changes on the market and allows us to command adequate risk premiums.
There was clear confirmation of our adequate risk premiums during the upheaval on the financial markets in the second half of 2007: We were able to pass on our increased financial expenses to the market in full, even realizing a slight increase in net interest income. Furthermore, the high level of diversity of our portfolio plays a large role in the reduction of risk.
One of the major features of our cost and risk management is its function as a market entry barrier to competitors. Together with our sophisticated sales system, we believe that we are well-equipped for future growth.
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The goal of our investor relations work is the open and continuous dialog with our investors, analysts, and media representatives. In fiscal year 2007, the Board of Directors explained the GRENKE Group’s business model and informed the capital market about the Company’s development at a number of road shows and investor conferences in all key financial centers in Europe and the United States. Moreover, we hold regular individual meetings and telephone conferences with market participants and media representatives to discuss our business situation and the industry and company perspectives. This method has allowed us to continue to expand our investor base over the last few years.
For us, the Annual General Meeting is also an important forum for maintaining contact with our shareholders. And the internet, of course, also plays a key role in our financial communication. We stream the Board of Directors presentation live on our website. The latest IR news, press releases and annual and quarterly reports can always be found on the GRENKELEASING homepage.
We also want to be one of the leading companies when it comes to the quality and timeliness of our information for the capital market. As early as the second business day of the following quarter, we publish the current figures on new business as well as its margins and the contribution margin for the previous quarter. The audited consolidated financial
equity ratio ROE after tax
Investor Relations
25 20 15 10 5 0Target ROE - 16% after tax Target equity ratio - 16%
GRENKELEASING
Code GLJ
ISIN DE0005865901
Bloomberg code GLJ_GR
Reuters code GKLG.DE
Market segment Prime Standard
Index SDAX
Designated sponsors HSBC Trinkaus & Burkhardt WestLB
No. of shares 13,684,099
Class No-par value shares
Nominal value per share (rounded) EUR 1.28
Shareholder structure according to Sec. 1.7
of the current Deutsche Börse stock indices guidelines
Free float 59.85%
Mr. and Mrs. Grenke and minor son 40.15%
2007 2006 2005 2004 2003
Closing price* Frankfurt Xetra EUR 22.90 EUR 36.06 EUR 48.30 EUR 34.85 EUR 17.54 Highest variable price EUR 42.00 EUR 63.45 EUR 49.32 EUR 35.60 EUR 20.00 Lowest variable price EUR 19.60 EUR 32.30 EUR 29.70 EUR 16.92 EUR 8.20 Stock market capitalization based on closing price EUR 313m EUR 492m EUR 657m EUR 474m EUR 237.2m Earnings per share EUR 2.35 EUR 2.23 EUR 2.13 EUR 1.74 EUR 1.45 Price earnings ratio (at closing price) 9.8 16.2 22.7 20.0 12.1 * last trading day
Coverage
As in the prior year, nine analysts from renowned banks and analyst companies monitored and assessed GRENKELEASING in fiscal year 2007. The following institutions regularly publish studies on our stock, and their assessments are as follows:
equinet Buy
HSBC Trinkaus & Burkhardt Overweight
Metzler Equities Sell
Sal. Oppenheim Buy
WestLB Buy
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GROWTH STRATEGY
GRENKELEASING is aimed at growth. Our goal is to achieve market leadership in small-ticket IT leasing in Europe.
To multiply our growth, we have a decentralized sales structure with overall more than 13,000 resellers in Europe 5,800 of them abroad. Our intensive personal reseller support and rapid and stable processes distinguish us from the competition, support partners in their own successful business development, and offer an attractive overall package extending well beyond just lease conditions. We have also developed a franchise system which we are also using to move into numerous foreign markets. Since the end of 2003, we have built up an attractive portfolio of franchise activities at various levels of development, which is making a positive contribution to our growth. These companies are steadily growing to a size that makes it attractive for GRENKELEASING to exercise its purchase option. The franchise system is explained in detail beginning on page 47.
Our prime objective is to build up a large network swiftly, which allows cost-effective and efficient access to customers. The number of inquiries is therefore a key performance indicator in our business. In the fiscal year, the GRENKE Group, including its franchise partners, received 118,407 lease inquiries, of which 56,589 were abroad. Of these inquiries, 60,000 generated new lease agreements, with 27,481 abroad. Overall, 5.3 percent more new lease contracts were concluded than in the prior year.
Our focus is on implementing our business model in both mature and new leasing markets. In established markets, we have to provide a tailor-made offer at competitive conditions based on our highly efficient processes and first-class refinancing arrangements. Furthermore, we use speed and service to achieve additional benefits for our resellers and develop innovative types of financing for newly emerging customer demands, which are often not recognized and addressed by established providers at all or only with a significant delay.
In new markets, the growth potential is often higher than in the mature markets. However, the resellers’ need for support and training is also higher and thus more costly. Additionally, the start-up of business often takes longer. Our strong focus on personal support for resellers sets us apart from the competition and enables us to quickly capture a large share of such markets.
The needs and wants of the IT resellers and its customers change continuously. We lead the market when it comes to innovative leasing models. Because of our many years of experience and our focus on efficient, IT-based procedures for processing a large number of financing arrangements, we are in a position to develop new types of contracts quickly and efficiently, map them in a simple and stable process, and bring them onto the market swiftly. This also includes an extensive range of services for our resellers.
Leasing has become a well-established form of financing in the last few years: This is why, according to the current study entitled “Leasing in Deutsch -land 2007” by the German Leasing Association [“Bundesverband Deutscher Leasing-Unternehmen”: BDL] and compared with the same study in 2002, leasing is currently the preferred investment form and is a significantly more attractive external financing option than bank loans.
Fixed, regular, and exact costs and the maintenance of state-of-the-art office equipment are the two most significant motives for leasing. This is particularly true with regard to the financing of IT equipment offered by GRENKELEASING.
In light of the ever more rapid changes in technology over the last few years, particularly in the IT market, companies have been increasingly attracted to the use of leases to reduce risks related to maintaining up-to-date technology. Accordingly, the leasing of IT equipment will also be a future area of growth in the industry.
Over the last few years, this attractive market environment coupled with falling refinancing interest rates has attracted additional providers of lease financing. Furthermore, established providers have been expanding their product portfolios and moving into the small-ticket market.
Following the reversal of the long-standing downward interest rate trend in mid-2005, this development has already slowed. As a result of the sub-prime interest rate crisis in the US in the summer of 2007, we believe that this trend will at least partially be reversed.
As such, the high level of competition at the beginning of 2007 eased significantly in the second half of the year.
Lease providers are now paying more attention to risk and marginal providers in the small-ticket market whose leasing logistics are not as good as GRENKELEASING’s are finding it hard to compensate for their high costs of contract processing. Thus, our clearly focused position in combination with a first-class refinancing base has proven itself once again.
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DEVELOPMENT OF THE DOMESTIC MARKET AND THE
MAJOR FOREIGN MARKETS OF GRENKELEASING
The European leasing market is the largest in the world followed by the US. Today, leasing is available for a wide range of real estate and movable assets and has been following a stable growth trend for several years. For companies and private individuals (particularly relating to vehicles), leasing is one of the most significant financing options.
Leasing as a portion of gross fixed capital formation varies in the individual European countries. The UK (including Ireland), for example, is a very mature leasing market and is therefore the largest leasing market in Europe. By contrast, in Germany, the proportion of investments financed by leases is lower than average, which means that there is still considerable growth potential for the industry, with the sub-segments developing at different rates. In line with the market share of leasing in each country, the share of leased computers or office equipment at procurement volume may be above or below average. For example, based on the most recent data available for 2006 from Leaseurope, in the UK this proportion was 21.5 percent, whereas in Germany it was only 9.5 percent. Thus, we want to benefit from the significant potential for long-term growth in the relevant part of our home market. As the market leader in small-ticket leasing in Germany, we would only be able to boost our market share by narrowing our margins, which is not in line with our corporate strategy. We are therefore primarily keeping our development within the scope of the general market trend and will not be able to avoid short-term fluctuations, such as those in fiscal year 2007.
According to BITKOM, investments in IT and telecommunications products remained subdued in Germany in 2007. This was reflected in the annual average development for new leasing business for office machines and IT according to the German Leasing Association [“Bundesverband Deutscher Leasing unternehmen”]. There was a significant decrease in the fourth quarter of 2007 in particular. By contrast, the strong growth in some of our international markets continued in 2007 and our market shares were significantly expanded. Particularly noteworthy is the speed of development in Italy, where we are currently establishing ourselves in another significant market. We are especially pleased with the continued growth in France, our second largest market.
Shares of European Countries in the Leasing Market
Southern European countries 9% Scandinavian countries 6%
UK and Ireland 19%
Germany 17%
Eastern European countries 11%
Benelux countries, Austria and Switzerland 10%
France 12%
Italy 16%
Source: Leaseurope 2006
* Countries where there are no GRENKELEASING offices. Source: Leaseurope 2006
Percentage of Leased Computers and Office Equipment of Procurement Volume by Country
in %
FI* NL GB SE BE DK FR NO DE GR* AT RU* IT ES PT EE* CH BA* LT* UA* SI* PL RO HU CS* CZ SK BG* LV* 30 25 20 15 10 5 0 26.5% 22.0%21.5% 19.9 % 19.7 % 15.3 % 14.1 % 12.8 % 9.5% 7.2% 6.1% 5.6% 4.1% 4.0% 3.6% 3.3% 3.0% 2.5% 2.6% 1.9% 1.8% 1.5% 1.5% 1.4% 1.2% 1.2% 1.1% 0.6% 0.2%
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In the UK, our franchise partners business also saw a considerable increase in new business and has reached a volume which made it attractive for GRENKELEASING to exercise its purchase option at the beginning of the fiscal year. This development is particulary satisfying as it demonstrates our ability to enter a mature market successfully, and gain market share.
We are even able to grow quickly in a market with a structure that is quite different from our business model: Resellers in the UK are used to closing lease contracts with brokers and not directly with leasing companies. However, our services for resellers are so comprehensive that we can build direct partnerships and thus also position our business model successfully in this type of environment.
Within our smaller countries which are not disclosed separately, Poland continued to develop successfully and has reached the EUR 10m threshold in new business. This means that we are in an excellent position in the largest leasing market of eastern Europe, which has reached a volume of EUR 854bn, more than doubling its volume since 2005. We also took over this franchise company at the beginning of 2008.
New business developed at a lower than proportional rate in Switzerland and Spain in 2007. In Switzerland, we were able to overcome temporary staffing shortages and in Spain, the additional workload for employees resulting from the potential cell division was reduced again through the formation of a franchise company in Madrid. However, as in previous years, government subsidies, which benefit bank financing of IT equipment for small and medium-sized companies, had a burdening effect on our Spanish business.
Shares in New Business of the GRENKE Group incl. Franchise Partners in 2007
FR CH IT E Other GB GRENKE
(Incl. franchise countries** (franchise) Group
Madrid) International*
* Incl. franchise partners
** Belgium, Denmark, Ireland, Netherlands, Austria, Sweden, Czech Republic * Carleasing, Factoring
** Belgium, Denmark, Ireland, Netherlands, Austria, Sweden, Czech Republic, Great Britain, Norway, Romania, Poland, Hungary
Growth Rates Leasing Division 2007 (Compared to 2006) Germany incl. franchise
partners* 59.3%
France 20.2%
Switzerland 3.3%
Other countries incl. franchise partners** 11.6%
Italy 3,3%
Spain incl. franchise partner Madrid 2.4% 200% 40% 0% -40% +222.3% +20.2% +14.2% +27.1% + 38.5% -6.5% +1.7%
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BUSINESS MODEL AND HISTORY OF GRENKELEASING
GLOSSARY
40
HISTORY OF THE GROUP’S DEVELOPMENT
1978
Foundation of GRENKELEASING as a sole proprietorship in Baden-Baden, Germany
1990
First branch/subsidiary opened in Germany
1993
First alliances and cooperations with big-name manufacturers
1994
Introduction of an IT-based scoring procedure
1997
Foundation of GRENKELEASING AG First foreign subsidiaries founded
1998
Foundation of Weblease Leasing GmbH, Europe’s first virtual leasing company (today known as WEBLEASE NETBUSINESS AG)
Launch of the “Asset-Broker” tool, an internet marketing service for used IT equipment
Establishment of a quality management system and first audit according to DIN EN ISO 9001:1994 (now 9001:2000)
2000
IPO of GRENKELEASING AG, listing on the Frankfurt Stock Exchange
2003
GRENKELEASING stock joins the SDAX
First two franchise companies founded in Guildford, UK, and Poznan, Poland Rating by Standard & Poor’s, (short-term A-2, long-term BBB+, outlook stable)
2004
First trainees hired at GRENKELEASING
2005
Foundation of the first franchise companies in Germany to expand the product range to include factoring and car leasing
Establishment of a franchise company in Oslo, Norway Start-up of operations in Brussels, Belgium
2006
Foundation of a franchise company in Budapest, Hungary Successful issue of the first ABS bonds of EUR 250m
Conclusion of a franchise agreement with Kazenmaier FleetService GmbH Relocation of Grenkefinance N.V. in the Netherlands from Venlo to Vianen Recertification in accordance with DIN EN ISO 9001:2000
Standard & Poor’s confirms its rating (see 2003)
2007
02/2007 Cell division Toulouse/France
04/2007 Foundation of a franchise company in Bucharest/Romania 06/2007 Foundation of a franchise company in Madrid/Spain 09/2007 Recertification in accordance with DIN EN ISO 9001:2000 10/2007 Standard & Poor’s confirms its rating (see 2003) 10/2007 Cell division Genoa/Italy
2008
01/2008 Foundation of a franchise company in Bratislava/Slovakia 01/2008 Foundation of a franchise company in Lisbon/Portugal 01/2008 Purchase of the franchise company in UK
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GLOSSARY
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We are currently working on rapidly expanding across Europe and tapping into new markets. Fiscal year 2007 and the beginning of fiscal year 2008 were shaped by this expansion. We will establish our brand in further countries with new franchise companies. A franchise company was founded in Bucharest, Romania, in April 2007 and two new countries were added at the beginning of 2008 with franchises in Bratislava, Slovakia, and Lisbon, Portugal.
This means that today we are not only present across western Europe, but we also have entered the market in a number of new European Union members which were former Eastern Bloc countries. Further areas of expansion include the Baltics, Finland, and selected countries in southeastern Europe. However, this does not totally exhaust GRENKELEASING’s potential. We reached one of our milestones with the acquisition of franchise companies in the UK and Poland at the beginning of 2008. For the first time, a full development cycle of our franchise companies was completed: From formation through a local partner, to the development by the partner and its refinancing by us in subsequent years, to the acquisition by GRENKELEASING, usually after a period of four to six years. This highlights the success of our franchise model for expansion abroad.
We were even able to expand our presence further in the established markets in fiscal year 2007. We opened an additional office in our most significant foreign market, France, making our nationwide network there even more closely woven.
In Italy, currently our fastest growing foreign market, and in Spain, we have initiated the cell division stage with new offices in Genoa (Italy) and Madrid (Spain). In Spain, we found a very good franchise partner in Madrid, which is why we opened a franchise company there. In Barcelona, we continue to be represented by a subsidiary.
Noteworthy is also one of the most important events of the fiscal year, namely the renewed confirmation of our counterparty rating by Standard & Poor's in October 2007. The GRENKELEASING Group's long-term rating is BBB+ with a stable outlook and our short-term rating is A2. Our standing on the capital markets thus remains good and we can continue to use our wide range of refinancing instruments at attractive conditions.
Our rating, which has not changed since 2003, highlights the high level of stability of the GRENKELEASING business model. Traditionally, we attach great importance to the high quality of our business processes. Secure processes not only significantly contribute to the mitigation of risks in our business, they also add to the quality of our service and thus the satisfaction of our resellers and customers.
HIGHLIGHTS 2007
Expansion areas
Countries with GRENKELEASING branches With franchise companies:
* Oslo (NO), Budapest (HU), Bucharest (RO), Madrid (ES), Bratislava (SK), Lisbon (PT) ** FACTORING Baden-Baden (DE), CAR LEASING Bremen, Karlsruhe (DE)
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GLOSSARY
OVERVIEW OF THE GROUP
Head office Baden-Baden (Germany)
Dublin (Ireland) Barcelona (Spain) Vianen (Netherlands) Schiltigheim (France) Baden-Baden (Germany) Baden-Baden (Germany) Baden-Baden (Germany)
Prague (Czech Republic) Herlev (Denmark)
Brussels (Belgium)
GRENKE LEASE Sprl
Vienna (Austria)
GRENKELEASING AG
GRENKE LOCATION SAS
GRENKELEASING s.r.o.
Stockholm (Sweden)
GRENKELEASING AB Grenke Investitionen Verwaltungs KGaA
GLG Grenke-Leasing GmbH WEBLEASE NETBUSINESS AG GRENKE LIMITED GRENKE FINANCE Plc. GRENKELEASING ApS Grenkefinance N.V.
GRENKE ALQUILER S.A.
Berlin, Bremen, Dortmund, Dresden, Dusseldorf, Erfurt, Frankfurt, Ham -burg, Hanover, Cologne, Leipzig, Mag deburg, Mannheim, Memmingen, Mönchengladbach, Munich, Nurem -berg, Rostock, Stuttgart
Locations GRENKELEASING AG Zurich (Schwitzerland) Basel, Lausanne GRENKELEASING AG Standorte Genoa Locations Milan (Italy) GRENKE Locazione S.r.l. GRENKE LEASING S.r.l.
Aix-en-Provence, Lyon, Nantes, Lille, Paris I, Paris II (Intramuros), Toulouse
Locations
Poznan (Poland)
GRENKELEASING Sp. z o.o.
Guildford (UK)
Wolfgang Grenke
Chairman of the Board 56 years old
Strategy, business development, internal audit
Dr. Uwe Hack
Vice-Chairman of the Board 45 years old
Investor relations, treasury, financial control
Mark Kindermann
46 years old
Accounting, quality management, human resources, legal, administration
Thomas Konprecht 48 years old Marketing, sales, management services Michael Kostrewa 39 years old Information technology, e-Business
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GRENKELEASING’s business model is based on the highest level of efficiency of all processes - which is how we are able to offer profitable small-ticket financing. It is based on the ability to assess risks and factor them into the prices for our services – which ensures the future earnings power of our company. It is also based on the principle of diversification, which reduces our risks and multiplies our growth potential. The focus of our small-ticket IT leasing business leads to a wide diversification of our financing portfolio. There are small companies in most industries in Europe and IT equipment is used in all of their offices. We are therefore a potential partner for an almost unlimited number of companies. In fiscal year 2007, the number of current contracts in the GRENKE -LEASING Group, including franchise partners, increased to 201,854 from 185,413 in the prior year. We also have a broad base and act independently of manufacturers with regard to the products we finance. The same applies on the refinancing side, where we became independent from banks at an early stage and created our own entry into the capital market. Today we use a wide variety of refinancing instruments, which reduces our dependency on fluctuations in individual submarkets.
And last but not least, we have a very broad sales base. We sell our products indirectly via resellers in our network of more than 7,200 resellers in Germany and 5,800 partners in other European countries. In addition, we are present at all relevant points of sale through partnerships with reputable manufacturers and distributors and we cover the rapidly growing area of direct sales to end customers via our internet leasing platform www.weblease-europe.com, which also offers lease modules for eCommerce shops. In 2007, we made extensive revisions to this platform including a new design and a variety of new functions.
Lease assets are sold independently via our internet portal, "Asset Broker", in Germany, France, Austria, and Switzerland. Our specialist resellers also benefit from the use of the portal to sell their own demonstration equipment or used goods.
Our broadly diversified business means that we are not subject to any major individual risks. We control all the risks using our sophisticated risk management system which we established early on internally and have consistently updated. The goal is to measure risks precisely so they can be taken on at terms which appropriately cover the respective risk. In risk management, we have a long-standing track record, based on the high level of diversification of our portfolio, which leads to extraordinary stable default rates, that can be well forecast.
We are constantly measuring the high efficiency of our processes and constantly improving them through further standardization. This is how we were able to keep costs low in 2007 despite the increasingly international nature of business. Therefore, costs per current contract of EUR 25 in the fiscal year, compared with EUR 24 in the prior year, were still at a very low level, and costs per new contract remained unchanged at EUR 234. By contrast, the cost-income ratio for the Group increased due to start-up costs, rising from 43.4 percent to 47.3 percent due to our rapid expansion abroad. However, this is within the budget and is mainly a result of the nature of our business, where a majority of the income from a contract does not flow to us when the contract is concluded but only during the contractual term.
We have used our franchise system since 2003 to develop new markets quickly and for the long term. We have customized the system in line with our business model. Our goal is to introduce our business model and the GRENKELEASING brand to a country and make them known as quickly as possible. For this purpose, we rely on individuals with entrepreneurial spirit and a well-established network in the small-ticket IT business in each country.
We give them an opportunity to establish their own company and work for the success of that company. The franchisees receive access to expertise, proven management tools, and back office support from GRENKELEASING and are entitled to use the “GRENKE” and “GRENKELEASING” brand names. We also assume responsibility for the audit and refinancing of lease contracts. This is how we ensure that we are always informed of the exact quality of
the receivables portfolio and that the GRENKE name becomes established on the market.
GRENKELEASING does not hold a stake in these legally independent franchise entities, but after a specific period of usually four to six years, it has the option to buy the company on pre-defined terms. The structure of the purchase option creates incentives for growth as well as high level of quality of the receivables portfolio for the franchise partners.
In fiscal year 2007 and at the beginning of fiscal year 2008, we expanded our franchise network considerably with a total of four new companies and, for the first time, acquired two franchise companies (see also the “Highlights 2007” chapter on page 42). We use the franchise system not only to penetrate new countries but also to develop new products
Franchise partners
Lisbon (Portugal)
GRENKE RENTING S.A.
Bremen (Germany) GRENKEAUTOLEASING GmbH Baden-Baden (Germany) GRENKEFACTORING GmbH Budapest (Hungary) GRENKELEASING Kft./Rt. Karlsruhe (Germany) Kazenmaier FleetService GmbH Madrid (Spain)
GRENKE RENT S.A.
Bratislava (Slovakia)
GC Leasing Slovensko s.r.o.
Bucharest (Romania)
Grenke Leasing S.R.L.
Oslo (Norway)
