GRENKE FINANCE PLC
DIRECTORS REPORT AND FINANCIAL STATEMENTS
for the year ended 31 December 2021
TABLE OF CONTENTSPAGE
COMPANY INFORMATION1
DIRECTORS’ REPORT2
INDEPENDENT AUDITOR'S REPORT12
CONSOLIDATED STATEMENT OF PROFIT OR LOSS23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME24
CONSOLIDATED STATEMENT OF FINANCIAL POSITION25
COMPANY STATEMENT OF FINANCIAL POSITION27
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY29
COMPANY STATEMENT OF CHANGES IN EQUITY30
CONSOLIDATED STATEMENT OF CASH FLOW31
NOTES TO THE FINANCIAL STATEMENTS33
1
COMPANY INFORMATIONSuite 306, Q House, Dublin 18 .
DIRECTORS
Patrick Spain
Stephan Denig
John McQuillan
Angelika Wiedemann
SECRETARY
Patrick Spain
REGISTERED OFFICE
Furze Road,
Sandyford,
REGISTERED NUMBER OF INCORPORATION
375995
SOLICITORS
Gordon Judge and Company,
123 Baggot Street Lower,
Dublin 2.
AUDITORS
Grant Thornton
13-18 City Quay
Dublin 2
D02 ED70
BANKERS
Grenke Bank AG
Neuer Markt 2
76532 Baden-Baden
Germany
GRENKE FINANCE PLC
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DIRECTORS’ REPORTThe Company provides finance to the GRENKE AG Group, GRENKE AG Group Companies and to franchisees of the GRENKE AG Group to enable those companies to carry on leasing and factoring activities . This business is known as the treasury business.
for the year ended 31 December 2021
The Directors present their Directors’ Report for the year ended 31 December 2021.
GRENKE Finance PLC was incorporated in the Republic of Ireland
PRINCIPAL BUSINESS ACTIVITIES
GRENKE Finance PLC is a wholly owned subsidiary of GRENKE AG which is the ultimate parent.
GRENKE AG is a financial services group with its headquarters in Baden Baden, Germany. It is a public company with a listing on the Frankfurt Stock Exchange. The GRENKE AG Group acts as a global financing partner for small and medium sized enterprises. The GRENKE AG Group operates in 33 countries located in Europe, North and South America, Asia and Australia. Further information about the Grenke AG Group can be accessed at www.grenke.de.
The Group and Company carries on its own leasing activities through commission agents, who are GRENKE AG Group companies in various European countries . This business is known as the leasing business.
The Group and Company finances these activities through issuing Bonds on the Luxembourg Stock Exchange, issuing Promissory notes, issuing Commercial paper, obtaining bank loans, selling selected French lease receivables to three asset backed commercial paper programmes and selling selected lease receivables to GRENKE Bank AG.
BUSINESS REVIEW
The Group and Company profit for the financial year is €95,896,648 (2020: €12,409,828). The profit for the year end 31 December 2021 has increased by €83m.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
BUSINESS REVIEW (Continued)
The Group and Company’s key financial and other performance indicators during the year were as follows:
2021
2020
Change
€ 000
€ 000
%
Lease income
119,615
120,183
0%
Expected credit loss allowance on finance
lease receivables
28,260
66,386
-57%
Income from protecting lease equipment
42,763
42,835
0%
Interest income and similar income
47,885
54,702
-12%
Interest expense and other charges
68,749
73,179
-6%
Profit before tax
109,290
14,137
673%
Decrease in amounts due from Grenke AG
Group undertakings and franchisees
536,366
47,672
1025%
Acquisition of new lease equipment
624,121
658,027
-5%
Expected credit loss charge to the statement
of profit or loss on non performing finance
lease receivables as a % of the average NPV
of performing finance lease receivables
2.23%
2.56%
-13%
Expected credit loss allowance at year end on
performing finance lease receivables as a %
of NPV of performing finance lease receivables
at year end
2.08%
2.67%
-22%
Interest and other charges on debt
securities in issue as a % of the average of
of debt securities in issue
1.42%
1.31%
8%
The principal reason for the growth in profit was a credit in the statement of profit or loss of €25.1m for expected credit loss allowance on other financial assets in contrast to last year when there was a charge of €27.7m in the statement of profit or loss for expected credit allowance on other financial assets. The credit in the current year and the charge last year had no impact on the cash position of the Group and Company. Other financial assets are amounts due from Grenke AG Group undertakings and franchisees.
The Group and Company calculate expected credit loss allowances on amounts due from Grenke AG Group Companies and Grenke AG Franchisees by multiplying the Grenke AG Group 1 year risk of default per Bloomberg by the balances outstanding at the year end.
The Accounting policy note 4 (p) explains why the Group and Company uses the Grenke AG 1 year risk of Default per Bloomberg to calculate expected credit loss allowances.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
BUSINESS REVIEW (Continued)
The Grenke AG Group 1 year risk of default decreased from 1.31% at 31 December 2020 to 0.277% at 31 December 2021. In the previous year it increased from 0.052% to 1.31%. The reduction in the risk of default % has resulted in a credit to the statement of profit and loss of €18m in respect of expected credit loss allowances on unsecured amounts due from Grenke
AG Group undertakings and all amounts due from Grenke AG Group franchisees whereas the increase in the risk of default % in the previous year resulted in a charge to profit and loss
statement of €28.6m.
The decrease in the Grenke AG Group 1 year risk of default is due to a reduced level of uncertainty in Europe’s economies at 31 December 2021 because of COVID 19 in contrast to the level of uncertainty there was at 31 December 2020. Also the uncertainties which were caused by a short seller attack on 15 September 2020 on the Group and Company parent Grenke AG have been addressed. These uncertainties were addressed in the Grenke AG 2020 audited annual report and in additional examinations carried out by KPMG, Warth & Klein Grant Thornton and Mazars. The annual report and information on the examinations can be accessed at the investor relations section of the Grenke AG Group website at www.Grenke.de.
The credit on expected credit loss allowances on other financial assets in year end 31 December 2021 was increased by a further €8m due to a reduction in unsecured amounts from Grenke AG Group undertakings of €553m. The expected credit loss allowance at 31 December 2020 in respect of these amounts was released to the statement of profit or loss in 2021 when the relevant amounts due from Grenke AG Group undertakings were repaid in full without any loss. The reduction in unsecured amounts due from Grenke AG Group undertakings is due to the Grenke AG Group undertakings requiring lower levels of finance for their leasing businesses due to the impact of COVID 19 in slowing down Europe’s economies.
The net impairment loss on finance lease receivables fell from €66m in 2020 to €28m in 2021.
There was a credit to the statement of profit or loss of €13m in respect of the expected credit loss allowances on performing finance lease receivables whereas last year there was a charge of €16m to the statement of profit or loss. The expected credit loss allowance on performing finance lease receivables fell from 2.67% at 31 December 2020 of the net present value of performing finance lease receivables to 2.08% at 31 December 2021. This decrease is due to better payment behaviour by lessees in 2021 than was anticipated at 31 December 2020 and also the improved outlook for Europe’s economies due to vaccines helping to limit the impact of COVID 19. The reduction in the expected credit loss allowance % resulted in a credit to the statement of profit or loss of €10.7m. The balance of the credit of €2.7m to the statement of profit or loss in respect of expected credit loss allowances on performing finance lease receivables was due to a fall in the net present value of performing finance lease receivables of €100m due to lower levels of new leasing business because of the impact of COVID 19 on Europe’s economies in 2020 and 2021.
The charge to the statement of profit and loss in respect of expected credit loss allowances on non performing finance lease receivables fell from €49m in 2020 to €41m in 2021 due to a fall in the expected credit loss allowance charge % expressed as a % of the average net present value of performing finance lease receivables falling from 2.59% in 2020 to 2.23% in 2021 and a reduction of €88m in the average net present value of performing finance lease receivables
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
BUSINESS REVIEW (Continued)
in 2021 to €1.8bn. The reduction in the % can be explained by the improving performance of businesses as Europe’s economies began to open up in 2021.
Interest income and similar income has fallen by €6.8m from €54m to €48m. The fall in interest income and similar income is due to the fall in the average amounts due from Grenke AG group undertakings falling from €2.2bn in 2020 to €1.9bn in 2021.
Interest expense and other charges fell from €73m to €68m due to the lower levels of financing required by the Group and Company due to the reduction in new leasing business and amounts lent to Grenke AG Group undertakings.
New leasing business has fallen from €979m in 2019 to €658m in 2020 and €624m in 2021.
Average borrowing has fallen from €4.3bn in 2020 to €3.7bn 2021. Debt securities in issue have fallen from €2.9bn in 2020 to €2.5bn in 2021, amounts owed to Grenke Bank AG have fallen from €872m in 2020 to €796m in 2021 and funding from asset backed commercial paper programmes has fallen from €351m in 2020 to €178m in 2021.
The taxation charge has increased by €12m from €1.7m to €13m due to the increase in profit before tax of €95m from €14m to €109m.
The Group and Company generated cash of €765m in the current year from its operating activities which is an increase of €588m from the previous period due mainly to the repayments received of amounts due from Grenke AG Group undertakings. The cash generated was used to repay financing of €649m (2020: €72m) and to pay an interim dividend of €120m (2020: €90m). It is not proposed to pay a final dividend.
PRINCIPAL RISKS UNCERTAINTIES AND MITIGATIONS
The risk management process at GRENKE Finance PLC has the function of systematically
identifying, assessing, documenting and disclosing risks to the Group and Company. It is designed to enable employees and management to address risks responsibly and make the most
of the opportunities that present themselves.
The principal risks faced by the Group and Company are credit risk, liquidity and refinancing risk, market risk, and contractual risks. Details of the risks and strategies to deal with these risks are included in note 48 of the financial statements.
The function of the risk management process and the result of the measures adopted by the Group’s management to monitor and manage are reviewed by the internal audit department of the GRENKE AG Group. The internal audit department reports directly to the Board of Directors of the Company’s ultimate parent GRENKE AG. All internal audit reports on the Group and Company are provided to the Directors of the Group and Company.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
CORPORATE GOVERNANCE STATEMENT
Introduction
The Company is subject to and complies with the rules and regulations of the Luxembourg Stock Exchange. The Group and Company are not subject to any specific corporate governance code and has not voluntarily decided to apply a particular code.
Internal control and risk management framework
The internal control and risk management system (ICS) contains all principles, procedures and measures introduced to the Company by its management that are geared towards the implementation of management decisions in the organisation and ensures:
•the effectiveness and efficiency of business activities, including the protection of assets and the prevention and detection of losses to assets;
•the correctness and reliability of internal and external accounting; and
•compliance with the legal provisions relevant to the Company.
The Board of Directors bears overall responsibility for the accounting process at the Company. The posting of transactions is recorded and processed by the responsible administrators in accordance with mandatory schedules for generating qualitative and quantitative information. The four-eye principle is applied. The principles, structures, process organisation and accounting methods used by the ICS are documented in writing and updated at regular intervals.
The electronic systems and the necessary IT infrastructure used for the accounting process are regularly reviewed by the Internal Audit department of the GRENKE AG Group for their compliance with safety requirements. The same applies to the further development of the
systems and processes of the Company’s accounting process and ensuring their effectiveness, especially in terms of new products, issues and changes in the legal regulations. The Group and Company also use external consultants if necessary. The employees involved are trained regularly to guarantee the quality of the Company’s accounting.
The Group and Company consider features of the ICS to be significant for accounting processes if they can materially influence the accounting and the overall view presented in the financial statements, including the Directors’ report. This relates to the following elements in particular:
•Identification of significant risk and control areas relevant to the accounting process
•Controls to monitor the accounting process and its results at the levels of the Board of Directors and the Company included in the financial statements
•Preventative control measures in the finance and accounting systems as well as in the operative, performance-oriented Group and Company processes that generate material information for the preparation of the financial statements, including the
Directors’ report, and a separation of functions and pre-defined approval processes in relevant areas
•Measures that safeguard the orderly IT-based processing of accounting issues and data
•The establishment of an internal audit system to monitor accounting-related ICS
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
CORPORATE GOVERNANCE STATEMENT (Continued)
Internal control and risk management framework (Continued)
The risk management procedures established for the accounting processes of the Company ensures the preparation of accurate and reliable information for the public.
Diversity
The Company does not apply a diversity policy because it is a one hundred per cent subsidiary of GRENKE AG. The diversity policy of the GRENKE AG Group is set out in its Corporate Governance Statement, which can be viewed at www.GRENKE.de/GRENKE-group/investor-relations/corporate-governance/management. The Company believes you need to consider
the diversity policy of corporate entities on a group basis. It does not believe it is practical to have separate diversity policies for each of the boards of the forty plus entities in the GRENKE AG Group which are usually made up of two to three people. It is not possible to have a diversity policy when the Company Board of Directors has only four people. The Company is of the opinion that the knowledge, skill and experience required for the respective division or area of responsibility should, in fact, be the decisive factor when selecting suitable candidates for the Company.
FUTURE DEVELOPMENTS
The Directors believe that after two years when the business experienced a decline due to the COVID 19 pandemic the business will return to growth in 2022. The Directors are expecting good growth in its own leasing activities and there is also good growth expected in the GRENKE AG Group leasing activity which will result in growth in the Group and Company treasury business.
The expected growth will result in good growth in the value of its gross assets, gross liabilities and its profit excluding expected credit loss allowance on other financial assets. There was a credit of €26m in 2021 due to a change in expected credit loss allowances made in respect of amounts due to Grenke AG Group undertakings and franchisees due to the Group and Company emerging from the COVID 19 pandemic and a short seller attack. There will not be such a credit adjustment in 2022.
Commentary on the outlook for the GRENKE AG Group is included in the Annual Report of the GRENKE AG Group for the year end 31 December 2021, which will be publicly available on www.GRENKE.de from 17 March 2022.
POLITICAL AND CHARITABLE DONATIONS
The Group and Company made no political and charitable donations (2020: Nil) during the year.
RESEARCH AND DEVELOPMENT
The Group and Company did not incur any expenditure in research and development during the year (2020: Nil).
GRENKE FINANCE PLC
8
DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
BRANCHES
The Group and Company has no branches outside the Republic of Ireland.
DIRECTORS
The Directors of the Company are Patrick Spain (Irish), Angelika Wiedemann (German), Stephan Denig (German) non executive director and John McQuillan (Irish) independent non executive director. No other persons were director of the Company in 2021.
DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES
The Directors and secretary, who held office during the year 31 December 2021, and their
families, had no direct or beneficial interest in the shares, share options, deferred shares,
debentures or loan stock of the Group and Company at any time during the financial years ended 31 December 2020 and 31 December 2021 requiring disclosure in the Directors’ Report pursuant to Section 329 of the Companies Act 2014.
SUBSEQUENT EVENTS
The continuing conflict in Ukraine is causing significant financial market volatility and social dislocation. Although the Group and Company has no exposure to Russian or Ukrainian markets it is not possible to determine the ultimate effect of the crisis on the Company. The Directors continues to monitor the effect on the investments and operations of the Company.
No other events have occurred since the Statement of Financial Position date outside the normal course of the Group and Company’s business.
ACCOUNTING RECORDS
The Directors are responsible for ensuring that adequate accounting records, as outlined in Sections 281-285 of the Companies Act 2014, are kept by the Group and Company. To achieve this, the Directors have employed professionally qualified accounting personnel with appropriate expertise and have provided adequate resources to the finance function who ensure that the requirements of Sections 281-285 of the Companies Act 2014 are complied with. The books and records are maintained at the registered office.
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Directors’ Report and financial statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, they have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and the Company financial statements in accordance with FRS 101 Reduced Disclosure Framework and applicable law.
The Transparency (Directive 2004/109/EC) Regulations 2007 require the Directors to include a fair review of the business as well as the principal risks and uncertainties faced by the Company. The Directors confirm that, to the best of their knowledge, they have complied with these requirements in preparing the financial statements, including preparation of these financial statements in accordance with International Financial Reporting Standards as adopted by the EU and Company financial statements in accordance with Financial Reporting
GRENKE FINANCE PLC
9
DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
DIRECTORS' RESPONSIBILITIES STATEMENT (Continued)
Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with applicable accounting standards, to give a true and fair view of the assets, liabilities and financial position
of the Group and Company as at 31 December 2021 and of the profit of the Group for the year then ended. They also confirm that the Directors’ Report includes a fair review of the development and performance of the business and position of the Group and Company,
together with a description of the principal risks and uncertainties that it faces.
Under Company law the Directors must not approve the Group and Company financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Group and Company and of the Group’s profit or loss for that year. In preparing each of the Group and Company financial statements, the Directors are required to:
•select suitable accounting policies and then apply them consistently;
•make judgments and estimates that are reasonable and prudent;
•state that the Group financial statements have been prepared in accordance with IFRS as adopted by the EU and Company financial statements have been prepared in accordance with FRS 101 Reduced Disclosure Framework; and
•prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Group and Company and which enable them to ensure that the financial statements of the Group and Company are prepared in accordance with the applicable accounting framework and comply with the provisions of the Companies Act 2014. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and and Company and to prevent and detect fraud and other irregularities. The Directors are also responsible for preparing a Directors’ Report that complies with the requirements of the Companies Act 2014.
GOING CONCERN
In order to continue as a going concern for the 12 months following the signing of these financial statements the Group and Company must be able to meet its obligations to repay Debt Securities in issue and bank loans when repayment falls due. There must also be no significant diminution in the lease receivables of the GRENKE AG group because a significant diminution in the GRENKE AG Group’s lease receivables would make it difficult for the Group and Company to recover amounts due from GRENKE AG Group companies and to use such funds collected to service the Group and Company’s debt obligations.
The Directors have made enquiries from its parent GRENKE AG as to the collectability of lease receivables due to the GRENKE AG Group companies and GRENKE AG Group franchisees with loans due to the Group and Company. The Directors of the Group and Company continually review the collectability of the Group and Company lease receivables.
GRENKE FINANCE PLC
10
DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
GOING CONCERN (Continued)
The Directors have carried out a review of the cash flows from the lease receivables and the cash flows from amounts due from Group Companies and Franchisees over the next twelve months together with their immediately liquid assets. The Directors have also looked at their
obligations to repay debt securities in issue and bank loans together with interest due on the Group and Company’s debt obligations. The review of cash flows shows that it is reasonable
for the Directors to conclude that the Group and Company will be able to meet their obligations to repay Debt securities in issue, bank loans and financing costs when they fall due.
The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the next twelve months. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
DIRECTORS’ COMPLIANCE STATEMENT
The Directors, in accordance with Section 225(2) (a) of the Companies Act 2014 (the “Act”), acknowledge that they are responsible for securing the Group and Company’s compliance with its “relevant obligations.” “Relevant obligations”, in the context of the Group and Company, are the Group and Company’s obligations under:
a)the Act, where a breach of the obligations would be a category 1 or category 2 offence;
b)the Act, where a breach of the obligations would be a serious Market Abuse or Prospectus offence under
•Market Abuse (Directive 2003/6/EC) Regulations 2005
•Prospectus (Directive 2003/71/EC) Regulations 2005
•Transparency (Directive 2004/109/EC) Regulations 2007
and
c)tax law.
Pursuant to Section 225 (2) (b) of the Companies Act 2014, the Directors confirm that:
i.a compliance policy statement has been drawn up by the Group and Company in accordance with Section 225 (3) (a) of the Act setting out the Group and Company’s policies (that, in the Directors’ opinion, are appropriate to the Group and Company) respecting compliance by the Group and Company with its relevant obligations;
ii.appropriate arrangements and structures that, in their opinion, are designed to provide reasonable assurance of compliance with in all material respects those relevant obligations, have been put in place; and
iii.a review has been conducted, during the financial year, of the arrangements and structures referred to in paragraph (ii).
RELEVANT AUDIT INFORMATION
The Directors believe that they have taken all steps necessary to make themselves aware of any relevant audit information and have established that the Group and Company’s statutory auditors are aware of that information. In so far as they are aware, there is no relevant audit information of which the Group and Company’s statutory auditors are unaware.
AUDIT COMMITTEE
The Directors of the Company have decided not to establish an audit committee as permitted
GRENKE FINANCE PLC
11
DIRECTORS’ REPORT
for the year ended 31 December 2021 (Continued)
AUDIT COMMITTEE (Continued)
under S167 (b) of the Companies Act 2014 because the Company’s parent, Grenke AG has an established audit committee.
AUDITORS
Grant Thornton were appointed statutory auditor on 16 November 2021 and pursuant to section 383(2) will continue in office.
On behalf of the Directors
Patrick Spain Angelika Wiedemann
Director Director
Date: 16 March 2022.
Independent auditor’s report to the members of Grenke Finance Plc
12
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Grenke Finance Plc (‘the Company’) and its subsidiaries (‘the Group’), contained within the reporting package 635400ILKD2MBMANBG03-2021-12-31-en.zip, which comprise the Consolidated Statement of Profit or Loss, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Company Statement of Financial Position, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity and Consolidated Statement of Cash Flows for the financial year ended 31 December 2021, and the related notes to the financial statements, including the summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements is Irish law, including the Commission Delegated Regulation 2018/815 regarding the single electronic reporting format (ESEF), and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the Company financial statements, Irish Law and accounting standards issued by the Financial Reporting Council including FRS 101 “Reduced Disclosure Framework”(Generally Accepted Accounting Practice in Ireland).
In our opinion:
•the consolidated financial statements give a true and fair view in accordance with IFRS as adopted by the European Union, of the assets, liabilities and financial position of the Group at 31 December 2021 and of the Group’s financial performance and cash flows for the financial year then ended;
•the Company’s statement of financial position gives a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland, of the assets, liabilities and financial position of the Company as at 31 December 2021; and
•the financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as regards the consolidated financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (or ‘ISAs (Ireland)’) and applicable law. Our responsibilities under those standards are further described in the ‘Responsibilities of the auditor for the audit of the financial statements’ section of our report. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Ireland, including the Ethical Standard for Auditors (Ireland) issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances for the entity. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independent auditor’s report to the members of Grenke Finance Plc
13
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and Company’s ability to continue as a going concern basis of accounting included:
•Discussing the use of going concern basis of accounting with management;
•Obtaining and evaluating management’s going concern assessment, including assumptions and the cash flow forecasts for the going concern period which covers a period of at least twelve months from the date of approval of the financial statements, and the process by which it was prepared;
•Considering the appropriateness of the assumptions used in the directors’ going concern assessment in the context of the applicable financial reporting framework and whether these assumptions were consistent with the business activities of the Group and Company;
•Testing the completeness and accuracy of the cash flow forecasts to evaluate whether the information is sufficiently precise and detailed, to support the assessment;
•Reviewing the financial position of the Group and Company for solvency from a funding and liquidity perspective, obtaining an understanding of contractual arrangements and reviewing agreements in relation to related party funding arrangements;
•Making enquiries with management and reviewing board minutes and other available written communication to identify potential contradictory information;
•Reviewing subsequent events that may warrant a significant uncertainty regarding the going concern assumption; and
•Assessing the adequacy of the disclosures with respect to the going concern assertion.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Company’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the financial year and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and the directing of efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and therefore we do not provide a separate opinion on these matters.
Independent auditor’s report to the members of Grenke Finance Plc
14
Key audit matters (continued)
Overall audit strategy
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions, such as Expected Credit Loss (ECL) provisioning, and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was any evidence of potential bias that could result in a risk of material misstatement due to fraud.
Based on our considerations as set out below, our areas of focus included:
•Valuation of finance lease receivables and completeness and accuracy of the related Expected Credit Loss (ECL) provision; and
•Existence of finance lease receivables and occurrence and accuracy of related lease income and expenditure.
How we tailored the audit scope
The Group and Company provides finance to GRENKE AG Group (‘the ultimate parent’), GRENKE AG Group Companies and to franchisees of the GRENKE AG Group to enable those companies to carry on leasing and factoring activities. There are a number of critical functions that are outsourced to the ultimate parent, including IT infrastructure, credit modelling and Internal Audit support.
Our audit was scoped by obtaining an understanding of the Group and Company and its environment, including testing of internal controls, and assessing the risks of material misstatement to be able to give an opinion on the consolidated and company financial statements as a whole, taking into account the operational structure of the Group and Company, the accounting processes and controls, the involvement of third parties and the industry in which the Group and Company operates. Audit work on the Group and Company was performed by the same audit team.
In establishing the overall approach to our audit, we assessed the risk of material misstatement taking into account the nature, likelihood and potential magnitude of any misstatement. As part of our risk assessment, we assessed the overall control environment within the entity.
Materiality and audit approach
The scope of our audit is influenced by our application of materiality. Materiality is the magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements.
We set certain quantitative thresholds for materiality. These, together with qualitative considerations, such as our understanding of the entity and its environment, our first year as auditor, history of misstatements, the complexity of the Group and Company and the reliability of the control environment, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures as well as to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Independent auditor’s report to the members of Grenke Finance Plc
15
Key audit matters (continued)
Materiality and audit approach (continued)
Based on our professional judgement, we determined materiality for the Group and Company based on a metric of 4% of profit before tax for the financial year ended 31 December 2021. We have applied this benchmark as the Group and Company are profit oriented and profit before tax is one of the key metrics used by members to assess their performance.
Performance materiality is the threshold for application of materiality at the individual account or balance level. We have set performance materiality at 60% of our materiality, having considered our review of the predecessor auditor’s assessment of the risk of misstatements, business risks and fraud risks associated with the entity and its control environment, our expectations about misstatements and our understanding of the business and processes at the Group and Company. This is to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole.
The reporting threshold is set as the amount below which identified misstatements are considered as being clearly trivial. We agreed with the Board and the Audit Committee that we would report to them misstatements identified during our audit of amounts greater than 5% of materiality as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Significant matters identified
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as significant matters together with an explanation of how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole. This is not a complete list of all risks identified by our audit.
Independent auditor’s report to the members of Grenke Finance Plc
16
Key audit matters (continued)
Significant matters identified (continued)
Key audit matter
Our audit response
Valuation of finance lease receivables and completeness and accuracy of the related Expected Credit Loss (ECL) provision
Note 25 to the Financial Statements reflects gross lease receivables of €1,974m (2020: €2,074m), of which impaired leases are €164m (2020: €154m), and the related ECL provision for performing leases is €37m (2020: €51m) and for impaired leases is €124m (2020: €109m).
At each reporting period, the Group and Company determines the impairment on finance lease receivables based on a model of expected credit losses in accordance with the requirements of IFRS 9. The assessment of ECL provisions involves the use of complex models and a high degree of estimation uncertainty due to the significant judgments inherent in the IFRS 9 methodology.
The impairment model for non-performing leases derives the percentage provision rates, to be applied to categories of leases, depending on their processing status, that are grouped together (BA-class 0-9). Provisional rates are derived from the historical empirical data and forward looking information. There is an inherent risk in determining the impairment rates applied due to a high level of estimation uncertainty. The risk is further increased due to the uncertainty introduced by COVID-19 pandemic, as the historical information may no longer be relevant and it is difficult to predict the shape of future economic recovery. In addition, there is a risk of material misstatements in relation to completeness and accuracy of ECL
The following audit work has been performed to address the risks:
•Obtained an understanding of the process in place including evaluation of the design of controls relevant to the valuation of lease receivables and related impairment provisions. These relate to relevant IT applications, the estimation of provision rates and IFRS 9 models to calculate resulting ECL provisions on the Group and Company credit exposures.
•With the assistance from our internal IT specialist, we reviewed and assessed the work performed by the GRENKE AG Group Auditor in relation to the design and operating effectiveness of IT general controls for all relevant in scope applications.
•With the assistance from our internal modelling specialist, we reviewed and assessed the work performed by GRENKE AG Group Auditor around data, assumptions and models relating to ECL calculation on lease receivables, and assessed its relevance for the purposes of Group and Company statutory audit. The procedures include:
oAssessment of changes to GRENKE AG’s impairment policy and conceptual framework and listing of judgements and assumptions applied to determine ECL and components of ECL calculation (PD, lifetime PD, LGD, EAD, SICR, scenarios);
oModels’ review regarding IFRS 9 compliance;
oVerification of the implementation and appropriateness of forward-looking information and input parameters, as well as the data generation process and the implementation of macro-economic information.
Independent auditor’s report to the members of Grenke Finance Plc
17
provision due to incorrect assignment of the processing status.
Due to the material nature of the leases and judgements involved in assessing for impairment and calculating provisions, this was deemed a key audit matter and significant auditor’s attention was deemed appropriate.
Refer to accounting policies in Note 4 to the Financial Statements, pages 45 to 47.
oAssessment of SICR and staging;
oAssessment of internal validation concepts and model validation results;
oRecomputing ECL in the course of individual file review as well as on portfolio basis;
oReview of conceptual framework and controls regarding the impaired lease model.
•We performed substantive procedures that are specifically responsive to the identified risk relating to incorrect assignment of the BA-class driven by the lease processing status. We have:
oAssessed the accuracy of the categorisation (or bucketing) in BA-classes (0-9) for a statistical sample of leases in line with the policy;
oChecked the bucket class in the non-performing contract listing as at 31 December 2021 to the status code on the lease system;
oReviewed logbook and other evidence on file, which contained internal discussions and information outlining the reasons for a contract being in particular bucket class; and
oConcluded on the appropriateness of the bucket class considering all the relevant evidence obtained over the characteristics of a given lease contract.
•We reconciled the ECL balances and movements from the underlying credit data to the general ledger and performed overall analytical review over credit risk exposures and related provision coverages, in order to assess the overall reasonableness.
•Reviewed and assessed the adequacy of related disclosures in the financial statements in accordance with the requirements of IFRS 7.
Our planned audit procedures were completed without material exception.
Independent auditor’s report to the members of Grenke Finance Plc
18
Existence of finance lease receivables and occurrence and accuracy of related lease income and expenditure
The consolidated financial statements reflect net finance lease receivables amounting to €1,813m (2020: €1,914m). The consolidated statement of profit or loss reflects lease income of €120m (2020: €120m).
The Group and Company carries on its own leasing activities through commission agents, who are GRENKE AG Group companies in 11 European countries, including France, Germany, Italy, Netherlands, Spain, Slovenia, Malta, Luxemburg, Hungary, Romania, Portugal and Finland. These agents write leases on behalf of the Group and Company and are paid commission fees. The agents acquire all equipment to be leased on behalf of Group and Company and also collect all income from leases. All income and expenditure associated with leases is passed onto Group and Company, as the legal and beneficiary lease owner.
Due to the material nature of the leases and related income and expenditure, this was deemed a key audit matter, having the greatest effect on the allocation of resources and where the audit team’s efforts were directed.
Refer to accounting policies on finance lease receivables and lease income in Note 4 to the Financial Statements, pages 38 to 39 and 52 to 53, respectively.
The following audit work has been performed to address the risks:
•Performed understanding of the commission model business process and performed test of design and operating effectiveness of relevant controls at Group and Company level.
•Obtained and inspected signed lease contracts and other supporting documents, in order to confirm existence for a statistical sample of leases. In addition, we sent external confirmations to lease counterparts to obtain further evidence over existence for a small sample of leases and agreed confirmed balances to accounting records.
•Reconciled the lease income and related expenditure from transfer sheet to the general ledger and agreed to the respective invoices for a sample of months/agents to test occurrence.
•Agreed key lease terms to signed lease contracts and ensured these are captured correctly in the system.
•For a same sample of leases, obtained amortisation schedules, recalculated present values, interest and other income based on the lease terms and agreed amounts to the general ledger. Capitalised initial direct costs and other lease income were tested concurrently with this procedure.
•Performed test of detail using the statistical sampling methodology to test occurrence and accuracy of commission fees and other lease related expenses with reference to cooperation agreements and relevant lease contracts, and traced to invoices and other supporting documentation.
Our planned audit procedures were completed without material exception.
Independent auditor’s report to the members of Grenke Finance Plc
19
Other matter
This is our first year of appointment as statutory auditors, in accordance with Section 382 of the Companies Act 2014. The financial statements for the previous year ended 31 December 2020 were audited by another statutory auditor, KPMG, who expressed an unqualified opinion on those statements on 12 May 2021.
Other information
Other information comprises information included in the annual report, other than the financial statements and our auditor’s report thereon, including the Directors’ Report. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies in the financial statements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by the Companies Act 2014
•We have obtained all the information and explanations that we consider necessary for the purposes of our audit.
•In our opinion, the accounting records of the Group and Company were sufficient to permit the financial statements to be readily and properly audited.
•The financial statements are in agreement with the accounting records.
•In our opinion, the information given in the Directors’ Report is consistent with the financial statements. Based solely on the work undertaken in the course of our audit, in our opinion, the Directors’ report has been prepared in accordance with the requirements of the Companies Act 2014.
Matters on which we are required to report by exception
Based on our knowledge and understanding of the Group and Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Directors’ Report.
Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions specified by section 305 to 312 of the Companies Act 2014 have not been made. We have no exceptions to report arising from this responsibility.
Independent auditor’s report to the members of Grenke Finance Plc
20
Corporate governance statement
In our opinion, based on the work undertaken in the course of our audit of the financial statements, the description of the main features of the internal control and risk management systems in relation to the financial reporting process, specified for our consideration and included in the Corporate Governance Statement, is consistent with the financial statements and has been prepared in accordance with section 1373(2)(c) of the Companies Act 2014.
Based on our knowledge and understanding of the Company and its environment obtained in the course of our audit of the financial statements, we have not identified material misstatements in the description of the main features of the internal control and risk management systems in relation to the financial reporting process included in the Corporate Governance Statement.
Responsibilities of management and those charged with governance for the financial statements
As explained in the Directors’ responsibilities statement, management are responsible for the preparation of the consolidated financial statements which give a true and fair view in accordance with IFRS as adopted by the European Union, and as regards the Company financial statements, in accordance with Generally Accepted Accounting Practice in Ireland, including FRS 101, and for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group and Company’s financial reporting process.
Responsibilities of the auditor for the audit of the financial statements
The auditor’s objectives are to obtain reasonable assurance about whether the financial statements as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes their opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs (Ireland), the auditor will exercise professional judgement and maintain professional scepticism throughout the audit. The auditor will also:
•Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for their opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Independent auditor’s report to the members of Grenke Finance Plc
21
Responsibilities of the auditor for the audit of the financial statements (continued)
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group and Company’s internal control.
•Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
•Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group and Company’s ability to continue as a going concern. If they conclude that a material uncertainty exists, they are required to draw attention in the auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify their opinion. Their conclusions are based on the audit evidence obtained
up to the date of the auditor’s report. However, future events or conditions may cause the Group or Company to cease to continue as a going concern
•Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a true and fair view.
The auditor communicates with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that may be identified during the audit.
Where the auditor is reporting on consolidated financial statements, the auditor’s responsibilities are to obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group to express an opinion on the consolidated financial statements. The group auditor is responsible for the direction,
supervision and performance of the group audit, and the group auditor remains solely responsible for the audit opinion.
The auditor also provides those charged with governance with a statement that they have complied with relevant ethical requirements regarding independence, including the Ethical Standards for Auditors (Ireland), and communicates with them all relationships and other matters that may reasonably be thought to bear on their independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, the auditor determines those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. These matters are described in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, the auditor determines that a matter should not be communicated in the report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Independent auditor’s report to the members of Grenke Finance Plc
22
The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Report on other legal and regulatory requirements
We were appointed by the Board of Directors on the 10 December 2021 to audit the financial statements for the year ended 31 December 2021. This is the first year we have been engaged to audit the financial statements of the Group and Company.
We are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements of the financial statements may not be detected, even though that audit is properly planned and performed in accordance with the ISAs (Ireland). Our audit approach is a risk based approach and is explained more fully in the ‘Responsibilities of the auditor for the audit of the financial statements’ section of our report.
The non-audit services prohibited by the IAASA’s Ethical Standard were not provided to the Group and Company and we remain independent of the Group and Company in conducting our audit.
The audit opinion is consistent with the additional report to the audit committee.
COLIN FEELY
For and on behalf of
Grant Thornton
Chartered Accountants & Statutory Audit Firm
13-18 City QuayDublin 2
D02 ED70
Ireland
Date: 16 March 2022
GRENKE FINANCE PLC
23
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the financial year ended 31 December 2021
Continuing Operations
2021
2020
Note
€
€
Lease income
8
Income from protecting lease equipment
9
Interest income and similar income
10
Total operating income
Expected credit loss allowance on finance lease receivables
11
(28,260,302 )
(66,385,962 )
Expected credit loss reversal/(allowance) on other financial assets
12
(27,755,097 )
Interest expense and other charges
13
(68,748,674 )
(73,178,595 )
Fair value adjustment for subordinated loans
(80,245 )
Foreign exchange gain/(loss)
14
(15,534,213 )
Net (loss)/gain on financial instruments at fair value through profit or loss
15
(13,877,397 )
Other income
16
Other operating expenses
17
(31,251,955 )
(32,926,941 )
Profit before tax
Taxation
19
(13,393,740 )
(1,727,026 )
Profit for the financial year
The accompanying notes form an integral part of these consolidated financial statements.
The comparative figure for 2020 for interest expense and other charges has been restated from the 2020 financial statements to exclude the fair value adjustment for subordinated loans which is now disclosed on a separate line in the statement of profit and loss. The comparative figures in 2020 for other operating expenses and taxation have been restated to reclassify overseas tax in other operating expenses. An explanation of the change is included in note 17 and 19.
GRENKE FINANCE PLC
24
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME95,896,648 12,409,828 1,888,895 572,452 1,652,782 500,897 97,549,430 12,910,725
for the financial year ended 31 December 2021
2021
2020
€
€
Profit for the financial year
Other Comprehensive Income
Items that may be reclassified to profit or loss in subsequent years
Gains relating to cash flow hedges
29
Tax relating to cash flow hedges
30
(236,113 )
(71,555 )
Other comprehensive income net of tax
Total comprehensive income for the financial year
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
25
CONSOLIDATED STATEMENT OF FINANCIAL POSITION806,207 936,533 24,453,479 22,643,113 1,131,394,202 1,221,033,725 586,366,737 1,092,987,875 440,239 37,128,993 63,737,558 70,015,535 1,378,996 823,900 16,569 248,586 3,882,462 4,690,688 1,812,476,449 2,450,508,948 15,276,672 25,399,636 895,995 2,686,736 681,163,094 692,906,208 1,034,308,644 1,060,608,615 162,636,443 103,726,818 73,652,271 58,216,616 1,746,771 4,548,320 - 2,183,807 14,170,000 16,420,000 139,524,351 143,674,377 2,123,374,241 2,110,371,133 3,935,850,690 4,560,880,081
as at 31 December 2021
Note
2021
2020
NON−CURRENT ASSETS
€
€
Property, plant & equipment
20
Subordinated loans and reserve accounts
22
Finance lease receivables due after one year
25
Amounts due from GRENKE AG Group
undertakings
26
Amounts due from GRENKE AG Group
franchisees
27
Trade and other receivables
28
Derivative financial instruments
29
Deferred tax asset
30
Corporation tax receivable
31
CURRENT ASSETS
Subordinated loans and reserve accounts
22
Leased assets held for resale
24
Finance lease receivables due within one
year
25
Amounts due from GRENKE AG Group
undertakings
26
Amounts due from GRENKE AG Group
franchisees
27
Trade and other receivables
28
Derivative financial instruments
29
Corporation tax receivable
31
Credit support accounts
32
Cash and cash equivalents
33
TOTAL ASSETS
The comparative figures in 2020 for finance lease receivable due within one year have been restated to exclude leased assets held for sale which are now disclosed on a separate line on the statement of financial position
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
26
CONSOLIDATED STATEMENT OF FINANCIAL POSITION1,981,684,415 2,541,777,002 484,724,617 555,561,982 81,097,128 193,934,221 10,000,000 10,000,000 332,023 490,135 3,120 93,363 8,863,659 19,134,020 2,566,704,962 3,320,990,723 547,499,973 433,438,596 311,534,336 316,974,615 92,149,655 41,598,079 97,346,923 157,196,771 - 1,640,000 61,759,998 10,862,253 378,939 263,019 10,538,418 3,966,740 123,369 381,956 31,501,750 35,712,411 908,019 - 1,153,741,380 1,002,034,440 3,720,446,342 4,323,025,163 50,000 50,000 67,000,000 67,000,000 148,397,488 172,500,840 215,404,348 237,854,918 3,935,850,690 4,560,880,081
as at 31 December 2021 (Continued)
2021
2020
NON-CURRENT LIABILITIES
€
€
Debt securities in issue
34
Amount owed to Grenke Bank AG
35
Asset based financial liabilities
37
Bank loans and cash held on trust
39
Lease liabilities
40
Deferred income
41
Derivative financial instruments
29
CURRENT LIABILITIES
Debt securities in issue
34
Amount owed to Grenke Bank AG
35
Amount owed to Grenke AG Group
Undertakings
36
Asset based financial liabilities
37
Credit support accounts
32
Bank loans and cash held on trust
39
Lease liabilities
40
Derivative financial instruments
29
Deferred income
41
Accruals
42
Corporation tax payable
31
TOTAL LIABILITIES
CAPITAL AND RESERVES
Share capital
43
Capital contribution
Retained earnings
Cash flow hedge reserve
44
(43,140 )
(1,695,922 )
TOTAL EQUITY
TOTAL EQUITY AND LIABILITIES
Approved and authorised by the Board of Directors and signed on its behalf:
Patrick Spain Angelika Wiedemann
Director Director
16 March 2022
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
27
COMPANY STATEMENT OF FINANCIAL POSITION
as at 31 December 2021
Note
2021
2020
NON−CURRENT ASSETS
€
€
Property, plant & equipment
20
806,207
936,533
Financial investments
21
300
300
Subordinated loans and reserve accounts
22
24,453,479
22,643,113
Amounts due from subsidiaries
23
5,882,149
49,986,587
Finance lease receivables due after one year
25
1,131,394,202
1,221,033,725
Amounts due from GRENKE AG Group
undertakings
26
586,366,737
1,092,987,875
Amounts due from GRENKE AG Group
franchisees
27
440,239
37,128,993
Trade and other receivables
28
63,737,558
70,015,535
Derivative financial instruments
29
1,378,996
823,900
Deferred tax asset
30
16,569
248,586
Corporation tax receivable
31
3,882,462
4,690,688
1,818,358,898
2,500,495,835
CURRENT ASSETS
Subordinated loans and reserve accounts
22
15,276,672
25,399,636
Amounts due from subsidiaries
23
60,371,372
15,038,430
Leased assets held for resale
24
895,995
2,686,736
Finance lease receivables due within one
year
25
681,163,094
692,906,208
Amounts due from GRENKE AG Group
undertakings
26
1,034,308,644
1,060,608,615
Amounts due from GRENKE AG Group
franchisees
27
162,636,443
103,726,818
Trade and other receivables
28
73,652,271
58,216,616
Derivative financial instruments
29
1,746,771
4,548,320
Corporation tax receivable
31
-
2,183,807
Credit support accounts
32
14,170,000
16,420,000
Cash and cash equivalents
33
139,524,351
143,674,377
2,183,745,613
2,125,409,563
TOTAL ASSETS
4,002,104,511
4,625,905,398
The comparative figures in 2020 for finance lease receivable due within one year have been restated to exclude leased assets held for sale which are now disclosed on a separate line on the statement of financial position
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
28
COMPANY STATEMENT OF FINANCIAL POSITION
as at 31 December 2021 (Continued)
Restated
2021
2020
NON-CURRENT LIABILITIES
€
€
Debt securities in issue
34
1,981,684,415
2,541,777,002
Amount owed to Grenke Bank AG
35
484,724,617
555,561,982
Amount owed to subsidiary SPVs
38
86,979,577
243,921,108
Bank loans and cash held on trust
39
10,000,000
10,000,000
Lease liabilities
40
332,023
490,135
Deferred income
41
3,120
93,363
Derivative financial instruments
29
8,863,659
19,134,020
2,572,587,411
3,370,977,610
CURRENT LIABILITIES
Debt securities in issue
34
547,499,973
433,438,596
Amount owed to Grenke Bank AG
35
311,534,336
316,974,615
Amount owed to Grenke AG Group
Undertakings
36
92,149,655
41,598,079
Amount owed to subsidiary SPVs
38
157,718,295
172,235,201
Credit support accounts
32
-
1,640,000
Bank loans and cash held on trust
39
61,759,998
10,862,253
Lease liabilities
40
378,939
263,019
Derivative financial instruments
29
10,538,418
3,966,740
Deferred income
41
123,369
381,956
Accruals
42
31,501,750
35,712,411
Corporation tax payable
31
908,019
-
1,214,112,752
1,017,072,870
TOTAL LIABILITIES
3,786,700,163
4,388,050,480
CAPITAL AND RESERVES
Share capital
43
50,000
50,000
Capital contribution
67,000,000
67,000,000
Retained earnings
148,397,488
172,500,840
Cash flow hedge reserve
44
(43,140)
(1,695,922)
TOTAL EQUITY
215,404,348
237,854,918
TOTAL EQUITY AND LIABILITIES
4,002,104,511
4,625,905,398
Approved and authorised by the Board of Directors and signed on its behalf:
Patrick Spain Angelika Wiedemann
Director Director
16 March 2022
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
29
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY50,000 67,000,000 172,500,840 237,854,918 - - 95,896,648 - 95,896,648 - - - 1,652,782 1,652,782 - - 95,896,648 1,652,782 97,549,430 - - - 50,000 67,000,000 148,397,488 215,404,348 50,000 67,000,000 250,091,012 314,944,193 - - 12,409,828 - 12,409,828 - - - 500,897 500,897 - - 12,409,828 500,897 12,910,725 - - - 50,000 67,000,000 172,500,840 237,854,918
for the financial year ended 31 December 2021
Issued
Capital
Retained
Cash flow
Total equity
capital
contribution
earnings
hedge
reserve
€
€
€
€
€
As at 1 January 2021
(1,695,922 )
Profit for the financial year
Other comprehensive income
Total comprehensive income
Transactions with owners of
the company contributions
and distributions (Note 45)
(120,000,000 )
(120,000,000 )
At 31 December 2021
(43,140 )
Issued
Capital
Retained
Cash flow
Total equity
capital
contribution
earnings
hedge
reserve
€
€
€
€
€
As at 1 January 2020
(2,196,819 )
Profit for the financial year
Other comprehensive income
Total comprehensive income
Transactions with owners of
the company contributions
and distributions (Note 45)
(90,000,000 )
(90,000,000 )
At 31 December 2020
(1,695,922 )
GRENKE FINANCE PLC
30
COMPANY STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2021
Issued
Capital
Retained
Cash flow
Total equity
capital
contribution
earnings
hedge
reserve
€
€
€
€
€
As at 1 January 2021
50,000
67,000,000
172,500,840
(1,695,922)
237,854,918
Profit for the financial year
-
-
95,896,648
-
95,896,648
Other comprehensive income
-
-
-
1,652,782
1,652,782
Total comprehensive income
-
-
95,896,648
1,652,782
97,549,430
Transactions with owners of
the company contributions
and distributions (Note 45)
-
-
(120,000,000)
-
(120,000,000)
At 31 December 2021
50,000
67,000,000
148,397,488
(43,140)
215,404,348
Issued
Capital
Retained
Cash flow
Total equity
capital
contribution
earnings
hedge
reserve
€
€
€
€
€
As at 1 January 2020
50,000
67,000,000
250,091,012
(2,196,819)
314,944,193
Profit for the financial year
-
-
12,409,828
-
12,409,828
Other comprehensive income
-
-
-
500,897
500,897
Total comprehensive income
-
-
12,409,828
500,897
12,910,725
Transactions with owners of
the company contributions
and distributions (Note 45)
-
-
(90,000,000)
-
(90,000,000)
At 31 December 2020
50,000
67,000,000
172,500,840
(1,695,922)
237,854,918
GRENKE FINANCE PLC
31
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
Restated
2021
2020
CASH INFLOWS/(OUTFLOWS) FROM OPERATING
Note
€
€
ACTIVITIES
Profit for the financial year
SOPL
Adjustments for non-cash items:
Taxation
19
Interest expense
5
Interest income
10
(47,884,706 )
(54,702,054 )
Depreciation
20
Expected credit loss allowance on finance lease receivables
11
Expected credit loss allowance on other financial assets
12
(25,666,116 )
Expected credit allowance trade debtors
17
(32,450 )
Currency translation differences on lease receivables
Currency translation differences on amounts due from Grenke AG Group undertakings
(5,820,217 )
Currency translation differences on amounts due from Grenke AG Group franchisees
(3,983,124 )
Fair value measurement gains/(losses) on derivatives
(16,958,216 )
Fair value measurement of subordinated loans
SOPL
(80,245 )
Foreign exchange translation adjustment to cash
(1,012 )
Deferred income on financial guarantee
5
(374,097 )
(1,105,189 )
Amortisation of deferred professional fees
Tax on health insurance premiums
Changes in operating assets and liabilities
Decrease/(increase) in subordinated loans
and reserve accounts
5
(10,490,693 )
Decrease in leased assets held for sale
5
Decrease in performing lease receivables
5
Increase in impaired leases and leases past due
5
(26,804,607 )
(55,986,598 )
Change in amounts due from/owed by Grenke AG Group
undertakings
5
Increase in amounts due from Grenke AG Group franchisees
5
(14,318,696 )
(6,296,709 )
(Increase)/decrease in trade and other receivables
5
(15,719,842 )
Change in derivative financial instruments
5
(1,452,230 )
Decrease/(increase) in accruals
5
(753,760 )
Change in credit support accounts
5
(4,257,277 )
Increase in cash held in trust
5
Interest received
5
Interest paid
5
(54,490,578 )
(44,869,874 )
Payments to Grenke Bank AG in respect of deferred risk premium
5
(2,172,266 )
(23,084,082 )
Asset based interest paid
5
(1,482,451 )
(2,716,572 )
Derivative cross currency interest paid
5
(1,970,407 )
(1,973,527 )
Derivative swap interest paid
(615 )
Derivative swap interest received
Payments to lessors classified as interest under IFRS 16
13
(6,856 )
(9,226 )
Tax paid
5
(9,500,000 )
(444,689 )
Net cash inflow/(outflow) from operating activities
GRENKE FINANCE PLC
32
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
(continued)
Restated
2021
2020
CASH OUTFLOWS FROM INVESTING ACTIVITIES
€
€
Payments for the acquisition of property, plant
and equipment
20
(4,488 )
(9,193 )
Cash outflow from investing activities
(4,488 )
(9,193 )
CASH (OUTFLOWS)/ INFLOWS FROM FINANCING
ACTIVITIES
Proceeds from debt securities in issue
46
Repayment of debt securities in Issue
46
(581,136,366 )
(627,000,000 )
Proceeds from amounts owed to GRENKE AG Bank
46
Repayment of amounts owed to GRENKE AG Bank
46
(401,187,374 )
(357,274,390 )
Proceeds from amounts owed to asset-based liabilities
46
Repayment of amounts owed to asset based liabilities
46
(197,940,930 )
(217,810,790 )
Proceeds from revolving credit facilities drawn down
46
Repayments of revolving credit facilities
46
(110,000,000 )
Proceeds from money market lines drawn down
46
Repayments of money market lines drawn down
46
(15,000,000 )
Proceeds from European investment bank loan
46
Repayments of European investment bank loan
46
(90,000,000 )
Payment to lessors for right of use assets
(263,719 )
(261,349 )
Dividend payments
45
(120,000,000 )
(90,000,000 )
Cash/(outflow)/ inflow from financing activities
(769,577,603 )
(161,869,876 )
Cash and cash equivalents at the beginning of the year
33
Foreign exchange translation adjustment
(1,012 )
Cash and cash equivalents at the end of the year
33
Change in cash and cash equivalents during the period
(4,149,549 )
Net cash inflow from operating activities
Cash outflow from investing activities
(4,488 )
(9,193 )
Cash outflow from financing activities
(769,577,603 )
(161,869,876 )
Total cash (outflow)/inflow
(4,149,549 )
There has been reclassifications made to the 2020 comparatives in comparison to what was shown in the 2020 financial statements in order to provide the reader with more precise information on cash flows. The reclassifications are disclosed in note 6.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
At 31 December 2021
33
1. GENERAL INFORMATION, STATEMENT OF COMPLIANCE AND GOING CONCERN ASSUMPTION
GRENKE Finance PLC is incorporated and domiciled in the Republic of Ireland. Grenke Finance is a public limited company.
The Company issues debt securities listed on the main market of the Luxembourg Stock Exchange.
The Company financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with the Companies Act 2014.
The Group consolidated financial statements were prepared in accordance with IFRS as adopted by the EU and in accordance with the Companies Act 2014.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
•No statement of cash flow for the company has been included
The accounting policies applied in the preparation of the Group and Company financial statements for the year ended 31 December 2021 are set out below in note 4 and have been applied consistently by all of the Group’s subsidiaries and have been consistently applied to all years presented, unless otherwise stated in note 3.
IFRS, as adopted, by the EU and applied by the Group and the FRS 101 Reduced Disclosure Framework in the preparation of these financial statements are those that were effective for the accounting period ending 31 December 2021.
The Group and Company’s management has made an assessment of the Group and Company’s ability to continue as a going concern and is satisfied that the Group and Company have the resources to continue for the foreseeable future. The Group and Company has recognised a net profit after tax of €95,896,648 for the year ended 31 December 2021 and, as
at that date, the total assets exceed total liabilities by €215,404,348.
The Directors are not aware of any material uncertainties which may cast significant doubt upon the Group and Company’s ability to continue as a going concern, and the Directors have a reasonable expectation that the Group and Company will continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual financial statements.
2. GRENKE AG GROUP
The Group and Company is wholly owned by GRENKE AG, a Company incorporated in Germany. References to the GRENKE AG Group in the Directors’ Report, financial statements and notes to the financial statements refers to the group of companies consisting of GRENKE AG and all of the companies it controls. References to the GRENKE AG Group financial statements refer to the consolidated financial statements of the GRENKE AG group. References to the Group and Company’s parent refer to GRENKE AG. Details of the GRENKE
AG Group are included in the GRENKE AG Group financial statements, the 2021 financial statements are expected to be publicly available at www.GRENKE.de on 17 March 2022.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
34
3. CHANGES IN ACCOUNTING POLICIES
(a) Accounting standards implemented in 2021
The following amendments to standards whose application was mandatory as of fiscal year 2021 had no or only an immaterial effect on the Group and Company financial statements:
•Amendments to IFRS 9 "Financial Instruments", IAS 39 "Financial Instruments: Recognition and Measurement", IFRS 7 "Financial Instruments: Disclosures", IFRS 4 "Insurance Contracts" and IFRS 16 "Leases" - Reform of Reference Rates - Phase 2
The amendments of the second phase of the Reference Rate Reform project (amendments to IFRS 9 "Financial Instruments", IAS 39 "Financial Instruments: Recognition and Measurement" and IFRS 7 "Financial Instruments: Disclosures", IFRS 4 "Insurance Contracts" and IFRS 16 "Leases") complement the requirements of the first phase of the project and basically start with the replacement of a reference interest rate by another reference interest rate.
With regard to the presentation of financial instruments, the following aspects are particularly affected:
In the event of changes in contractual cash flows, it may not be necessary to adjust or derecognise the carrying amount of financial instruments on the basis of the adjustments. Rather, under certain conditions, the option is opened to adjust the effective interest rate to reflect the change in the alternative reference interest rate.
With regard to hedge accounting, based on the amendments, it is not necessary under certain circumstances to terminate a hedging relationship designated for hedge accounting purposes due to adjustments triggered by the reform of the reference interest rates.
New risks arising from the reform and, in addition, how the transition to alternative reference rates will be handled are to be disclosed.
In addition to amendments to IFRS 9, IAS 39 and IFRS 7, the IASB adopted minor amendments to IFRS 4 and IFRS 16.
There are no material effects on the consolidated financial statements of GRENKE AG.
•Amendments to IFRS 16 "Leases" in connection with corona-related rental concessions
IFRS 16 contains regulations regarding the recognition of changes in lease payments (including lease concessions) by the lessee. The lessee must generally assess for each lease whether the rental concessions granted constitute changes to the lease and must make a resulting remeasurement of the lease liability.
The amendment to IFRS 16 grants a practical expedient when used. This is subject to certain conditions and is limited in time. As a result of the relief, the lessee need not account for lease concessions granted in connection with the coronavirus pandemic in accordance with the rules for changes in the lease, but as if they were not changes in the lease.
The amendments do not have a material impact on Group and Company consolidated financial
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
35
3. CHANGES IN ACCOUNTING POLICIES (Continued)
(a) Accounting standards implemented in 2021 (Continued)
statements as the Group and Company acts as a lessor in particular and the amendments do not apply to its accounting as a lessor.
•Amendments to IFRS 4 "Insurance Contracts" - Extension of the temporary exemption from the application of IFRS 9
The IASB issued an amendment to IFRS 4 on 25 June 2020, effective for annual periods beginning on or after 1 January 2021, extending the existing option to defer initial application of IFRS 9 to the new effective date of IFRS 17. The amendments to IFRS 17 are to be applied for the first time from 1 January 2023. The amendment has no impact on the Group and Compnay consolidated financial statements.
(b) Significant changes in accounting policies
There have been no significant changes to the accounting policies adopted by the Group and Company in 2021.
(c) Accounting standards and interpretations already published – not yet implemented
The IASB has published further amended standards or interpretations which are set out below, the application of which will only become mandatory at a later date. Several of these standards have already been endorsed by the EU. Voluntary early application is expressly permitted by these standards. The Group and Company does not make use of this option. These standards will be implemented in the consolidated financial statements at the time of mandatory application. The effects on the Group and Company consolidated financial statements are being examined. These amendments are not expected to have a material impact on the reporting in the Group and Company consolidated financial statements.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
36
3. CHANGES IN ACCOUNTING POLICIES (Continued)
(a) Accounting standards and interpretations already published – not yet implemented (Continued)
4. ACCOUNTING POLICIES
(a) Basis of preparation
The Group financial statements have been prepared in accordance with IFRS and the Company financial statement in accordance with FRS 101 under the historical cost convention, except where assets and liabilities are stated at fair value in accordance with relevant accounting policies. The figures have been rounded to the nearest Euro.
The preparation of the Group and Company financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at 31 December 2021 and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best estimate of the amount,
event or actions, actual results ultimately may differ from those estimates, as outlined in note 4 (o) & (p).
The profit attributable to equity shareholders disclosed in the financial statements of the Company was €96m (2020: €12m). In accordance with Section 304 of the Companies Act 2014, GRENKE Finance PLC (the ‘Company’) is availing of the exemption from presenting its
individual Statement of Profit or Loss, which forms part of the approved Financial Statements, to the Annual General Meeting and from filing it with the Registrar of Companies.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
37
4. ACCOUNTING POLICIES (Continued)
(a) Basis of preparation (Continued)
Basis of consolidation
The Group Financial Statements comprise the Financial Statements of the Company
undertaking and four structured entities, FCT “GK”-Compartment “G2” (FCT GK 2), FCT GK 3,
FCT “GK”-Compartment “G4” (FCT GK 4) and Elektra Purchase No. 25 Designated Activity Company.
Structured entities are entities in which voting or similar rights are not the dominant factors in determining control, for example, when voting rights only relate to administrative tasks and the relevant activities are governed by contractual agreements.
The Company has concluded that the structured entities FCT GK 2, FCT GK 3, FCT GK 4, and Elektra Purchase No 25 Designated Activity Company in whom the Company invests by way of subordinated loans should be consolidated because it effectively controls these entities.
The basis for consolidating the four entities is set out in note 4 (o).
The Company has concluded that the structured entities Coral Purchasing (Ireland) 2 DAC, Opusalpha Purchaser II Limited and Kebnekaise Funding Limited in whom the Company invests by way of subordinated loans should not be consolidated because it effectively does not control these entities.
Subsidiaries
Subsidiary undertakings are included in the Group Financial Statements from the date on which control is obtained, and cease to be consolidated from the date on which control is transferred out of the Group. The Company controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All inter-group transactions, balances and unrealised gains on transactions between Group undertakings are eliminated on consolidation.
They are subsidiaries because the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Company’s subsidiaries are set out below:
Subsidiaries
Registered office
Equity Interest Dec 31, 2021
Equity Interest Dec 31, 2020
FCT "GK"-COMPARTMENT "G2"
St-Denis/France
50%
50%
FCT GK 3
St-Denis/France
0%
0%
FCT "GK4"-COMPARTMENT "G4"
St-Denis/France
50%
50%
Elektra Purchase No 25 Designated Activity Company
Dublin/Ireland
0%
0%
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
38
4. ACCOUNTING POLICIES (Continued)
(b) Leases
The Company and Group as lessor
Leases are defined as agreements in which the lessor transfers the right to the lessee to use an identifiable asset for an agreed time period in exchange for the payment of consideration for an agreed time period.
Whether an agreement can be considered as a lease or containing a lease, depends on the economic substance of the agreement at the beginning of the agreement. For the lessor, leases are to be classified as either operating leases or finance leases.
FINANCE LEASES
Under a finance lease, all of the significant risks and rewards of legal ownership are transferred from the lessor to the lessee.
Finance leases are initially recognised in the statement of financial position as per the date they are available for use (upon the issue of the lessee’s letter of acceptance) as lease receivables at an amount equal to the net investment, which represents the sum of outstanding lease payments and non-guaranteed residual values of the underlying assets, discounted at the interest rate underlying the lease. Lease payments as per the date of the lease object’s availability for use are divided into interest payments and principal payments in such a manner that they reflect a periodic rate of return for the receivable. Initial direct costs incurred in connection with the conclusion of the contract, e.g. agents and reseller commissions, are taken into consideration when calculating the net investment value.
The Company and Group as lessee
Under IFRS 16, a right of use is capitalised and a corresponding leasing liability is recognised when a lease exists under IFRS 16.
If contracts contain both leasing and non-leasing components, only the leasing components are recognised as a right of use and a leasing liability in accordance with IFRS 16. The first-time measurement of the lease liabilities recognised in accordance with IFRS 16 is the amount of the present value of the lease payments not yet made. The lease payments include the following amounts:
•Fixed payments less any lease incentives receivable
When determining the lease payments, in addition to the non-cancellable basic term, extension periods are also taken into account, provided the exercise of the underlying extension options is considered to be reasonably certain.
The Group and Company uses its marginal borrowing rate to discount the cash flows. In the course of the subsequent measurement, the leasing liabilities are recognised at amortised cost using the effective interest method. The leasing liabilities are successively reduced by the repayment portions contained in the leasing payments. A revaluation of the lease liability (and
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
39
4. ACCOUNTING POLICIES (Continued)
(b) Leases (continued)
The Company and Group as lessee (Continued)
a corresponding adjustment of the associated right of use) must be carried out if the future lease payments resulting from the underlying contract change. This may include lease contract
adjustments or renegotiation of lease contracts as well as changes in assessments with regard to the likely exercise of termination or extension options.
The amount of the associated usage rights is based on the valuation of the leasing liabilities. Based on the amount of the lease liability, the amount of the right of use results from the additional activation of all lease payments made during or before the provision as well as from initial direct costs and estimated costs for dismantling obligations. Lease incentives received must be subtracted. As part of the subsequent valuation, the right of use asset is amortised over the useful life and, if necessary, impaired in accordance with IAS 36 “Impairment of Assets”.
The Group and Company makes estimates that affect the amount of lease liabilities and rights of use recognised in the statement of financial position in accordance with IFRS 16. Such assessments concern, for example, the determination of appropriate marginal borrowing rates to discount the expected cash flows and the determination of the term of the lease. The determination of the term of the lease is subject to discretion, since the lease contracts entered into regularly contain extension and termination options for reasons of flexibility. When assessing the existence of sufficient security, the Group and Company takes into account all the facts and circumstances that, in its role as lessee, give it an economic incentive to exercise or not exercise the extension or termination option.
(c) Other operating expenses
Operating expenses are expenses incurred on the day-to-day running of the business. They are charged to the statement of profit or loss on an accruals basis.
(d) Foreign currency
The financial statements are prepared in Euro (‘€’). The functional currency of the Company is the Euro (‘€’) the currency of the primary economic environment that all five entities in the Group operate in. The presentational currency in the financial statements is Euro (‘€’).
Transactions in a currency that differs from the functional currency are first translated into the functional currency at the prevailing spot rate on the day of the transaction. Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency
using the closing rate on each reporting date. The translation differences that result are recognised through Profit or Loss. If the monetary asset or liability denominated in a foreign currency is hedged and the conditions of cash flow hedge accounting are met translation differences that result are then recycled through other comprehensive income.
(f) Measurement of fair values
The Group and Company measures derivative financial instruments at their fair value through the statement of profit or loss and where cash flow hedge accounting is adopted through other
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
40
4. ACCOUNTING POLICIES (Continued)
(f) Measurement of fair values (continued)
comprehensive income. The Group and Company measure subordinated loans, provided to Coral Purchasing (Ireland) 2 DAC, Opusalpha Purchaser II Limited and Kebnekaise Funding Limited, which provide credit enhancement to the senior investors in the Grenke AG SPVs at
fair value through the statement of profit or loss. The fair value of financial instruments measured at amortised cost are presented in note 47.
The fair value is the amount that would be obtained upon the sale of an asset in an arm's length transaction between market participants at the valuation date as part of an orderly business
transaction under current market conditions or the amount to be paid for the transfer of a liability. Measuring the fair value assumes that the transaction leading to the sale of the asset
or the transfer of the liability takes place on the asset's principal market or the principal market for the transfer of the liability or, if such a principal market is not available, on the most favourable market for the asset or for the transfer of the liability.
Fair value is determined at a certain period in time and by applying those assumptions that representative market participants would take into consideration in pricing. With respect to pricing, it is assumed that market participants act in their own best economic interests.
The Group and Company uses observable market data, as far as possible, for determining the fair value of an asset or a liability. The fair values are assigned to different levels in the fair value hierarchy based on the input parameters used in the valuation methods:
•Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;
•Level 2: Measurement procedures in which all input factors having a significant effect on the recognition of fair value are directly or indirectly observable; and
•Level 3: Measurement procedures which use input factors that have a significant effect on the fair value recognised and are not based on observable market data.
If the input factors used to determine the fair value of an asset or a liability may be assigned to different levels in the fair value hierarchy, then the measurement at fair value is completely assigned to that level in the fair value hierarchy, which corresponds to the lowest input factor that is material for the overall measurement.
The Group and Company recognises reclassifications between the different levels of the fair value hierarchy at the end of the reporting period in which the change has occurred. In the reporting year, there were no reclassifications between the three levels of the measurement hierarchy.
(g) Financial Instruments
Categories of financial instruments
Financial instruments within the scope of IFRS 9 “Financial Instruments” are divided into the following classes:
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
41
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Categories of financial instruments (Continued)
FINANCIAL ASSETS
Finance lease receivables are recognised in accordance with IFRS 16 (see Note 4 (b)) Finance lease receivables, however, are subject to the provisions of IFRS 9 for derecognition and impairment.
Measured at amortised cost
•Cash and cash equivalents, reserve accounts, amounts due from group undertakings, amounts due from franchisees, subordinated loans where the underlying lease
receivables are Group and Company lease receivables, credit support accounts and trade and other receivables.
At fair value through profit or loss
•Derivative financial instruments measured at fair value without hedging relationship.
•Subordinated loans, provided to Coral Purchasing (Ireland) 2 DAC, Opusalpha Purchaser II Limited and Kebnekaise Funding Limited, which provide credit enhancement to the senior investors in the Grenke AG SPVs. (subordinated loans to Grenke AG SPVs)
At fair value through other comprehensive income
•Derivative financial instruments measured at fair value designated under cash flow hedging relationship, to the extent of the effective portion in the change in fair value.
FINANCIAL LIABILITIES
Measured at amortised cost
•Debt securities in issue, amounts owed to GRENKE AG Group undertakings, asset based liabilities, bank loans, accruals and deferred income.
At fair value through profit or loss
•Derivative financial instruments measured at fair value without hedging relationship.
At fair value through other comprehensive income
•Derivative financial instruments measured at fair value designated under cash flow hedging relationship, to the extent of the effective portion in the change in fair value.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
42
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (continued)
Measurement of financial instruments
FINANCIAL ASSETS
IFRS 9 provides for three types of subsequent measurement of financial assets:
Measurement at amortised cost (AC)
Measurement at fair value through OCI (FVOCI)
Measurement at fair value through P&L (FVPL)
Financial assets are allocated to the measurement categories upon initial recognition. Reclassifications are only permissible in the event of a change in the business model that results in a significant impact on the business processes. Where appropriate, reclassifications are made prospectively as per the first day of the first reporting period following the change in the business model. No reclassifications took place during the reporting periods.
Financial assets at amortised cost
Debt instruments are accounted for at amortised cost when the contractually agreed payment characteristics consist solely of principal and interest payments ("SPPI criterion") on the
outstanding principal and are held within the scope of a business model whose objective is to hold financial assets in order to collect the contractual cash flows of the financial asset.
The initial measurement in the measurement category is at fair value plus any additional and individually allocable transaction costs which, in the case of financial assets, increase the fair value. This, however, excludes trade receivables with no significant financing components, which are measured at their transaction price. After their initial recognition, financial assets in the category "financial assets at amortised cost" are measured at amortised cost using the effective interest method less any impairment. Amortised cost includes all discounts and premiums paid upon acquisition and includes all fees that are an integral part of the effective
interest rate, including transaction costs. Impairment is tested based on the expected credit loss model under IFRS 9, which stipulates the recognition of impairment through profit or loss
based on expected future credit losses. Please refer to impairment of financial assets in this note. Financial assets measured at amortised cost are recognised as per the settlement date.
The item cash and cash equivalents and reserve accounts in the consolidated and company statements of financial position comprises cash on hand and balances at banks and central banks with a maturity of less than three months. Bank overdrafts are deducted from cash and cash equivalents in the statement of cash flows.
Financial assets at fair value through profit or loss (FVPL)
The measurement at fair value with changes recognised in profit or loss is compulsory if either the financial instrument has not been allocated to a portfolio of the other aforementioned business models (AC or FVOCI) or if its cash flows do not meet the SPPI criterion.
The subsequent measurement at amortised cost is not possible for derivatives since they do not regularly meet the SPPI criterion. Derivatives are always to be measured at fair value
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
43
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Measurement of financial instruments (continued)
FINANCIAL ASSETS (Continued)
Financial assets at fair value through profit or loss (FVPL) (Continued)
through profit or loss provided they are not in a hedging relationship (hedge accounting). The Group and Company does not hold any financial assets at fair value through profit or loss as per the reporting date except for non subsidiary subordinated loans to Grenke AG SPVs and derivatives. Derivative financial instruments held by the Group and Company that are not in a hedging relationship are solely used to hedge currency risk. Changes in the fair value of these derivatives are recorded under "Net (loss)/gain on financial instruments at fair value through profit or loss”. Changes in the fair value of subordinated loans to Grenke AG SPVs are recorded as “Fair value adjustment for subordinated loans” on the Statement of profit or loss.
Modification of financial assets
In the case of modifications that affect the contractual cash flows of financial assets held at amortised cost, the Group and Company must examine whether this poses a substantial or non-substantial modification of the contractual cash flows. This assessment is done by taking
an overall view of the qualitative and quantitative circumstances. An example of a qualitative indicator is a change of debtor. A quantitative criterion that leads to a substantial modification of the contract is if the discounted present value of the cash flows of the new contractual terms
differs by at least 10% from the discounted present value of the remaining cash flows of the original debt instrument after credit impairment has been considered. A substantial modification results in the derecognition of the original agreement and the recognition of a new financial asset. The date of the initial recognition of the new financial asset is the date of the modification. In the case of a non-substantial modification, the asset is not derecognised and the difference between the respective carrying amounts is recognised in profit or loss.
FINANCIAL LIABILITIES
Financial liabilities at amortised cost
Financial liabilities are initially recognised at fair value, net of transaction costs. In subsequent periods, they are recognised at amortised cost. The deducted transaction costs and any debt discounts are amortised over the lease term in profit or loss using the effective interest method.
Refinancing liabilities, which result from the sale of the lease receivables to the respective refinancing party but where the lease receivables remain as an asset because the Group and Company has retained substantially all of the risks and rewards of the asset ownership and also retains control of the transferred asset, are recognised at the present value of the payments yet to be made to the refinancing party. The originally agreed interest rate is used as the discount rate for fixed interest loans. Upon repayment, regular payments are split into an interest portion and a principal component. The interest portion is recognised as an expense from interest on refinancing.
Financial liabilities are measured at amortised cost using the effective interest method under IFRS 9, except when they are financial liabilities measured at fair value.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
44
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Measurement of financial instruments (continued)
FINANCIAL LIABILITIES (Continued)
Financial liabilities at fair value
The Group and Company did not hold any financial assets at fair value through profit or loss as per the reporting date except for derivatives. Derivative Financial Instruments held by the Group and Company are solely used to hedge interest rate and currency risk. Changes in the fair value of derivatives are recorded under “Net (loss)/gain on financial instruments at fair value through profit or loss” or if hedge accounting has been applied to the derivative financial instrument the effective part of the change in fair value will be recorded under other comprehensive income.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING PRACTICES
In order to manage interest rate and foreign currency risks the Group and Company employs derivative financial instruments (principally interest rate swaps, cross-currency swaps and forward foreign exchange contracts). Derivative financial instruments are recognised initially at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at fair value. The carrying value of derivatives is fair value based on discounted future cash flows and adjusted for counterparty risk. Future floating rate cash flows are estimated based on future interest rates (from observable yield curves at the end of the
reporting period). Fixed and floating rate cash flows are discounted at future interest rates and translated at period-end foreign exchange rates. Forward foreign exchange contracts are used to hedge the spot price risk on currency exposures. The forward price elements of the forward exchange contract is included in a cost of hedging reserve in other comprehensive income if the forward exchange contract meets the criteria for hedge accounting and is amortized to profit and loss over the life of the forward exchange contract.
At the inception of a derivative transaction, the Group and Company documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group and Company also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedging instrument in offsetting movements in the cash flows of the hedged items. Where derivatives do not fulfil the criteria for hedge accounting, changes in fair values are reported in the Statement of profit or loss and Statement of financial position.
The Group and Company uses cash flow hedges in its treasury activities. For the purposes of hedge accounting, hedges are classified as cash flow hedges (which hedge exposure to fluctuations in future cash flows derived from a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction that could affect profit or loss). Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a
recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective part of any gain or loss on the derivative financial instrument is recognised as other comprehensive income, net of the income tax effect, with the ineffective portion being reported in the Statement of profit or loss in the line “Net (loss)/gain on financial instruments at
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
45
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Measurement of financial instruments (continued)
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING PRACTICES (Continued)
fair value through profit or loss”. The associated gains or losses that had previously been recognised as other comprehensive income are transferred to the Statement of profit or loss contemporaneously with the materialisation of the hedged transaction. Any gain or loss arising
in respect of changes in the time value of the derivative financial instrument is excluded from the measurement of hedge effectiveness and is recognised immediately in the Statement of profit or loss.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. If a hedged transaction is no longer anticipated to occur, the net cumulative gain or loss previously recognised as other comprehensive income is transferred to the Statement of profit or loss in the period.
IMPAIRMENT OF FINANCIAL ASSETS
At each year end date, the Group and Company determines the impairment on financial assets based on a model of expected credit losses in accordance with the requirements of IFRS 9.
The grouping of performing and non-performing lease receivables is based on processing categories see note 4 (p) Determination of impairment of lease receivables and amounts due from group companies and amounts due from franchisees. Determination is based on the expectations prevailing at that time. The performing and non-performing lease receivables are not grouped for the purpose of measuring expected credit losses on a collective basis.
The impairment allowances under IFRS 9 are applied to amounts due from Grenke AG Group undertakings measured at amortised costs and amounts due from Grenke AG Group franchisees measured at amortised cost and finance lease receivables under IFRS 16 "Leases".
The impairment allowances under IFRS 9 are not applied to cash and cash equivalents because any allowances required would be immaterial.
Stage assignment
The standard provides for a determination of expected credit losses based on a three-step approach. Under the general approach, the loss from expected loss events during the next year (12M ECL) is recognised as a risk provision at the next reporting period end date (Stage 1). If there has been a significant deterioration in the credit risk since the first-time recognition but no credit impairment, the risk provision is recognised at the Stage of the expected credit losses over the entire remaining contractual life (Lifetime Expected Loss – LT ECL) (Stage 2). If there is credit impairment, the risk provisioning must also be set in the amount of the losses expected over the remainder of the entire contract period on the basis of the estimated, expected future cash flows of the asset (LT ECL) (Stage 3). The financial assets remain at
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
46
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Measurement of financial instruments (continued)
IMPAIRMENT OF FINANCIAL ASSETS (continued)
Stage assignment (continued)
Stage 2 or 3 as long as the conditions for these Stages are met; otherwise they will be reassigned to an appropriate lower Stage.
Financial assets are generally recognised in Stage 1 upon initial recognition. In addition, Stage 1 includes all transactions that have a low credit default risk. Low credit default risk exists in cases where the external credit rating is in the range of investment grade.
In addition to the general approach (three-stage model), IFRS 9 provides for a simplified procedure for trade receivables and contract assets as well as for lease receivables falling within the scope of IFRS 16. Under the simplified procedure, it is not necessary to track the change in credit risk. Instead, expected losses are to be recognised as a risk provision in the amount of the expected losses over the entire term (LT ECL) – both upon initial recognition and at each subsequent reporting date. An option exists to apply this simplified procedure to those trade receivables and contract assets that contain a material financing component, as well as for lease receivables. The Group and Company uses the simplified procedure for trade receivables. The exercise of the option was waived for determining risk provisions for lease receivables. Therefore, the general approach and classification of lease receivables in three stages applies. The financial assets remain at Stage 1 as long as the conditions for this Stage are met, otherwise they will be reassigned to an appropriate higher Stage.
For Stage 1 and Stage 2 financial assets, the Group and Company calculates interest income using the effective interest method on the gross carrying amount (i.e. without deduction of expected credit losses).
Significant increase in credit risk and credit impairment
Determining a significant increase in credit risk is necessary to establish the timing of the transition between Stage 1 and Stage 2 as defined above. Defining credit impairment is relevant to the timing of the transition to Stage 3. The Group and Company assesses a significant increase in credit risk since initial recognition and defines credit impairment on the basis of appropriate and comprehensible information. The information used is adapted to the circumstances of the respective portfolio and is explained below:
•Lease receivables: The Group and Company expects a significant deterioration in the credit quality of lease receivables when contractually agreed payments are more than 30 days past due or when the estimated probability of loss has deteriorated in a comparable manner as was observed in past 30-day-overdue cases. This is the case when the estimated probability of loss for the remaining term has doubled compared to the estimated probability of loss for the same period based on the information available when the contract
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
47
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Measurement of financial instruments (continued)
IMPAIRMENT OF FINANCIAL ASSETS (continued)
Significant increase in credit risk and credit impairment (continued)
was signed. Credit is impaired if contractually agreed payments are more than 90 days past due or the contract was terminated by us. The Group and Company usually terminates
a lease contract as soon as the second lease instalment lapses. Once a contract has been terminated due to the lessee not paying lease instalments when due the full amount payable in the event of default under the terms of the contract is recognised as a non performing lease receivable. The net present value of the lease receivable at the date of termination is excluded from performing finance lease receivables.
A lease is written off when there is no reasonable expectation of recovering the non performing lease receivable for example due to exhausting all possible court proceedings, notification from a liquidator that a liquidation has been concluded and there is no further funds available for distribution or all reasonable efforts have failed to locate a delinquent lessee.
•Amounts due from Grenke AG group undertakings and amounts due from Grenke AG group franchisees: The Group and Company expects a significant deterioration in the credit quality of non-current receivables from group undertakings and franchisees when a payment is overdue for more than 30 days or after the second reminder. Receivables that are overdue for more than 90 days are said to be credit-impaired.
•Trade receivables: The Group and Company applies this simplified impairment model to these receivables. As a result, outstanding receivables are included in Stage 3 as long as they are classified as credit-impaired. Credit is impaired when receivables are more than 180 days past due or there is an objective indication of credit impairment. An objective indication, for example, could be the default or delinquency of a debtor, indications of bankruptcy and other features that indicate a reduction in the expected payments of the debtor.
•Cash and cash equivalents and credit support accounts: The assessment of whether credit risk has significantly deteriorated and the determination of credit impairment for these
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
48
4. ACCOUNTING POLICIES (Continued)
(g) Financial Instruments (Continued)
Measurement of financial instruments (continued)
IMPAIRMENT OF FINANCIAL ASSETS (continued)
Significant increase in credit risk and credit impairment (continued)
Cash and cash equivalents and credit support accounts (continued):
receivables is based on credit ratings, which are determined by observing published external credit ratings.
DERECOGNITION OF FINANCIAL ASSETS
A financial asset (or a part of a financial asset or a part of a group of similar financial assets) is derecognised along with the related impairment when the requirements have been met. The Group and Company derecognises financial assets when its contractual rights to cash flows have expired or the risks and rewards associated with the contractual rights are transferred to a buyer. When the Group and Company transfers its contractual rights to receive the cash flows of an asset, but the rewards and risks are not transferred to the buyer, then the receivable is not derecognised and a financial liability is recognised in the same amount.
Writing off an asset also represents a derecognition. This is usually the case at the Group and Company when, after reasonable assessment, it can no longer be assumed that the contractual cash flows of a financial asset can be realised in whole or in part. This is the case,
for example, if legal proceedings are terminated or, in the case of lease transactions, the asset is disposed.
DERECOGNITION OF FINANCIAL LIABILITIES
Financial liabilities are derecognised if the contractual obligation underlying the liability is discharged or definitively expires. If an existing financial liability is exchanged for another financial liability of the same lender with substantially different terms, or if the terms of an
existing liability are changed substantially, then such an exchange or change is treated as a derecognition of the original liability and recognition of a new liability. A criterion that leads to a material change in the contract is when the discounted present value of the cash flows of the new contract conditions deviates by at least 10% from the discounted present value of the
remaining cash flows of the original debt instrument. The difference between the corresponding carrying amounts is recognised in profit or loss.
(h) Leased assets for resale
The value of leased assets for resale are recognised in the statement of financial position on the basis of historical selling prices for similar assets. Appropriate measurement is ensured through the use of maturity bands. The sale proceeds calculated using this approach are netted
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
49
4. ACCOUNTING POLICIES (Continued)
(h) Leased assets for resale (Continued)
against the expenses that are still incurred until the sale in order to correspond to the net realisable value.
(i) Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation and impairment losses. Financing costs are capitalised if the necessary conditions are met. Property, plant and equipment are depreciated on a straight-line basis over their estimated
useful lives. When items of property, plant and equipment are disposed of, the corresponding acquisition costs and accumulated depreciation are derecognised; realised gains or losses on disposal are recognised in the Statement of Profit or Loss as other operating income/expenses.
The depreciation rates are based on the following estimated useful lives:
Operating and office equipment:
•Leasehold improvements 10 years or term of the lease if shorter
•Fixtures & Fittings 3 - 20 years (IT hardware 3 Years)
The useful lives and depreciation methods of property, plant and equipment are reviewed periodically to ensure that the depreciation method and the depreciation period are consistent with the expected pattern of economic benefits embodied in the items of property, plant and equipment.
(j) Pensions
The Group and Company make contributions to defined contribution plans. The Group and Company have no obligations to these plans other than the contributions due in return for
services of employees. These contributions are recognised as expenses when the employees have rendered their services.
(k) Grenke Bank AG Deferred Risk Premiums
The Group and Company borrows money from GRENKE Bank AG, details of which are provided in note 35 of the financial statements. GRENKE Bank AG forgives part of the amount owing if the underlying lease securitising that borrowing is terminated due to non payment of lease instalments. GRENKE Bank AG charges a risk premium for this arrangement on the date the loans are provided. The risk premium fees are amortised through profit or loss over the life of the lease instalments which securitise the borrowing and are classified in interest expense and other charges as amortisation of GRENKE Bank AG risk premium. The amount of the loan forgiven is offset against the deferred risk premiums amortised to profit and loss.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
50
4. ACCOUNTING POLICIES (Continued)
(l) Company Guarantees
The Group and Company has provided guarantees to Grenke Bank AG on lease receivables details of which are included in note 51. The Group and Company guarantees specified leases secured by Grenke Bank AG on financing provided to Grenke AG and Grenke Limited. The fees received are amortised through profit or loss over the life of the lease receivables guaranteed and are classified in other income as commission financial guarantee.
If a lease which has been guaranteed by the Group and Company becomes credit impaired the Group and Company buys the Credit Impaired lease for the Net Present Value of the lease on the date it became Credit impaired.
The revenue recognised in future periods from the amortisation of guaranteed fees is expected to exceed any payments due under the guarantee agreement for impaired leases bought in future periods.
(m) Taxes
Tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The calculation of the amount is based on the tax rates and tax laws enacted or substantively enacted at the reporting date.
The determination of the Group and Company’s provision for income tax requires certain judgements and estimates in relation to matters where the ultimate tax outcome may not be certain. The recognition or non-recognition of deferred tax assets as appropriate also requires judgement as it involves an assessment of the future recoverability of those assets. In addition, the Group and Company is subject to tax audits which can involve complex issues that could require extended periods to conclude, the resolution of which is often not within the control of the Group and Company. Although the Directors believe that the estimates included in the Financial Statements and its tax return positions are reasonable, there is no certainty that the final outcome of these matters will not be different than that which is reflected in the Group and Company’s historical income tax provisions and accruals. Whilst it is possible, the Group and Company does not currently anticipate that any such differences could have a material impact on the income tax provision and profit for the period in which such a determination is made nor does it expect any significant impact on its financial position in the near term. This is based on the Group and Company knowledge and experience, as well as the profile of the individual components which have been reflected in the current tax liability, the status of the tax audits, enquiries and negotiations in progress at each year-end, previous claims and any factors specific to the relevant tax environments.
Deferred tax liabilities and deferred tax assets
Deferred tax is recognised using the liability method on temporary differences arising at the reporting date between the tax bases of assets and liabilities and their carrying amounts in the Company and Consolidated Financial Statements. Deferred tax assets are recognised for unused tax loss carryforwards to the extent that it is probable that future taxable profit will be available against which the unused tax loss carryforwards can be utilised. Deferred tax assets and liabilities are recognised using the tax rates expected to apply in the period in which the temporary differences are expected to reverse. The tax rates used are those that are enacted or substantively enacted by the year end date.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
51
4. ACCOUNTING POLICIES (Continued)
(m) Taxes (Continued)
Deferred tax liabilities and deferred tax assets (continued)
Where items are accounted for outside of the statement of profit or loss, the related deferred tax is recognised either in other comprehensive income or directly in equity as appropriate. The measurement of deferred tax liabilities and deferred tax assets must take into account the tax consequences of the manner in which an entity expects to recover the carrying amount of its assets or settle its liabilities at the year end date. Deferred tax assets and liabilities are not discounted.
Value-Added Tax (VAT)
Revenue, expenses, assets and liabilities are recognised net of VAT, with the following exceptions:
a.The VAT incurred on a purchase of assets or services is not recoverable from the tax authorities, in which case the VAT is recognised as part of the acquisition costs of the asset or as part of the expense item; and
b.Stated receivables and liabilities include VAT.
(n) Revenue recognition
The Group and Company acts as a principal and recognises income when it fulfils a performance obligation by transferring a promised good or service to a customer. The transfer is deemed to have occurred when the customer has obtained control over this asset.
The prerequisite for this is that the following criteria are met in identifying the contract with the customers: the contracting parties agreed to the contract; the corresponding rights to the goods or services to be transferred can be determined; the payment terms can be identified; the contract has an economic substance and the receipt of the consideration is probable.
The Group and Company is required to identify the performance obligations for each contract. When identifying the contractual performance obligations, any commitment to supply a good or to provide a service under a contract with a customer must first be identified. If goods and services from a contract have been identified, there is then an assessment as to whether these goods and services should be considered separate service obligations or whether certain services should be deferred from the overall package of services.
In determining the transaction price, the Group and Company estimates the fee based on the identified customer contract that can be claimed in exchange for the goods or services
supplied. The variable purchase price components, fees to customers, non-cash consideration as well as material financing components are taken into account when determining the transaction price.
The transaction price is to be allocated to the individual performance obligations of the contract identified. The Group and Company allocates the transaction price generally on the basis of the individual selling prices. Individual selling prices are the prices at which a good or service
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
52
4. ACCOUNTING POLICIES (Continued)
(n) Revenue recognition (Continued)
would be sold separately at the time the contract begins or at the time the contract is concluded. Contracts that contain multiple performance obligations are referred to as multi-component
contracts. When the actual individual selling prices are not immediately apparent, they are then estimated by the Group and Company. The individual selling price estimate takes into account all available information and uses as many observable parameters as possible. Estimates are calculated based on the market price as part of the adjusted market assessment approach.
The Group and Company takes into account all separately recognised benefit obligations of the relevant customer contract that were previously identified within the framework of the allocated transaction prices. Revenue is recognised either at a single point in time or over the period of time that the performance obligation is fulfilled.
A contract liability is recognised when the customer renders a payment or the payment becomes due (whichever event occurs first) before the Consolidated Group has transferred
the respective goods or services to the customer and the Consolidated Group has an unconditional right to a certain consideration before transferring a good or a service to the customer. Contract liabilities are recognised as revenue once the Consolidated Group has met its contractual obligations or has transferred control over the respective goods or services to the customer.
Lease Income
The Lease income recognised as revenue in the statement of profit or loss is made up of the following:
•Lease interest income and secondary lease income recognised using the effective interest rate method.
•Income from document fees, interim lease rental fees, advance payments made by lessees in respect of leases which have been invoiced in the current year.
•Commissions payable by the Group and Company to agents and dealers invoiced in the current year.
•Capitalised initial direct costs consist of commissions payable by the Group and Company to agents and dealers less document fees and advance payments made by lessees which can be directly attributed to a lease which are excluded from lease income and the net amount is added to the cost of the equipment acquired to lease.
•Losses on termination of leases are made up of the amounts invoiced to lessees in respect of leases which have been terminated together with any amounts invoiced for the lease object less the net present value of the lease on the date of termination and the net present value off the lease object sold.
Income from protecting lease equipment
Revenue from service and protection business are reported under income from protecting lease equipment. The lease assets must be included under the Group and Company insurance
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
53
4. ACCOUNTING POLICIES (Continued)
(n) Revenue recognition (continued)
Income from protecting lease equipment (continued)
policy of the Group unless the lessees themselves insure the lease asset. For this service, the lessee will be charged fees on an annual basis that are recognised as revenue. The lessee’s payments are made in advance at the beginning of the respective calendar year or, in the case of newly concluded contracts, at the beginning of the lease term during the year. Deferred income from contracts with customers in the service and protection business is presented as contractual liabilities under the item deferred income from protecting lease equipment. When recognising the revenue from service and protection business, the
performance obligation over a certain period of time can be said to be fulfilled, meaning the income must also be realised over this period. Income is realised by means of output-based methods, under which revenue is determined on a straight-line basis over time.
(o) Accounting judgements
In applying the accounting policies, the senior management has made the following judgements that substantially influence the recognition and amounts in the financial statements. This does not include those decisions involving estimates.
Consolidation of structured companies
For refinancing, the Company uses various structured entities in the form of asset-backed commercial paper programmes ("ABCP programmes").
A significant activity over the term of these programmes is the selection of the receivables to be transferred. Furthermore, the initial selection of the receivables for each structured entity is defined according to specific selection criteria. In the event of a default of receivables, the settlement is managed by the Company. The rewards and risks of the receivables of the structured entity remain with the Company.
At FCT GK 2 and FCT GK 4, 50% of the shares of the funds are held by the Company and are included in consolidation. The shares that are directly held by the Company are an indication for the inclusion in the scope of consolidation, but not the decisive criteria since all assumptions contained in IFRS 10 “Consolidated Financial Statements” must be met for consolidation. FCT GK 2 and FCT GK4 are included in the scope of consolidation since all control factors are met, and the Company controls the entities by having the power to direct the relevant activities, having the right of variable returns, and also having the power to affect the amount of the returns. In contrast to FCT GK 2 and FCT GK4, there are no participating interests in the case of FCT GK 3 (all other parameters are identical). As with FCT GK 2 and FCT GK 4, consolidation is based on control criteria and not ownership because voting rights or similar rights are not the decisive criteria for determining control.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
54
4. ACCOUNTING POLICIES (Continued)
(o) Accounting judgements (continued)
Consolidation of structured companies (continued)
Similarly with Elektra Purchase No. 25 Designated Activity Company, the Company has no participating interests but the Company controls the entity by having the power to direct the
relevant activities, having the right of variable returns, and also having the power to affect the amount of the returns.
Leases-The Group and Company as Lessor
All leases are accounted for as finance leases because:
•Based on an analysis of its contractual conditions, the Group and Company, as lessor, has concluded that during the basic lease term all relevant opportunities and risks related to the ownership of the lease assets are transferred to the lessee in almost all leases.
•Over 99% of the lease contracts have total lease instalments due at the commencement of the initial lease term, which cannot be terminated without payment of all outstanding lease instalments, which are greater than the cost of the equipment which has been acquired by the Group and Company for that specific lease.
Determining the duration of a lease is a discretionary matter. The term of a lease comprises a non-terminable basic term during which a lessee is entitled to use an underlying asset. Extension periods are also included when the exercise of the underlying extension option by
the lessee can be deemed sufficiently certain.
The contract terms of the Group and Company do not provide early termination options for the lessee until the end of the agreed basic term, under which the lessee could unilaterally terminate the contract without the Group and Company’s consent. Early termination is only allowed by mutual agreement with a corresponding indemnification of damages made to the Group and Company. Both the lessee and the Group and Company are entitled to terminate the contract at the end of the agreed basic term.
It is possible, however, that after the end of the set basic term, by not giving notice at the end of the basic term, the lessee may obtain an extension of the period of use of the lease object, if the Group and Company does not give notice of termination by the end of the basic term itself, e.g. in case of an attractive disposal opportunity. Experience has shown, however, that at the beginning of the contract it is impossible to judge with sufficient certainty whether the lease will continue to exist beyond the basic term. The initial term of the lease therefore corresponds to the basic term of the agreement. In assessing the existence of sufficient certainty, the Group and Company takes into account all of the facts and circumstances that give the lessee an economic incentive to exercise or not exercise the extension option.
Leases-The Group and Company as Lessee
The Group and Company in its role as lessee makes assessments affecting the amount of lease liabilities and rights-of-use recognised in the statement of financial position under IFRS
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
55
4. ACCOUNTING POLICIES (Continued)
(o) Accounting judgements
Leases-The Group and Company as Lessee (Continued)
16. Such assessments concern, for example, the determination of appropriate incremental borrowing rates for discounting the expected cash flows and the determination of the lease term.
The determination of the lease's term is subject to discretion, as the property agreements concluded regularly include extension and termination options for flexibility purposes that are to be included in the determination of the lease's term when there is sufficient certainty that these options will be exercised. In assessing the existence of sufficient certainty, the Group and Company takes into account all of the facts and circumstances that give it an economic incentive in its role as lessee to exercise or not exercise the extension or termination option.
Corporation tax receivable
The Group and Company statement of financial position includes a corporation tax asset of €3.9m details of which are disclosed in note 31. This relates to a tax deduction which has been claimed in respect of licence fees and guarantee fees of €31m which were charged by Grenke AG to the Group and Company in 2017 and relate to the periods 2010 to 2016. These charges arose as a consequence of a tax audit of Grenke AG carried out by the German tax authorities. A correlative relief claim was submitted to the Irish Tax Authorities on 8 February 2021 for a tax deduction of the full amount charged of €31m and a corporation tax asset of €3.9m which is equivalent to 12.5% of the expense was recognised in the 2017 accounts. This tax asset continues to be recognised. The claim was made within the required time limits and has been acknowledged by the Irish tax authorities. However, at the date of signing these accounts the Irish tax authorities have not entered into any discussions about the claim. It is uncertain as to when the Irish Tax authorities will commence to consider the claim and whether the Irish tax authorities will seek to argue that the full amount of €31m or part of that amount is not tax deductible. The Group and Company has received professional advice with regard to the correlative relief claim. The Group and Company have considered this advice and are aware that there is uncertainty as to when the claim will be considered and whether the Irish Tax authorities will confirm that the full amount is tax deductible. However, the Group and Company have made the judgement that in estimating of the value of the corporation tax asset, it is best to assume that the Irish tax authorities will accept that the full amount of €31m is tax deductible, and therefore it is correct to accrue a corporation tax asset of €3.9m.
(p) Use of assumptions and estimates
In preparing the Group and Company financial statements, assumptions and estimates have been made that have affected the recognition and carrying amounts of assets, liabilities, income, expenses, and contingent liabilities.
Assumptions and estimates generally relate to the Group and Company uniform determination of the useful lives of assets; the measurement of provisions; the impairment of finance lease receivables and financial instruments; the recognition of unguaranteed residual values of lease assets. In individual cases, the actual amounts may differ from the assumptions and estimates. Any changes will be recognised, when better information is available in the statement of
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
56
4. ACCOUNTING POLICIES (Continued)
(p) Use of assumptions and estimates (Continued)
financial position and in the statement of profit or loss or if required by accounting standards in the statement of profit or loss over the appropriate period of time.
The key uncertainties in relation to estimates and the associated disclosure requirements are in the following areas:
Determination of impairment of finance lease receivables
Performing lease receivables are generally to be recognised in accordance with the provisions of IFRS 16. Additionally, appropriate risk provisions as defined by IFRS 9 must be taken into account. The Group and Company uses the Expected Credit Loss (ECL) model to determine the expected loss and thus the impairment loss provisions. The ECL is calculated as a multiplication of the three parameters: Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EaD). This standard formula for determining the expected loss takes into account the probability of failure (PD), the maximum possible loss on failure (EaD), and ultimately the actual loss (LGD). Depending on whether the twelve-month period or the total residual term is considered, different models are used to estimate the parameters taking into account the period under consideration.
In the following, we describe the individual parameters.
•PD: The default probability model is determined using a recognised mathematical-statistical method. The model weighs input variables and, based on this weighting, calculates an estimated probability of default. Variables from three areas are included in our PD models. These are customer-specific variables, contract-specific variables and variables that reflect the observed payment behaviour of the lessee. Macroeconomic variables are included in our models in the form of country-specific
parameters that are based on the respective country risk. Countries for which there is insufficient data to calculate a separate PD are summarised. In addition, various
scenarios for the development of macroeconomic variables are considered. The aim here is to obtain forward-looking information on gross domestic product and the unemployment rate in the individual countries. The probabilities of the possible developments of macroeconomic variables are taken from a survey of professional forecasters published by the ECB. The final impact on the PD, and thus the risk provisioning within the individual scenarios, is determined using internal data. The final weighting of the PD derived from the internal data within the individual macroeconomic scenarios with their probability of occurrence according to the ECB expert survey results in the final PD that is decisive for risk provisioning.
•EaD: We calculate the EaD for lease receivables as the sum of the outstanding instalments and the IFRS residual value at the date of the loss. Since the time at which the loss event occurs is unknown at the reporting date, an estimate is made about the distribution of loss events during the observation period based on past experience and considered in our EaD model. Discounting takes place at the internal interest rate of the lease contract concerned.
•LGD: The LGD models reflect the past loss experience and determine how high the level of losses will be as a quota of estimated EaD. For countries with insufficient data for the determination of LGDs, average values of the GRENKE Group are used.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
57
4. ACCOUNTING POLICIES (Continued)
(p) Use of assumptions and estimates (Continued)
Determination of impairment of finance lease receivables (continued)
The ECL model, including the input parameters and sub models, is validated at least once a year and updated if necessary.
Terminated lease contracts or contracts in arrears (socalled “non-performing lease receivables”) are also to be measured in accordance with the provisions of IFRS 16, taking the appropriate impairment pursuant to IFRS 9 into consideration. The amount of impairment is determined using percentages and processing categories. Percentages are calculated using statistical methods, which include both payments as well as expected payments. They are reviewed once a year for validity. Processing statuses are grouped together in processing categories that are set up with respect to risk.
Expected credit allowance on non performing finance lease receivables
The following table lists the processing categories in the leasing business:
The processing categories 2 to 7 are allocated to Stage 3 (see note 4 (g) for an explanation of Stage 3) because the contracts have been terminated due to defaults in payment and are thus
credit-impaired. The impairment rates range between 30% and 100%. The processing
categories 0 and 1 are lease receivables which are not credit impaired.
Determination of loss allowances amounts due from group companies and amounts due from franchisees
The company since incorporation in 2003 has had € nil losses on loans provided to group companies. It has had losses of approximately €1m on amounts due from franchisees since incorporation in 2003.
The Group and Company makes enquiries about the underlying lease receivables and factoring receivables in the group company or franchisee it has provided funds to with the objective of determining whether it is likely that the group company will have difficulty in repaying amounts due. €1.6bn (2020: €2.2bn) of the amount due from group companies is
used by the group companies to finance a highly diversified portfolio of low value finance leases to a highly diversified customer base. The balance of €19m (2020: €20m) of the amounts due from group companies is used to finance the purchase of low value invoices in Germany and Switzerland.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
58
4. ACCOUNTING POLICIES (Continued)
(p) Use of assumptions and estimates (Continued)
Determination of loss allowances amounts due from group companies and amounts due from franchisees (continued)
GRENKE AG, the Company’s ultimate parent has also provided a guarantee in respect of €1.254bn (2020: €1.451bn) of the amounts due from Group Companies at 31 December 2021 and for all of the amounts due from Franchisee Companies. There is a clause in each framework agreement in respect of the provision of loans to each Group Company and Franchise Company which states that there is a guarantee from Grenke AG in respect of the loans provided. Grenke AG provides a guarantee in respect of each loan which specifically refers to that framework agreement.
The Company and Group believe it is unlikely that there will be future expected losses on loans from Group companies and franchisees due to the underlying assets in the Group companies and the franchisees.
The Group and Company also believe it is unlikely due to the guarantee from its parent GRENKE AG.
The Group and Company also believe it is unlikely that there will be a default in any amounts due because apart from a loss of approximately €1m there has not been a default since the Company was incorporated in 2003.
The Group and Company may have difficulty in repaying amounts due on Debt Securities, ABCP programs and to the Grenke bank if it was not repaid amounts due which may have an impact on the credit rating of the Grenke AG Group. The Group and Company believe that Grenke AG would provide support to a Group company who was having difficulty in repaying amounts due because any default by the Group and Company may have an impact on the credit rating of the Grenke AG Group. The Grenke AG Group have stated in their 2020 annual report, which is available at www.grenke.de, on page 218 that the primary goal of the Grenke
AG Group’s capital management is to ensure that its credit rating is maintained in order to support its operations and safeguard liquidity. The Group and Company believe there will only be a default on amounts due from Grenke AG group companies if the Grenke AG Group as a whole was to have financial difficulties and therefore they believe they should look at what the markets view is of the Grenke AG Group defaulting on its financial obligations. The Company and Group have therefore concluded that the most appropriate measurement for future ECL is to use the GRENKE AG Group 1 Year risk of default as determined by Bloomberg because the Board of Directors of the Company believe there will only be a default on Group loans if the GRENKE AG Group is in default in respect of its financing obligations.
The Grenke AG Group 1 Year risk of default as determined by Bloomberg at 31 December 2021 was 0.277% (2020: 1.31%). If the risk of default decreased to 0% the expected credit loss would decline by €5m and if the risk of default increased by 1% to 1.277% the expected credit loss would increase by €17m.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
59
4. ACCOUNTING POLICIES (Continued)
(p) Use of assumptions and estimates (Continued)
Consideration of calculated residual values at the end of the contract term in determining the present value of lease receivables
Non-guaranteed (calculated) residual values are taken into account when determining the present value of the lease receivables in accordance with the definition in IFRS 16. The residual values calculated at the end of the contract period are determined according to the term of the respective lease contract and include the expected subsequent-business and the expected proceeds from disposals at the end of the term, based on historical experience. The average residual value was 7.81% of the cost of the lease object for all leases which were in the primary period at 31 December 2021.
The calculated residual values are determined on the basis of statistical analyses. In the event of a decrease in the estimated residual value (made up of the estimated sales proceeds from the lease object and the estimated subsequent lease rentals after the expiry of the primary lease period), the net present value of the existing lease receivables is reduced to take into account the reduced residual value. In the event of an increase in the estimated residual value no adjustment is made to the net present value of the existing lease receivables.
The non-guaranteed residual values are reviewed on a regular basis.
Consideration of calculated residual values when the contract is in the secondary lease period
In prior years no adjustment was made for an increase in net present value of leases when a lease was extended beyond the non terminable primary period. The Group and Company has decided to change the estimates of the net present value for leases which have been extended beyond the non terminable primary period in order to reflect more accurately the true value of leases which have been extended beyond the primary period.
The Group and Company now estimates the net present value of leases which are in the secondary period and the net present value of leases in respect of which secondary lease payments will be received because the lessee has not given notice to terminate the lease under the terms of the lease separately from the net present value of leases which are in the primary period. The estimate of the net present value takes into account all secondary lease rentals which the lessee is legally bound to pay under the terms of the lease contract and adjusts the residual value of the lease object to reflect that the lease object will be utilised for an increased period of time before it is available for sale.
The net present value of lease receivables was increased by €11.2m (0.63%) at 31 December 2021 due to the change in estimate. It is expected that the change in net present value of lease receivables in future periods will be a similar per cent (0.63%) of the net present value of lease receivables in comparison to what the net present value of the lease receivables would have been using the previous method of estimation.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
60
4. ACCOUNTING POLICIES (Continued)
(p) Use of assumptions and estimates (Continued)
Fair value of financial instruments
The fair values of financial assets and financial liabilities, not derived from information on active markets, are determined using a valuation model. The input parameters of these models are based on observable market data, if possible. If this is not possible, determining the fair values requires a certain degree of judgement. This judgement relates to input parameters such as liquidity risk, credit risk, and volatility. Changes regarding the assumptions of these input parameters may have an effect on the recognised fair value of financial instruments. If observable prices and parameters are available, they are used to determine the fair value that in turn avoids the large-scale use of estimates.
Recognition and measurement of actual tax refund claims and tax liabilities
Due to the complexity of tax legislation, taxpayers and local tax authorities may have varying constructions and interpretations of the tax laws. This can lead to subsequent tax payments for prior fiscal years. Tax provisions are recognised in the event that the amounts stated in the tax
declarations are not likely to be realised (uncertain tax items). The amount is determined from the best estimate of the anticipated tax payment. Tax receivables from uncertain tax items are recognised when it is probable and adequately ensured that they can be realised. The assumptions are based on the management’s assessment of the amount of uncertain tax items.
Included in overseas VAT in Trade and Other Receivables details of which are disclosed in note 28 is €35,099,477 (2020: €35,099,477) due from the Italian Tax Authorities in respect of the years 2009 to 2011. The Italian Tax Authorities are refusing to repay the VAT due to the Group and Company because they do not believe the transaction, sales of lease receivables
that gave rise to the VAT were transactions that should have been subject to VAT. The Group and Company has taken legal action against the Italian Tax Authorities (ITA) to recover the VAT due and the Italian Supreme Court has made a decision in 2021 to quash the judgements of the second tier court in Italy which ruled against the Group and Company. The Italian Supreme Court has instructed second tier court to decide again whether the transaction is a VAT taxable transaction or a VAT exempt transaction. If the second tier court decides that the transaction is VAT taxable then the Group and Company will be entitled to claim the VAT from the ITA. The Italian Supreme Court has ruled in 2021 that if the second tier court decides it is a VAT exempt transaction then Grenke Locazione, the company who charged the Group and Company the VAT will be entitled to a refund of the VAT. The Italian VAT continues to be shown as a receivable on the grounds that the Group and Company will be either able to reclaim the VAT from the ITA if the second tier court decides it is a VAT transaction or if the
second tier court decides it is a VAT exempt transaction the VAT will be refunded to Grenke Locazione who will then repay the VAT it should not have charged to the Group and Company.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
61
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS
The information below cross references amounts in the consolidated cash flow to the related information in the notes to the accounts.
Year
Note
€
Interest and other charges on debt securities in issue
2021
13
39,022,504
Interest on bank loans
2021
13
130,000
Interest expense on amounts owed to
Grenke AG Group undertakings
2021
13
1,101,579
Refinancing interest and expenses
2021
13
1,583,384
Interest payable to Grenke Bank
2021
13
13,843,976
Amortisation of Grenke Bank AG guarantee
2021
13
8,690,983
Amortisation of guarantee paid to franchisees
2021
13
75,897
Interest on lease liabilities
2021
13
6,856
Interest expense add back in Cash Flow
64,455,179
Year
Note
€
Deferred income on financial guarantee
due after one year
2020
41
(93,363)
Deferred income on financial guarantee
due within one year
2020
41
(367,573)
Deferred income on financial guarantee
due after one year
2021
41
3,120
Deferred income on financial guarantee
due within one year
2021
41
83,719
Deduct non cash reduction of deferred income liability
(374,097)
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
62
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Subordinated loans at fair value non current
2020
22
12,734,908
Subordinated loans at amortised cost non current
2020
22
9,838,205
Reserve accounts held with SPVs
and banks non current
2020
22
70,000
Subordinated loans at fair value current
2020
22
9,364,558
Subordinated loans at amortised cost current
2020
22
4,393,396
Reserve accounts held with SPVs
and banks current
2020
22
11,641,682
Subordinated loans at fair value non current
2021
22
(16,703,889)
Subordinated loans at amortised cost non current
2021
22
(7,749,590)
Subordinated loans at fair value current
2021
22
(10,519,229)
Subordinated loans at amortised cost current
2021
22
(4,687,433)
Reserve accounts held with SPVs
and banks current
2021
22
(70,010)
Fair value adjustment for subordinated loans
2021
SOPL
(243,371)
Decrease in subordinated loans
8,069,227
Year
Note
€
Leased assets held for sale
2020
24
2,686,736
Leased assets held for sale
2021
24
(895,995)
Decrease in leased assets held for sale
1,790,741
Year
Note
€
Finance lease receivables due after one year
2020
25
1,254,536,496
Finance lease receivables due within one year
2020
25
644,018,647
Finance lease receivables due after one year
2021
25
(1,154,930,210)
Finance lease receivables due within one year
2021
25
(643,697,991)
Currency translation differences
on lease receivables
(109,312)
Decrease in performing lease receivables
99,817,630
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
63
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Finance lease receivables past due
not credit impaired
2020
25
20,689,852
Non performing finance lease receivables
2020
25
154,450,277
Finance lease receivables past due
not credit impaired
2021
25
(12,181,110)
Non performing finance lease receivables
2021
25
(163,556,430)
Write off of lease receivables
2021
25
(26,207,196)
Increase in impaired leases past due
(26,804,607)
Year
Note
€
Secured amounts due from GRENKE AG Group
undertakings due in greater than one year
2020
26
28,866,126
Unsecured amounts due from GRENKE AG Group
undertakings due in greater than one year
2020
26
1,079,661,056
Secured amounts due from GRENKE AG Group
undertakings due in less than one year
2020
26
24,984,288
Unsecured amounts due from GRENKE AG Group
undertakings due in less than one year
2020
26
1,050,703,289
Secured amounts due from GRENKE AG Group
undertakings due in greater than one year
2021
26
(26,060,504)
Unsecured amounts due from GRENKE AG Group
undertakings due in greater than one year
2021
26
(564,454,231)
Secured amounts due from GRENKE AG Group
undertakings due in less than one year
2021
26
(23,655,792)
Unsecured amounts due from GRENKE AG Group
undertakings due in less than one year
2021
26
(1,012,873,734)
Amount owed to Grenke AG Group Undertakings
2020
26
(41,598,079)
Amount owed to Grenke AG Group Undertakings
2021
26
92,149,655
Currency translation differences on amounts
due from Grenke AG Group undertakings
2,008,558
Change in amounts due/owed from Grenke AG Group
undertakings
609,730,632
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
64
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Amounts due from GRENKE AG Group
franchisees due in greater than one year
2020
27
37,621,839
Amounts due from GRENKE AG Group
franchisees due in less than one year
2020
27
105,103,676
Amounts due from GRENKE AG Group
franchisees due in greater than one year
2021
27
(441,462)
Secured amounts due from GRENKE AG Group
franchisees due in less than one year
2021
27
(58,854,828)
Amounts due from GRENKE AG Group
franchisees due in less than one year
2021
27
(104,233,369)
Currency translation differences on amounts due
from Grenke AG Group franchisees
6,485,448
Increase in amounts due from Grenke AG Group franchisees
(14,318,696)
Year
Note
€
Overseas withholding tax non current asset
2020
28
7,047,436
Overseas VAT current asset
2020
28
35,448,233
Other assets current asset
2020
28
687,930
Trade debtors current asset
2020
28
2,253,512
Overseas withholding tax non current asset
2021
28
(4,884,925)
Deferred financing costs non current asset
2021
28
(342,358)
Overseas VAT current asset
2021
28
(50,987,082)
Deferred financing costs current asset
2021
28
(700,278)
Other assets current asset
2021
28
(576,016)
Trade debtors current asset
2021
28
(2,833,273)
Interest on tax repaid late current asset
2021
28
(762,174)
Write off of dealers bad debts
2021
28
(70,847)
Decrease in trade and other receivables
(15,719,842)
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
65
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Net liability arising on
derivative financial instruments
2020
29
(17,728,540)
Net liability arising on
derivative financial instruments
2021
29
16,276,310
Decrease in derivative financial instruments
(1,452,230)
Year
Note
€
Other accrued expenses
2020
42
(1,362,477)
Trade creditors
2020
42
(8,962,829)
Social welfare tax payable
2020
42
(38,641)
Irish vat
2020
42
(22,947)
Other accrued expenses
2021
42
1,455,421
Trade creditors
2021
42
8,086,638
Social welfare tax payable
2021
42
44,993
Irish vat
2021
42
46,082
Decrease in accruals
(753,760)
Year
Note
€
Net asset arising on support accounts
2020
32
14,780,000
Net asset arising on support accounts
2021
32
(14,170,000)
Decrease in credit support accounts
610,000
Year
Note
€
Cash held in trust
2020
39
(10,862,253)
Cash held in trust
2021
39
11,759,998
Increase in cash held in trust
897,745
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
66
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Deferred interest income
2020
41
(14,383)
Deferred interest income
2021
41
39,650
Interest income
2021
10
47,884,706
Interest received
47,909,973
Year
Note
€
Interest and other charges on debt securities in issue
2021
13
(39,022,504)
Interest on bank loans
2021
13
(130,000)
Interest expense on amounts owed to
Grenke AG Group undertakings
2021
13
(1,101,579)
Interest paid to Grenke Bank AG
2021
13
(13,843,976)
Accrued interest
2020
42
(25,325,517)
Accrued interest
2021
42
21,868,616
Amortisation of Debt Securities excluded
2021
1,093,975
Derivative cross currency interest paid disclosed
separately in consolidated cash flow statement
2021
1,970,407
Interest paid
(54,490,578)
Year
Note
€
Amortisation of Grenke Bank AG risk premium
2021
13
(8,690,983)
Deferred risk premium paid to Grenke Bank AG
non current asset
2020
28
27,841,175
Deferred risk premium paid to Grenke Bank AG
current asset
2020
28
21,570,239
Deferred risk premium paid to Grenke Bank AG
non current asset
2021
28
(23,405,164)
Deferred risk premium paid to Grenke Bank AG
current asset
2021
28
(19,487,533)
GRENKE AG Bank guarantee paid
(2,172,266)
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
67
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Refinancing interest and expenses
13
(1,583,384)
Deferred set up costs non current liabilities
2020
37
57,399
Deferred set up costs current liabilities
2020
37
99,824
Deferred set up costs current liabilities
2021
37
(56,290)
Asset based interest paid
(1,482,451)
Year
Note
€
Tax charge in the accounts
2021
19
(13,397,835)
Corporation tax receivable in greater than one year
2020
31
4,690,688
Corporation tax receivable within one year
2020
31
2,183,807
Corporation tax receivable in greater than one year
2021
31
(3,882,462)
Corporation tax payable within one year
2021
31
908,019
Tax on health insurance premiums
(2,217)
Tax paid
(9,500,000)
6. CHANGE IN 2020 COMPARATIVES IN THE CONSOLIDATED STATEMENT OF CASH FLOW
In the prior year statement of cash flow there was the following lines with respect to the cash flows from profit on ordinary activities before tax and tax paid:
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX
€
Profit on ordinary activities before tax
14,383,605
Overseas tax
(246,751)
14,136,854
TAX PAID
€
Tax paid
(691,443)
Overseas tax
246,751
(444,692)
In the 2020 financial statements overseas tax was included in taxation. In the 2021 financial statements overseas tax is included in operating expenses because it is not based on taxable profits and therefore should be excluded from taxation. The comparative figure has therefore
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
68
6. CHANGE IN 2020 COMPARATIVES IN THE CONSOLIDATED STATEMENT OF CASH FLOW (Continued)
been amended to include overseas tax in profit on ordinary activities before tax. The comparative for tax paid has also been amended to exclude overseas tax from the tax paid amount in the cash flow.
DECREASE IN TRADE AND OTHER RECEIVABLES
€
Decrease in trade and other receivables
61,387,580
Expected credit allowance trade debtors
(1,861,236)
59,526,344
The 2020 comparatives in the 2021 financial statements have been updated to include a separate line expected credit allowance on trade debtors of €1,861,266 in order to provide more precise details of the adjustment for non- cash items. The expected credit allowance on trade debtors has been excluded from decrease in trade and other receivables.
DECREASE IN PERFORMING LEASE RECEIVABLES
€
Decrease in performing lease receivables
73,406,394
Decrease in leased assets held for sale
(310,787)
73,095,607
The 2020 comparatives in the 2021 financial statements have been updated to include a separate line decrease in leased assets held for sale of €310,787 in order to provide more precise details of the changes in operating assets and liabilities. The decrease in leased assets held for sale has been excluded from decrease in performing lease receivables.
7. SEGMENTAL REPORTING
The chief operating decision makers (CODM) are the board of directors of the Group and Company.
The Group and Company has two distinct businesses, leasing and treasury. The leasing business is small ticket business to business leasing of principally office equipment, which is carried out in twelve European Countries. The treasury business provides long term and short term loans to GRENKE AG Group companies and franchisees who utilise the funds to carry out small ticket business to business leasing of principally office equipment and small ticket factoring of debt. The figures below provide details of the revenue generated for the year to 31 December 2021 and the operating assets of the two businesses at year end. The operating liabilities of the business have not been disclosed separately because the Directors do not separate the liabilities of the Group and Company between leasing and treasury when reviewing the business or making decisions with regard to the business. No company accounted for revenue greater than 10% of Group and Company revenue in 2021. The Group and Company for segmental reporting purposes looks at the Leasing and related income business based on the twelve countries it carries out leasing in. The Group and Company for
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
69
7. SEGMENTAL REPORTING (continued)
segmental reporting purposes looks at the treasury business based on what countries it lends money to.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
70
7. SEGMENTAL REPORTING (Continued)
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
71
7. SEGMENTAL REPORTING (Continued)
2021
2020
Leasing operating assets
€
€
France
1,141,930,944
1,214,043,668
Spain
225,254,753
222,665,440
Netherlands
151,183,917
157,169,395
Portugal
133,948,194
142,411,300
Finland
102,273,474
96,205,046
Romania
53,391,498
50,993,427
Italy
35,120,865
35,108,280
Slovenia
23,245,508
25,756,434
Luxembourg
15,034,607
17,363,279
Malta
11,650,857
16,205,908
Germany
9,628,995
15,430,386
Hungary
11,464,538
13,234,927
Leasing operating assets
1,914,128,150
2,006,587,490
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
72
7. SEGMENTAL REPORTING (Continued)
2021
2020
Treasury operating assets
€
€
Italy
746,180,788
1,061,033,635
Germany
520,526,864
656,417,500
Belgium
102,977,890
104,308,749
Sweden
95,737,713
99,500,377
Denmark
74,230,358
72,262,665
Spain
69,026,378
65,586,682
Australia
58,692,276
54,771,788
Canada
58,113,449
52,811,735
United Kingdom
17,300,867
81,646,522
Switzerland
6,594,331
31,118,017
Dubai
30,423,745
28,883,747
Singapore
21,974,022
20,505,394
France
12,590,535
25,799,260
Czech
12,116,154
15,336,890
Poland
9,030,048
1,023,559
Slovakia
8,296,163
9,488,045
Ireland
20,857,346
6,514,254
Chile
4,695,720
5,160,484
Romania
2,140,782
2,706,423
Malta
1,246,694
1,019,077
Luxembourg
993,760
777,106
USA
621,030
405,294
Latvia
271
109,177
Unallocated cash
139,524,351
143,674,377
Treasury operating assets
2,013,891,535
2,540,860,757
Non-operating assets
7,831,005
13,431,834
Total assets
3,935,850,690
4,560,880,081
Property, plant & equipment, corporation tax, derivative financial instruments and deferred tax which is disclosed have been classified as non-operating assets for segmental reporting purposes.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
73
8. LEASE INCOME
2021
2020
€
€
Lease interest income
124,937,610
135,054,185
Capitalised initial direct costs
36,405,074
38,161,539
Secondary lease income
53,967,686
36,394,592
Other lease income
7,046,498
7,666,813
Loss on termination of leases
(29,869,179)
(26,134,187)
Commissions payable to agents and dealers
(72,872,290)
(70,960,158)
119,615,399
120,182,784
Lease interest income and secondary lease income is the only part of lease income which is calculated using the effective interest rate method.
The loss on termination of leases is calculated by taking any proceeds from the termination of leases and deducting the net present value of the lease receivable at the date of termination.
9. INCOME FROM PROTECTING LEASE EQUIPMENT
2021
2020
€
€
Income from lessees for protecting lease equipment
43,919,515
43,946,838
Cost of equipment replaced
(1,105,261)
(1,218,938)
Adjustments to insurance claims made to insurer
(51,146)
107,431
42,763,108
42,835,331
Some lessees pay fees to the Group and Company to avail of insurance on the leased equipment. It should be noted that the Group and Company do not directly insure the equipment and only includes the lessees under their insurance policy, which is availed of from a third party insurer. When this fee has been paid the Group and Company, through the insurance policy, will replace damaged or stolen lease equipment without charging the lessee for this loss.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
74
10. INTEREST INCOME AND SIMILAR INCOME
2021
2020
€
€
Interest income from GRENKE AG group loans
41,798,966
48,863,650
Interest income from subordinated loans
303,826
687,934
Interest income from franchise loans
5,781,914
5,136,895
Interest income from swaps
-
13,575
47,884,706
54,702,054
Interest income from GRENKE AG group companies relates to interest on loans provided to GRENKE AG group companies and interest on overnight cash provided to GRENKE AG group companies.
11. EXPECTED CREDIT LOSS ALLOWANCE ON FINANCE LEASE RECEIVABLES
2021
2020
€
€
Expected credit loss allowance non performing
finance lease receivables (stage 3)
41,197,281
49,514,611
Expected credit loss allowance performing
finance lease receivables (stage 1/2)
(13,392,078)
16,143,827
Expected credit loss allowance for non performing
finance lease receivables acquired under
guarantee (stage 3)
(141,950)
296,096
Expected credit loss allowance for non performing
finance lease receivables acquired relating to loans
to Grenke AG group companies (stage 3)
597,049
431,428
28,260,302
66,385,962
Details of how the expected credit loss on non performing leases and the expected credit loss allowances are calculated together with an explanation of the different Stages are provided in the accounting policy notes 4 (g) & (p).
Non performing leases are leases in processing category 2-7 which are described in note 4 (p).
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
75
12. EXPECTED CREDIT LOSS (REVERSAL)/ALLOWANCE ON OTHER FINANCIAL
ASSETS
The GRENKE AG 1-Year risk of default per Bloomberg, which is used to calculate Expected credit loss allowances increased in 2021 to 0.277% from 1.31% at 31 December 2020. In year end 31 December 2020 it increased from 0.052% at 31 December 2019 to 1.31% at 31 December 2020.
2021
2020
€
€
Expected credit loss allowance on amounts
due from Grenke AG Group undertakings
(24,249,389)
25,970,296
Expected credit loss allowance on amounts
due from Grenke AG Group franchisees
(1,416,727)
1,799,665
Expected credit loss allowance on
subordinated loans
-
(14,864)
(25,666,116)
27,755,097
Accounting policy note 4 (p) explain why the Group and Company uses the Grenke AG 1-Year risk of default for calculating expected credit loss allowances on amounts due from Grenke AG Group undertakings and franchisees.
13. INTEREST EXPENSE AND OTHER CHARGES
2021
2020
€
€
Interest and other charges on debt securities in issue
39,022,504
41,138,231
Interest on bank loans
130,000
99,053
Interest expense on amounts owed to Grenke AG Group undertakings
1,101,579
1,361,954
Refinancing interest and expenses
1,583,384
2,817,782
Interest payable to Grenke Bank
13,843,976
12,063,737
Amortisation of Grenke Bank AG risk premium
8,690,983
11,556,393
Guarantee fee payable to Grenke AG
3,042,762
3,764,476
Amortisation of guarantee paid to franchisees
75,897
154,736
Bank overdraft interest and other charges
1,250,733
213,007
Interest on lease liabilities
6,856
9,226
68,748,674
73,178,595
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
76
13. INTEREST EXPENSE AND OTHER CHARGES (Continued)
The 2020 comparative figures have been reclassified to exclude fair value adjustment for subordinated loans of €80,245 which is now disclosed as a separate line in the statement of profit or loss.
The guarantee fee is for the provision by GRENKE AG of guarantees, personal sureties and letters of comfort in respect of the Group and Company external liabilities and in respect of amounts due from GRENKE AG Group undertakings and GRENKE AG Group franchisees.
14. FOREIGN EXCHANGE GAIN/(LOSS)
2021
2020
€
€
Foreign exchange gain
8,102,260
1,604,155
Reclassified from other comprehensive income
- forward exchange contracts
1,308,728
(7,447,989)
- cross currency swaps
2,816,358
(9,690,379)
12,227,346
(15,534,213)
The net foreign exchange gain (2020: loss) is as a result of transactions during the year in other currencies which were translated at the rate of exchange ruling at the date of the transaction and monetary assets and liabilities in other currencies were translated to Euro at the rates of exchange ruling at the reporting date. The net foreign exchange loss after taking account of the foreign exchange gain, recycling of gains (2020 losses) from other comprehensive income and the fair value movement on forward exchange contracts, amortisation of the cost of hedging and also the realised loss on forward exchange contracts disclosed in note 15 was €6,330,057 (2020: €6,330,057).
15. NET (LOSS)/GAIN ON FINANCIAL INSTRUMENTS
AT FAIR VALUE THROUGH PROFIT OR LOSS
2021
2020
€
€
Fair value movement on forward exchange
contracts not designated in hedge relationships
(3,579,975)
10,218,590
Amortisation of cost of hedging
(981,777)
(392,300)
Realised loss on forward exchange contracts not
designated in hedge relationships
(9,315,645)
(622,134)
(13,877,397)
9,204,156
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
77
16. OTHER INCOME
2021
2020
€
€
Accounting services
1,647,094
1,681,553
Commission financial guarantee (note 51)
374,097
1,105,189
Interest income from tax repaid late
873,592
191,062
Rental Income (note 50)
84,214
84,214
Income from security on securitised loans
49,673
11,564
3,028,670
3,073,582
The Group and Company provides accounting services to other companies in the GRENKE AG Group and to franchise companies of the GRENKE AG Group.
17. OTHER OPERATING EXPENSES
2021
2020
€
€
Commissions paid to agents for
sale of lease equipment protection
15,371,326
15,376,946
Insurance
258,416
353,002
Licence fee
7,813,614
8,440,969
Fees in respect of recovering debts
4,032,079
3,874,867
Expected credit loss
allowance trade debtors (stage 3)
(32,450)
1,861,236
Wages and salaries
1,413,777
1,265,507
Professional fees
1,240,794
739,155
Overseas tax
305,483
246,751
Management charges
181,688
175,595
Non recoverable VAT
165,603
137,365
Property costs
70,505
83,975
Depreciation on right of use assets
255,989
236,436
Depreciation
100,351
61,099
Other
20,152
32,776
Information technology costs
20,875
19,363
Recruitment
24,750
12,557
Training
9,003
9,342
31,251,955
32,926,941
In the 2021 financial statements overseas tax is included in operating expenses because it is not based on taxable profits and therefore should be excluded from taxation. The comparative figure has therefore been amended to include overseas tax in operating expenses. In the previous years financial statements overseas tax was included in the taxation charge.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
78
17. OTHER OPERATING EXPENSES (Continued)
The licence fee expenses relates to the provision by GRENKE AG of the use of an intangible asset in the form of a uniform business model that is based on its expertise and comprises in particular the business idea, methods for assessing risk and using the group’s uniform software
in the course of its operating business. The licence fee is also for the right to use the GRENKE brand.
The fees in respect of recovering debts relates to fees payable to debt collection agents and lawyers when they have been instructed to assist in recovering amounts due in respect of impaired leases.
Included in trade and other receivables is trade debtors of €2.8m (2020: €2.2m) in respect of amounts due from dealers. These balances are primarily due in respect of lease objects which have been sold to the dealers when a lease has been terminated. The Group and Company has made a 100% expected credit loss allowance of €1.7m (2020: €1.8m) in respect of all amounts which are overdue by 180 days. There is net credit of €33k due to a decrease in the expected credit allowance provision of €103k which has been offset by a write off of dealer balances of €71k.
18. PROFIT BEFORE TAXATION
2021
2020
The profit before tax is stated after charging:
€
€
Staff costs
1,413,777
1,265,507
Depreciation
100,351
61,099
Depreciation on right of use assets
255,989
236,436
Net foreign exchange gain/(loss)
on foreign currency
4,793,360
(11,200,611)
2021
2020
Fees payable to Grant Thornton (2020: KPMG) Ireland:
€
€
Statutory audit
235,000
255,000
Comfort letter in respect of financial information in debt issuance programme prospectus
20,000
20,000
255,000
275,000
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
79
18. PROFIT BEFORE TAXATION (Continued)
2021
2020
The staff cost comprises:
€
€
Salaries
1,162,185
1,067,913
Benefit in kind
22,032
18,449
Contributions to defined contribution plans
100,599
61,214
Social welfare costs
128,961
117,931
1,413,777
1,265,507
There is €4,815 (2020: €4,253) payable in respect of pensions as at 31 December 2021. The Group and Company contributes to defined contribution funds on behalf of employees and Directors. These pension funds are wholly independent of the Group and Company and the Group and Company has no liability to the pension funds other than the monthly contributions it makes on behalf of employees as part of their remuneration package.
The average number of people employed by the
Group and Company during the period was as
2021
2020
follows:
Number
Number
Administration
17
17
Included in staff cost above is directors'
2021
2020
remuneration of:
€
€
Salaries
299,160
287,991
Benefit in kind
4,390
3,656
Contributions to defined contribution plans
55,730
19,881
Social welfare costs
35,642
31,037
394,922
342,565
Three of the directors received remuneration and all of the remuneration they received is included in the disclosure above.
The key management of the Company are the three directors who receive remuneration. The payments to its directors set out above represent key management compensation.
One director is employed by the Group and Company’s parent Grenke AG and he did not receive any remuneration from the Group and Company. Part of the salary €9,000 (2020: €9,000) paid to the director by Grenke AG was allocated for his services to the Group and Company.
The Company’s subsidiaries did not have any employees during the year (2020: None).
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
80
19. TAXATION
2021
2020
€
€
Current year tax charge
13,398,117
1,740,370
Adjustment to prior year tax charge
(282)
(2,857)
13,397,835
1,737,513
Deferred tax
(4,095)
(10,487)
Taxation
13,393,740
1,727,026
In the 2021 financial statements overseas tax is included in operating expenses because it is not based on taxable profits and therefore should be excluded from taxation. The comparative figure has therefore been amended to include overseas tax in operating expenses. In the previous years financial statements overseas tax of €246,751 was included in the taxation charge.
Reconciliation of the expected tax charge at the standard tax rate to the actual tax charge at the effective rate
The tax assessed for the year is less than the standard rate of corporation tax in the Republic of Ireland (12.5%) (2020: 12.5%). The differences are explained below:
2021
2020
€
€
Profit before tax
109,290,388
14,136,855
Profit multiplied by standard rate of corporation
tax in the Republic of Ireland of
12.5% (2020: 12.5%)
13,661,299
1,767,107
Effects of:
Adjustment to prior year corporation tax
(282)
(2,857)
Foreign tax adjustments
(158,355)
19
Other adjustments
(108,922)
(37,243)
Taxation
13,393,740
1,727,026
Foreign tax adjustments relate to Irish tax credits and Irish tax deductions in respect of foreign withholding tax on interest and lease payments in arriving at the Irish corporation tax charge.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
81
20. PROPERTY, PLANT & EQUIPMENT CONSOLIDATED AND COMPANY
Right of
Leasehold
Fixtures and
use assets
improvements
fittings
Total
€
€
€
€
Cost
At 31 December 2020
1,611,208
320,482
452,120
2,383,810
Additions
-
-
4,488
4,488
Valuation adjustment
221,526
-
-
221,526
At 31 December 2021
1,832,734
320,482
456,608
2,609,824
Accumulated Depreciation
At 31 December 2020
941,221
182,675
323,381
1,447,277
Charge for the year
255,989
48,175
52,176
356,340
At 31 December 2021
1,197,210
230,850
375,557
1,803,617
Net book amounts
At 31 December 2021
635,524
89,632
81,051
806,207
At 31 December 2020
669,987
137,807
128,739
936,533
The Group and Company has only four leases. The leases are in respect of Units 209/210, Unit 310, Unit 306/307 and Unit 410/411, Q House, Furze Road, Sandyford Industrial Estate, Dublin 18. The Group and Company has an option to terminate all four of the leases on 6 November 2023. The right of use asset has been calculated on the basis that the Group and
Company will terminate the leases on 6 November 2023. Details of the lease liabilities relating to these right of use assets are disclosed in note 40.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
82
20. PROPERTY, PLANT & EQUIPMENT CONSOLIDATED AND COMPANY (Continued)
Right of
Leasehold
Fixtures and
use assets
improvements
fittings
Total
€
€
€
€
Cost
At 31 December 2019
1,611,208
320,482
442,927
2,374,617
Additions
-
-
9,193
9,193
At 31 December 2020
1,611,208
320,482
452,120
2,383,810
Accumulated Depreciation
At 31 December 2019
704,785
164,028
280,929
1,149,742
Charge for the year
236,436
18,647
42,452
297,535
At 31 December 2020
941,221
182,675
323,381
1,447,277
Net book amounts
At 31 December 2020
669,987
137,807
128,739
936,533
At 31 December 2019
906,423
156,454
161,998
1,224,875
21. FINANCIAL INVESTMENTS COMPANY
2021
2020
€
€
Investment in equity
Investment in FCT “GK” COMPARTMENT “G” 2
150
150
Investment in FCT “GK” COMPARTMENT “G” 4
150
150
300
300
The Company holds a 50% interest in FCT “GK”COMPARTMENT “G2”, (FCT GK 2) and a 50% interest in FCT “GK”COMPARTMENT “G4”, (FCT GK 4). The investment in FCT GK 2 of €150
(2020: €150) and FCT GK 4 of €150 (2020: € 150) is shown at cost less impairment. FCT GK 2 is a French securitisation vehicle which was set up in 2012 and FCT GK 4 is a French securitisation vehicle set up in 2020. FCT GK 2 is financed through the issue of FCT notes, which are exclusively subscribed by Special Purpose Vehicle Elektra Purchase No. 25 Designated Activity Company. FCT GK 4 is financed through the issue of FCT notes, which are exclusively subscribed by Special Purpose Vehicle Opusalpha Purchaser II Limited.The Company does not make a gain or a loss on the sale of the French lease receivable contracts because the leases remain on the Statement of Financial Position of the Company and the contractual cashflow payments due to FCT GK 2 and FCT GK 4 are shown as asset based financial liabilities.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
83
21. FINANCIAL INVESTMENTS COMPANY (Continued)
The maximum exposure to credit loss is the carrying amount of the investment held.
22. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY
2021
2020
Non − Current
€
€
Unlisted:
Subordinated loans at fair value
16,703,889
12,734,908
Subordinated loans at amortised cost
7,749,590
9,838,205
Reserve accounts held with SPVs and banks
-
70,000
Financial assets classified as non current
24,453,479
22,643,113
Current
Unlisted:
Subordinated loans at fair value
10,519,229
9,364,558
Subordinated loans at amortised cost
4,687,433
4,393,396
Reserve accounts held with SPVs and banks
70,010
11,641,682
Financial assets classified as current
15,276,672
25,399,636
Reconciliation of Financial Assets:
At beginning of year
48,042,749
37,456,947
Payment out on subordinated loans and on reserve
accounts
4,735,779
26,079,127
Repayment of subordinated loans and reserve accounts
(13,291,748)
(15,427,944)
Movement in fair value
243,371
(80,245)
Movement in expected credit loss allowance
-
14,864
Closing balance
39,730,151
48,042,749
The Group and Company enters into subordinated loan agreements with special purpose vehicles (SPVs) as part of the asset backed conduit transactions that are jointly entered into with the GRENKE AG Group. In order for the SPVs to obtain third party finance to acquire the lease receivables from GRENKE AG Group subsidiaries and the Company, the agreement
requires the Company to provide a subordinated loan equal to certain percentages of the sold receivables.
The subordinated loans which provide credit enhancement to the senior investors in the special purpose vehicles Coral Purchasing (Ireland) 2 DAC, Kebnekaise Funding Limited and
Opusalpha Purchaser II Limited are mandatorily measured at fair value because they fail the solely payments of principal and interest criterion which would allow the subordinated loans to be measured at amortised cost under IFRS 9. The Group and Company has provided three subordinated loans to Opusalpha Purchaser II Limited and only the loan which provides credit
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
84
22. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
enhancement to the senior investors in respect of the lease receivables bought from Grenke AG is measured at fair value.
The fair value of the subordinated loans is measured by applying Euro cost of borrowing plus the Grenke AG risk of default to the projected future cash flows from the subordinated loans.
The two subordinated loans provided to Opusalpha Purchaser II Limited which provide credit enhancement to senior investors in FCT GK 4 are measured at amortised cost. In the event of loss on these two subordinated loans there will be an equal and offsetting gain on asset based financial liabilities due to the loss resulting from the Group and Company’s failure to make the payments due in respect of its asset based financial liabilities. Details of the asset based financial liabilities are set out in note 37.
Details of the Group and Company subordinated loans to the Grenke AG SPVs which are measured at fair value on 31 December are set out below:
The Group and Company is required under the terms of the subordinated loan agreements to provide credit enhancement loans equal to a % of the net present value of the lease receivables held by the SPV at a point in time each month, the collection payment date. The required % is set out in the table above under the column “% of NPV of lease receivables”. The collection payment date for the SPV Coral Purchasing (Ireland) 2 DAC is the 20th of the month, Opusalpha Purchaser II Limited is the 4th of the month and for Kebnekaise Funding Limited is the 18th of the month.
The table below sets out the fair values of the subordinated loans to the Grenke AG SPVs measured at fair value in 2021.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
85
22. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
Details of the Group and Company subordinated loans to the SPVs on 31 December which are measured at amortised cost are set out below:
The Group and Company is required under the terms of a loan agreements to provide two credit enhancement loans to Opusalpha Purchaser II Limited equal to a % of the net present value of the lease receivables held by the SPV, FCT GK4 on the 4th of each month. The required % is set out in the table above under the column “% of NPV of lease receivables”.
The Group has concluded that the SPVs in whom the Company invests by way of subordinated loans, but that it does not consolidate, meet the definition of structured entities because:
-The voting rights in the SPVs are not dominant rights in deciding who exercises control due to the debt financing nature of securitisation and net assets are virtually nil; and
-Each SPVs activities are restricted by the terms of the prospectus;
At 31 December 2021
Total asset value of the SPVs
Group and Company Investment in the SPVs
€
€
Coral Purchasing (Ireland) 2 DAC
104,999,967
9,659,997
Opusalpha Purchaser II Limited
99,999,944
8,999,995
Kebnekaise Funding Limited
105,000,000
8,400,000
The Group and Company has also provided subordinated loans of €11,072,503 to Opusalpha Purchaser II Limited in respect of FCT GK 4. The total amount owing to the investors in FCT GK 4 is shown as an asset based financial liability in the consolidated Statement of Financial Position. The amount owing to FCT GK4 investors would be reduced by any amount not
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
86
22. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
recovered on the Opusalpha Purchaser II Limited subordinated loans relating to FCT GK 4 and therefore these loans have not been included in the table above because there is no exposure
to credit loss on these subordinated loans. There is no exposure to credit loss on the Opusalpha Purchaser II Limited subordinated loans relating to FCT GK 4 because the FCT GK
4 asset based financial liability would be reduced by the amount of the loss on the subordinated loan and therefore the net impact on the statement of profit or loss would be zero.
The table below describes the types of structured entities that the Company does not consolidate but in which it holds an interest.
Type of structured entity
Nature and purpose
Interest held by the Group and Company
Special purpose vehicle
To manage a portfolio of assets in order to generate returns for noteholders.
The vehicles are funded through raising debt finance from the Company and other investors.
Subordinated loan
The subordinated loans have recourse only to the returns from the assets purchased by the SPVs, in the event that the lease receivables purchased by the SPVs do not create sufficient cash flow to meet the principal and interest repayment on the debt in the SPV, repayments will be made under the terms of the priorities of payment of the SPV. The subordinated loan is the junior creditor. The subordinated loans are not guaranteed by the GRENKE AG Group. The
Company has not suffered historic losses on the subordinated loans because Grenke AG has always bought back non performing leases from Coral Purchasing (Ireland) 2 DAC,
Opusalpha Purchaser II Limited, Kebnekaise Funding Limited and the Company has always bought back non performing leases from FCT GK 4.
23. AMOUNTS DUE FROM SUBSIDIARIES COMPANY
2021
2020
Non − Current
€
€
Unlisted:
Subordinated loans to subusidiary SPVs
3,381,849
43,983,742
Reserve accounts held with subsidiary SPVs
2,500,300
6,002,845
5,882,149
49,986,587
Current
Unlisted:
Subordinated loans to subusidiary SPVs
40,862,614
14,675,151
Reserve accounts held with subsidiary SPVs
19,508,758
363,279
60,371,372
15,038,430
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
87
23. AMOUNTS DUE FROM SUBSIDIARIES COMPANY (Continued)
The subsidiary SPVs referred to in the narrative below are FCT GK 2, FCT GK 3 and FCT GK 4.
Details of the Company subordinated loans as at 31 December are set out below:
The Company has opted to enter the final amortisation period for FCT GK 3, consequently no more lease receivables will be sold to FCT GK 3. In the final amortisation period all proceeds from lease instalments paid to FCT GK 3 will be utilised first for the repayment of the Senior FCT Senior Units. When the FCT Senior Unit Subscriber has been fully repaid the subordinated loan and reserve account in FCT GK 3 will be repaid. The FCT Senior Unit Subscriber should be fully repaid in July 2022. The column “% of NPV of lease receivables” shows what % of the NPV of lease receivables held by FCT GK 3 at 15 December 2021 the subordinated loans as at 31 December 2021 are equal to.
The Company is required under the terms of a loan agreements to provide two credit enhancement loans to Electra Purchase No. 25 Designated Activity Company equal to a % of the net present value of the lease receivables held by the SPV, FCT GK2 on the 15th of each month. The required % is set out in the table above under the column “% of NPV of lease receivables”.
The subordinated loans to subsidiary SPVs have recourse only to the returns from the assets purchased by the subsidiary SPVs, in the event that the lease receivables purchased by the subsidiary SPVs do not create sufficient cash flow to meet the principal and interest repayment on the debt in the subsidiary SPV, repayments will be made under the terms of the priorities of payment of the subsidiary SPV. The subordinated loan is the junior creditor. The Company has not suffered historic losses on the subordinated loans to subsidiary SPVs because the Company has always bought back non performing leases from FCT GK 2 and FCT GK 3.
The reserve accounts cover liabilities which the FCT GK 2, FCT GK 3 and FCT GK 4 may have under interest rate swaps they have in place to hedge the interest rate risk. These reserves are
collateral to the subsidiary SPVs, which will be used to pay the subsidiary SPV in the event of the Company being unable to fulfil its obligations under interest rate swap agreements.
The Company has opted to enter the final amortisation period for FCT GK 3, consequently no more lease receivables will be sold to FCT GK 3. In the final amortisation period all proceeds from lease instalments paid to FCT GK 3 will be utilised first for the repayment of the Senior FCT Senior Units. When the FCT Senior Unit Subscriber has been fully repaid the subordinated loan and reserve account in FCT GK 3 will be repaid. The FCT Senior Unit Subscriber should be fully repaid in July 2022.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
88
23. AMOUNTS DUE FROM SUBSIDIARIES COMPANY (Continued)
Any loss on subordinated loans to subsidiary SPVs providing credit enhancement to the Company’s ABCP programmes will be offset by an equivalent reduction in the amount owed to the subsidiary SPV it is providing credit enhancement in respect of and therefore there will be net loss of zero.
24. LEASED ASSETS HELD FOR RESALE
2021
2020
€
€
Leased assets held for resale
895,995
2,686,736
The value of leased assets for resale are recognised in the statement of financial position on the basis of historical selling prices for similar assets.
The 2020 comparative was included in finance lease receivables due within one year in the previous years financial statements. The leased assets held for resale has been disclosed separately in the 2021 financial statements in order to assist the reader of the accounts.
25. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY
2021
2020
€
€
Finance lease receivables due after one year
1,154,930,210
1,254,536,496
Expected credit loss allowance on performing
finance lease receivables
(23,536,008)
(33,502,771)
1,131,394,202
1,221,033,725
Finance lease receivables due within one year
643,697,991
644,018,647
Finance lease receivables past due not credit
impaired
12,181,110
20,689,852
Non performing finance lease receivables
163,556,430
154,450,277
Expected credit loss allowance on non performing
finance lease receivables
(124,427,292)
(108,982,107)
Expected credit loss allowance on performing
finance lease receivables
(13,845,145)
(17,270,461)
681,163,094
692,906,208
The comparative figures for 2020 have been restated to exclude leased assets held for resale of €2,686,736. Leased assets held for resale are now disclosed on the face of the statement of financial position.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
89
25. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
The cost of assets acquired for the purpose of leasing under finance leases during the period
was €624m (2020: €658m). During 2021, the Group and Company made a net investment in new finance leases of €660m (2020: €696m). In addition to the cost of the assets, the net investment includes commissions paid to the agents and dealers less any upfront payments and document fees paid by the lessee.
€290m (2020: €417m) of the finance lease receivables provide security in the event of the Group and Company defaulting on its obligations in respect of asset based financial liabilities details of which are provided in note 37.
€839m (2020: €911m) of the finance lease receivables provide security in the event of the Group and Company defaulting on its obligations in respect of amounts due to Grenke Bank AG details of which are provided in note 35.
A reconciliation of the gross investment in finance lease receivables to the net investment is set out below together with the maturity of the lease payments.
2021
2020
€
€
Outstanding minimum lease payments
1,967,934,969
2,061,761,461
Guaranteed residual values
528,526
567,797
Outstanding minimum lease payments
1,968,463,495
2,062,329,258
Non-guaranteed residual values
234,057,005
229,575,567
Gross investment
2,202,520,500
2,291,904,825
Present value of unguaranteed residual values
(204,063,346)
(192,444,480)
Unrealised finance income
(228,154,759)
(218,209,553)
Present value of minimum lease payments
1,770,302,395
1,881,250,792
Present value of unguaranteed residual values
204,063,346
192,444,480
Expected credit loss allowance
(161,808,445)
(159,755,339)
Net investment
1,812,557,296
1,913,939,933
2021
2020
€
€
Due within one year
877,221,206
872,420,862
Due between one and two years
505,354,266
541,469,360
Due between two and three years
331,581,779
368,065,703
Due between three and four years
172,301,434
204,359,238
Due between four and five years
71,498,893
67,800,213
Due in greater than five years
9,977,391
7,646,085
Outstanding minimum lease payments
1,967,934,969
2,061,761,461
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
90
25. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
Due to effective risk management and a granular contract and lessee portfolio, the leasing receivables have a pronounced diversified risk structure with regard to credit risk quality. In all cases, the Company and Group remains the legal owner of the leased assets by which the leasing receivables are secured.
The following overview shows the gross receivables broken down into the default risk rating class of the leasing receivables defined in the Company and Group and the expected credit loss allowance on the leasing receivables in 2021 and 2020. The impairment loss and the definition of the default risk rating class are determined by the procedure described in the
accounting policy note 4(g) & 4 (p) “Use of assumptions and estimates” under the heading “Determination of impairment of finance lease receivables.”
2021
2021
2021
2021
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Category 0: low risk
1,636,736,495
119,365,023
12,461,508
1,768,563,026
Category 1: higher risk
30,956
13,249,129
28,966,200
42,246,285
Category 2-7 doubtful receivables
-
-
163,556,430
163,556,430
Total gross receivables
1,636,767,451
132,614,152
204,984,138
1,974,365,741
Expected credit loss allowance
(15,951,590)
(14,040,914)
(131,815,941)
(161,808,445)
Carrying amounts
1,620,815,861
118,573,238
73,168,197
1,812,557,296
2020
2020
2020
2020
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Category 0: low risk
1,689,572,177
138,796,962
26,321,638
1,854,690,777
Category 1: higher risk
-
15,248,692
48,696,810
63,945,502
Category 2-7 doubtful receivables
-
-
155,058,993
155,058,993
Total gross receivables
1,689,572,177
154,045,654
230,077,441
2,073,695,272
Expected credit loss allowance
(21,056,132)
(15,750,067)
(122,949,140)
(159,755,339)
Carrying amounts
1,668,516,045
138,295,587
107,128,301
1,913,939,933
The following tables show changes in expected credit loss allowance for finance lease receivables in the years beginning 1 January 2021 and 1 January 2020:
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
91
25. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Expected credit loss allowance
as per January 1, 2021
21,056,132
15,750,067
122,949,140
159,755,339
Newly extended or acquired
financial assets*
6,412,312
2,305,690
4,056,704
12,774,706
Reclassifications
-
-
-
-
to Stage 1
1,952,969
(997,481)
(955,488)
-
to Stage 2
(805,073)
4,917,097
(4,112,024)
-
to Stage 3
(659,633)
(3,136,887)
3,796,520
-
Change in credit loss allowance
due to change in stage
(1,660,073)
(1,478,756)
16,960,111
13,821,282
Mutually agreed termination of
contracts or payment for
financial assets (without
derecognition)
(7,675,240)
(5,019,996)
(11,866,770)
(24,562,006)
Change in credit loss allowance
due to change in processing
category (processing categories
explained in note 4 (p))
-
-
11,516,643
11,516,643
Change in models/risk
parameters used in extra credit
loss allowance calculation
(3,912,154)
703,834
9,877,500
6,669,180
Derecognition of financial assets
(4,451)
(24,459)
(21,366,963)
(21,395,873)
Currency translation and other
differences
(1,293)
(2,629)
(4,117)
(8,039)
Accrued interest
1,248,094
1,024,434
964,685
3,237,213
Expected credit loss allowance
as per 31 December, 2021
15,951,590
14,040,914
131,815,941
161,808,445
*The values stated in Stages 2 and 3 relate to lease receivables newly extended in the fiscal year that were allocated at their time of acquisition into Stage 1 but were reallocated to another Stage during the fiscal year.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
92
25. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Expected credit loss allowance
as per January 1, 2020
14,367,732
13,107,870
90,508,189
117,983,791
Newly extended or acquired
financial assets*
6,106,904
3,233,219
6,469,391
15,809,514
Reclassifications
-
to Stage 1
1,663,685
(1,337,899)
(325,786)
-
to Stage 2
(1,209,950)
2,919,652
(1,709,702)
-
to Stage 3
(1,036,651)
(4,889,410)
5,926,061
-
Change in credit loss allowance
due to change in stage
(1,340,337)
2,493,516
26,186,963
27,340,142
Mutually agreed termination of
contracts or payment for
financial assets (without
(6,274,698)
(4,089,850)
(10,454,323)
(20,818,871)
derecognition)
Change in credit loss allowance
due to change in processing
category (processing categories
explained in note 4 (p))
-
-
13,076,355
13,076,355
Change in contractual cash flows
due to modification (no derecognition)
derecognition)
5,604,106
2,915,916
1,647,113
10,167,135
Change in models/risk
parameters used in extra credit
loss allowance calculation
1,989,643
391,459
13,606,872
15,987,974
Derecognition of financial assets
(7,614)
(79,673)
(24,527,127)
(24,614,414)
Currency translation and other
differences
5,671
4,476
1,904,867
1,915,014
Accrued interest
1,187,641
1,080,791
640,267
2,908,699
Expected credit loss allowance
as per 31 December, 2020
21,056,132
15,750,067
122,949,140
159,755,339
*The values stated in Stages 2 and 3 relate to lease receivables newly extended in the fiscal year that were allocated at their time of acquisition into Stage 1 but were reallocated to another Stage during the fiscal year.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
93
25. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
The following table reconciles the expected credit loss allowance on finance lease receivables to the charge in the statement of profit or loss:
2021
2020
€
€
Expected credit loss allowance at 1 January
159,755,339
117,983,791
Expected credit loss allowance on finance
lease receivables charged to the statement of profit
or loss
28,260,302
66,385,962
Exclude write off of lease receivables
(26,207,196)
(24,614,414)
Expected credit allowance at 31 December
161,808,445
159,755,339
A sensitivity analysis on the possible expected credit loss allowances due to changes in the credit performance of the Group and Company lessees is set out in note 48.
26. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY
2021
2020
€
€
Amount due in greater than one year
Secured amounts due from GRENKE AG Group
undertakings
24,460,314
28,866,126
Unsecured amounts due from GRENKE AG Group
undertakings
564,453,799
1,079,661,056
Expected credit loss allowance
(2,547,376)
(15,539,307)
586,366,737
1,092,987,875
Amount due in less than one year
Secured amounts due from GRENKE AG Group
undertakings
25,255,982
24,984,288
Unsecured amounts due from GRENKE AG Group
undertakings
1,012,874,166
1,050,703,289
Expected credit loss allowance
(3,821,504)
(15,078,962)
1,034,308,644
1,060,608,615
The secured amounts are in respect of payments made to purchase lease instalments from GRENKE AG Group companies. The lease instalments purchased from the GRENKE AG Group companies remain as an asset in the GRENKE AG Group companies’ financial statements because the GRENKE AG Group companies have retained substantially all of the
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
94
26. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY (Continued)
risks and rewards of the asset ownership and also retains control of the transferred asset. The net present value of the securitised lease receivables is in excess of the securitised amount.
The unsecured amounts due from GRENKE AG Group undertakings are monies loaned to group undertakings to finance their leasing activities and amounts due from Grenke AG Group undertakings on clearing accounts. Unsecured amounts are usually loaned for periods of three years with the full principal being repayable at the end of the three year period, or if loaned for a different term at the end of that term. Interest is charged on the principal at Euribor plus a spread, which reflects the risk premium on the lending, and, if loaned in currencies other than Euro, the currency risk.
From the amounts due from group undertakings 73% (2020: 73%) have a fixed interest rate and 27% (2020: 27%) have a variable interest rate. The weighted average maturity period and
the weighted average effective interest rate of the amounts due from Group companies during the financial year are:
2021
2020
€
€
Weighted average maturity period in years
0.84
1.96
Weighted average effective interest rate (in %)
2.28%
2.18%
The following table shows the maturity structure of the amounts due from group companies without any adjustment for extra credit loss allowances.
Less than 1 year
1 to 5 Years
More than 5 Years
Total
€
€
€
€
Current year 31.12.21
1,038,130,148
588,914,113
-
1,627,044,261
Previous Year 31.12.2020
1,075,687,577
1,108,383,106
144,076
2,184,214,759
The following overview shows the amount due from group companies broken down into the default rating class. The Company and Group have concluded that the most appropriate measurement for future expected credit losses in respect of the unsecured balances €1.6bn (2020: €2.1bn) of the amounts due to group companies is to use the GRENKE AG 1-Year Default Risk from Bloomberg. An explanation of why we use the Bloomberg GRENKE AG 1-Year default is set out in accounting policy note 4 (p). The amounts referred to here are all classified in Stage one. The Expected credit loss allowances in respect of these amounts are €4.4m (2020: €27.9m).
The secured amounts of €49.7m (2020: €53.8m) are due from Grenke AG group companies in Slovakia, Czech Republic, Romania and United Arab Emirates. They relates to payments
made to purchase lease instalments. The Group and Company under the terms of the financing agreement have the risk of impairment and therefore the Group and Company has provided for expected losses on the underlying lease receivables. As at 31 December 2021 the Grenke AG group companies in Slovakia, Romania and United Arab Emirates have always bought
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
95
26. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY (Continued)
back the non performing leases at the net present value of the amount due to the Company in order to avoid increased financing charges under the terms of the financing agreement and
consequently the Group and Company has not incurred losses on these loans. The relevant amounts due from these three sister companies was €38m in 2021 and €39m in 2020. All of
the balances in the tables below at Stage 2 and Stage 3 relate to secured amounts due from Grenke AG Group companies. There is also expected credit loss allowances of €1,193,749 (2020: €1,320,797) in respect of secured amounts due from Grenke AG Group companies in Stage One.
2021
2021
2021
2021
2020
Stage 1
Stage 2
Stage 3
Total
Total
€
€
€
€
€
Category 0: low risk
1,619,827,328
3,361,642
780,115
1,623,969,085
2,179,152,864
Category 1: higher risk
-
613,687
2,461,489
3,075,176
5,061,895
Category 2-7 doubtful receivables
-
-
-
-
-
Total gross receivables
1,619,827,328
3,975,329
3,241,604
1,627,044,261
2,184,214,759
Expected credit loss allowance
(5,562,945)
(269,466)
(536,469)
(6,368,880)
(30,618,269)
Carrying amounts
1,614,264,383
3,705,863
2,705,135
1,620,675,381
2,153,596,490
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
96
26. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY (Continued)
The following tables show changes in the expected credit loss in the years beginning 1 January 2021 and 1 January 2020:
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Expected credit loss allowance
as per January 1, 2021
29,250,371
297,752
1,070,146
30,618,269
Newly extended or acquired
financial assets
476,673
35,603
53,708
565,984
Reclassifications
-
-
-
-
to Stage 1
281,671
(107,366)
(174,305)
-
to Stage 2
(124,425)
268,789
(144,364)
-
to Stage 3
(58,978)
(28,355)
87,333
-
Change in credit loss allowance
due to change in stage
(222,251)
(93,842)
110,530
(205,563)
Mutually agreed termination of
contracts or payment for
financial assets (without
derecognition)
(7,960,953)
(136,391)
(333,907)
(8,431,251)
Change in credit loss allowance
due to change in processing
category (processing categories
explained in note 4 (p))
-
-
(38,034)
(38,034)
Change in models/risk
parameters used in extra credit
loss allowance calculation
(16,293,801)
-
-
(16,293,801)
Derecognition of financial assets
-
(13)
(11,508)
(11,521)
Currency translation and other
differences
47,751
3,567
(171,580)
(120,262)
Accrued interest
166,887
29,722
88,450
285,059
Expected credit loss allowance
as per 31 December, 2021
5,562,945
269,466
536,469
6,368,880
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
97
26. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY (Continued)
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Expected credit loss allowance
as per January 1, 2020
2,700,994
1,069,824
877,155
4,647,973
Newly extended or acquired
financial assets
3,645,573
83,574
67,501
3,796,648
Reclassifications
-
-
-
-
to Stage 1
732,781
(504,809)
(227,972)
-
to Stage 2
(54,387)
106,782
(52,395)
-
to Stage 3
(246,158)
(280,518)
526,676
-
Change in credit loss allowance
due to change in stage
(368,554)
(30,241)
320,060
(78,735)
Mutually agreed termination of
contracts or payment for
financial assets (without
derecognition)
(720,956)
(288,902)
(404,568)
(1,414,426)
Change in credit loss allowance
due to change in processing
category (processing categories
explained in note 4 (p))
-
-
(46,321)
(46,321)
Change in models/risk
parameters used in extra credit
loss allowance calculation
23,415,713
29,034
8,534
23,453,281
Derecognition of financial assets
-
(363)
(8,722)
(9,085)
Currency translation and other
differences
(86,339)
(18,818)
(79,990)
(185,147)
Accrued interest
231,704
132,189
90,188
454,081
Expected credit loss allowance
as per 31 December, 2021
29,250,371
297,752
1,070,146
30,618,269
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
98
27. AMOUNTS DUE FROM GRENKE AG GROUP FRANCHISEES CONSOLIDATED AND COMPANY
2021
2020
€
€
Amount due in greater than one year
Amounts due from GRENKE AG Group
franchisees
441,462
37,621,839
Expected credit loss allowance
(1,223)
(492,846)
440,239
37,128,993
Amount due in less than one year
Secured amounts due from GRENKE AG Group
franchisees
58,854,828
-
Amounts due from GRENKE AG Group
franchisees
104,233,369
105,103,676
Expected credit loss allowance
(451,754)
(1,376,858)
162,636,443
103,726,818
The amounts due from GRENKE AG Group franchisees are monies loaned to Grenke AG Group franchisees to finance their leasing and factoring activities. The amounts are usually loaned for periods of three years with the full principal being repayable at the end of the three year period, or if loaned for a different term at the end of that term. Interest is charged on the principal at Euribor plus a spread, which reflects the risk premium on the lending, and, if loaned in currencies other than Euro, the currency risk.
With respect to IFRS 9 and expected credit loss allowances all of the amount due from franchise companies are classified in Stage one because no amounts are past overdue. GRENKE AG has provided a guarantee in respect of all amounts due from franchise companies at 31 December 2021.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
99
28. TRADE AND OTHER RECEIVABLES CONSOLIDATED AND COMPANY
2021
2020
€
€
Non current assets
Overseas VAT
35,099,477
35,099,477
Overseas withholding tax
4,884,925
7,047,436
Deferred risk premium paid to Grenke Bank AG
23,405,164
27,841,175
Deferred risk premium paid to Grenke AG Group
companies
5,634
27,447
Deferred financing costs
342,358
-
63,737,558
70,015,535
Current assets
Overseas VAT
50,987,082
35,448,233
Deferred risk premium paid to Grenke Bank AG
19,487,533
21,570,239
Deferred risk premium paid to Grenke AG Group
companies
12,901
66,984
Deferred financing costs
700,278
-
Other assets
576,016
687,930
Trade debtors
2,833,273
2,253,512
Expected credit loss allowance
(1,706,986)
(1,810,282)
Interest on tax repaid late
762,174
-
73,652,271
58,216,616
Included in overseas VAT is €35,099,476 due from the Italian Tax Authorities in respect of the years 2009 to 2011. Note 4 (p) discloses why the Directors have included this amount as a
receivable.
The Group and Company has been charged a risk premium in respect of lease instalments sold to GRENKE Bank AG as part of a financing arrangement described in note , the Group and Company writes this premium off over the life of the underlying lease instalments sold to GRENKE Bank AG.
Trade Debtors are amounts due from dealers in respect of termination of leases. All of the trade debtors which are over 180 days overdue are included in Stage 3. A 100% expected credit allowance of €1.7m (2020 €1.8m) has been made for all amounts 180 days overdue because all amounts due from dealers in respect of termination of leases is payable on presentation of the invoice. It is therefore unlikely than any amount which is 180 days overdue will be recovered.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
100
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
The fair values of derivative financial instruments are analysed by year of maturity and by accounting designation as follows:
Cash flow hedges
Not designated as hedges
Total
€
€
€
At 31 December 2021
Derivative assets
Within one year - current assets
276,538
1,470,233
1,746,771
Between one and five years
191,171
336,288
527,459
After five years
851,537
-
851,537
Non current assets
1,042,708
336,288
1,378,996
Total derivative assets
1,319,246
1,806,521
3,125,767
Derivative liabilities
Within one year - current liabilities
8,231,950
2,306,468
10,538,418
Between one and five years
966,343
714,797
1,681,140
After five years
7,182,519
-
7,182,519
Non-current liabilities
8,148,862
714,797
8,863,659
Total derivative liabilities
16,380,812
3,021,265
19,402,077
Net asset/(liability) arising on derivative financial instruments
(15,061,566)
(1,214,744)
(16,276,310)
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
101
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
The equivalent disclosure for the prior year is as follows:
Cash flow hedges
Not designated as hedges
Total
€
€
€
At 31 December 2020
Derivative assets
Within one year - current assets
3,719,444
828,876
4,548,320
Between one and five years
113,760
710,140
823,900
Total derivative assets
3,833,204
1,539,016
5,372,220
Derivative liabilities
Within one year - current liabilities
3,417,152
549,588
3,966,740
Between one and five years
5,582,791
469,641
6,052,432
After five years
13,081,588
-
13,081,588
Non-current liabilities
18,664,379
469,641
19,134,020
Total derivative liabilities
22,081,531
1,019,229
23,100,760
Net asset/(liability) arising on derivative financial instruments
(18,248,327)
519,787
(17,728,540)
The Euro amounts that will be received in respect of the euro leg of forward exchange contracts which have been accounted for as cash flow hedges are set out below. The foreign currency leg of the relevant forward exchange contract will be satisfied by utilising foreign currency loan repayments from Grenke AG Group undertakings and franchisees which are highly probable.
The Euro amounts that will be paid by the Group and Company to satisfy the Euro leg of foreign currency swaps are also included in the table below. The foreign currency received in respect of the foreign currency leg of the cross currency swap will be utilised to make fixed interest and capital repayments on foreign currency bonds.
Hedge Effectiveness
IFRS accounting requires documentation and a risk analysis when derivative financial instruments are employed. The relationship between the critical terms of the underlying
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
102
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
transaction and the hedging instrument determines the effectiveness of a hedging relationship. By employing derivatives for foreign currency hedging on foreign currency bonds and loans to
Group and Franchise Companies, the Group and Company applies hedge accounting in accordance with IFRS 9. Hedge effectiveness, as required by IFRSs, is in line with Group and Company’s intention of using derivatives only to hedge risks from the designated underlying transaction and to never enter into derivatives for speculative reasons.
To date, the hedging relationships between the cross-currency swaps and the foreign currency bonds has proven to be highly effective. The critical terms of the hedging instrument and the hedged item match. The hedging relationships between the foreign currency loans to group companies and franchise companies and the forward exchange contracts when there has been a hedging relationship designated has proven to be highly effective.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
103
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
One to Three months
Three to twelve months
One to five years
Five to ten years
Total
At 31 December 2021
Foreign exchange contracts (highly
probable loan repayments)
Notional amounts (in € 000)
4,652
4,652
Average forward rate (Eur/AED)
4.127
Notional amounts (in € 000)
55,160
55,160
Average forward rate (Eur/AUD)
1.652
Notional amounts (in € 000)
55,951
55,951
Average forward rate (Eur/CAD)
1.484
Notional amounts (in € 000)
6,338
6,338
Average forward rate (Eur/CHF)
1.041
Notional amounts (in € 000)
3,653
1,028
4,681
Average forward rate (Eur/CLP)
958.122
972.450
Notional amounts (in € 000)
6,993
19,034
47,908
73,935
Average forward rate (Eur/DKK)
7.436
7.434
7.443
Notional amounts (in € 000)
17,079
17,079
Average forward rate (Eur/GBP)
0.850
Notional amounts (in € 000)
8,629
8,629
Average forward rate (Eur/PLN)
4.636
Notional amounts (in € 000)
12,786
29,295
50,761
92,842
Average forward rate (Eur/SEK)
10.559
10.582
10.481
Notional amounts (in € 000)
20,562
20,562
Average forward rate (Eur/SGD)
1.624
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
104
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
One to Three months
Three to twelve months
One to five years
Five to ten years
Total
At 31 December 2021
Foreign exchange contracts (highly
probable loan repayments)
continued
Notional amounts (in € 000)
171
412
584
Average forward rate (Eur/USD)
1.167
1.213
Cross currency swaps (certain
foreign currency bond interest
and bond repayments)
Notional amounts (in € 000)
500
8,912
3,838
60,435
73,685
Average hedged rate (Eur/JPY)
115,858
115,858
115,858
115,858
Notional amounts (in € 000)
338
562
3,601
96,021
100,522
Average hedged rate (Eur/HKD)
9.76
9.76
9.76
9.76
One to Three months
Three to twelve months
One to five years
Five to ten years
Total
At 31 December 2020
Foreign exchange contracts (highly
probable loan repayments)
Notional amounts (in € 000)
18,876
32,390
51,266
Average forward rate (Eur/AUD)
1.695
1.696
Notional amounts (in € 000)
50,388
2,636
53,024
Average forward rate (Eur/CAD)
1.564
1.5780
Notional amounts (in € 000)
8,238
11,626
11,630
31,494
Average forward rate (Eur/CHF)
1.079
1.075
1.075
Notional amounts (in € 000)
5,127
5,127
Average forward rate (Eur/CLP)
878
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
105
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
One to Three months
Three to twelve months
One to five years
Five to ten years
Total
At 31 December 2020
Foreign exchange contracts (highly
probable loan repayments)
continued
Notional amounts (in € 000)
5,273
15,457
52,046
72,776
Average forward rate (Eur/DKK)
7.438
7.440
7.438
Notional amounts (in € 000)
72,331
11,051
83,382
Average forward rate (Eur/GBP)
0.902
0.905
Notional amounts (in € 000)
789
789
Average forward rate (Eur/PLN)
4.436
Notional amounts (in € 000)
12,438
18,031
64,456
94,925
Average forward rate (Eur/SEK)
10.452
10.537
10.627
Notional amounts (in € 000)
21,818
21,818
Average forward rate (Eur/SGD)
1.530
Notional amounts (in € 000)
412
412
Average forward rate (Eur/USD)
1.213
Cross currency swaps (certain
-
foreign currency bond interest
and bond repayments)
Notional amounts (in € 000)
500
500
12,291
61,394
74,685
Average hedged rate (Eur/JPY)
115.264
115.264
115.264
115.264
Notional amounts (in € 000)
338
560
3,603
96,919
101,420
Average hedged rate (Eur/HKD)
9.89
9.89
9.89
9.89
Notional amounts (in € 000)
23,208
23,208
Average hedged rate (Eur/Sek)
10.84
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
106
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
The nominal values and fair values of derivative financial instruments are shown in the following analysis. In accordance with internal guidelines, the nominal amounts of the derivative financial instruments correspond to the volume of exposures being covered with derivatives.
Nominal
Fair
Nominal
Fair
Value
Value
Value
Value
2021
2021
2020
2020
€
€
€
€
Assets
Cash flow hedges
Cross Currency Swaps
62,239,120
851,537
23,208,088
1,764,528
Forward Exchange Contracts
57,058,055
467,709
166,513,375
2,068,676
119,297,175
1,319,246
189,721,463
3,833,204
Not designated as hedges
Forward Exchange Contracts
(6,382,281)
1,806,521
37,421,288
1,539,016
112,914,894
3,125,767
227,142,751
5,372,220
Liabilities
Cash flow hedges
Cross Currency Swaps
111,968,137
7,987,074
176,105,941
13,623,160
Forward Exchange Contracts
283,352,589
8,393,738
248,498,117
8,458,371
395,320,726
16,380,812
424,604,058
22,081,531
Not designated as hedges
Forward Exchange Contracts
61,768,343
3,021,265
31,256,228
1,019,229
457,089,069
19,402,077
455,860,286
23,100,760
At 31 December 2021 and 2020, the Group and Company had no master netting or similar arrangements, or enforceable right of set-off agreements with any of its derivative counterparts.
Cash flow hedges consist of forward exchange contracts and cross-currency swaps. These instruments hedge risks arising to future cash flows from movements in foreign exchange rates. Cash flow hedges are expected to affect profit or loss over the period to maturity.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
107
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
The profit/(loss) arising on cash flow hedges and related hedged items reflected in the Statement of other comprehensive income is shown below:
Components of other comprehensive income -cash flow hedges
2021
2020
Gains/(losses) arising during the year
€
€
- cross currency swaps
4,723,095
(9,168,220)
- forward exchange contracts
309,110
(7,763,335)
- interest rate swaps
-
(26,661)
Reclassified into the statement of profit and loss
- cross currency swaps
(2,816,358)
9,690,379
- forward exchange contracts
(326,952)
7,840,289
1,888,895
572,452
2021
2020
Level 2
Level 2
Fair value hierarchy
€
€
Assets measured at fair value
Cash flows hedges
Cross currency swaps
851,537
1,764,528
Forward exchange contracts
467,709
2,068,676
Not designated as hedges
Forward exchange contracts
1,806,521
1,539,016
3,125,767
5,372,220
Liabilities measured at fair value
Cash flows hedges
Cross currency swaps
7,987,074
13,623,160
Forward exchange contracts
8,393,738
8,458,371
Not designated as hedges
Forward exchange contracts
3,021,265
1,019,229
19,402,077
23,100,760
At 31 December 2021 and 2020 there were no derivatives valued using Level 1 or Level 3 fair value techniques.
The inputs to level 2 valuations are set out in note 47.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
108
29. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
If the Group and Company were to default in their obligations under the derivative contracts the counterparty would be entitled to retain the cash in the credit support accounts of €14.2m
details of which are set out in note 32. The fair value of the relevant derivatives which these credit support accounts could be offset against are a negative value of €16.3m.
30. DEFERRED TAX CONSOLIDATED AND COMPANY
2021
2020
€
€
Deferred tax asset
16,569
248,586
2021
2020
Deferred tax asset is comprised of:
€
€
Taxable temporary differences attributable to accelerated
tax depreciation
373
(4,618)
Leased right of use assets
9,430
10,396
Other deductible temporary differences
603
532
Tax relating to cash flow hedges
6,163
242,276
16,569
248,586
2021
2020
€
€
Opening balance at start of year
248,586
309,654
Taxable temporary differences attributable to accelerated
tax depreciation
4,991
169
Leased right of use assets
(966)
10,396
Other deductible temporary differences
71
(78)
Tax relating to cash flow hedges
(236,113)
(71,555)
16,569
248,586
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
109
30. DEFERRED TAX CONSOLIDATED AND COMPANY (Continued)
Components of other comprehensive income -
2021
2020
Tax relating to cash flow hedges
€
€
Gains/(losses) arising during the year
- cross currency swaps
(590,387)
1,146,028
- forward exchange contracts
(38,639)
970,417
- interest rate swaps
-
3,333
Reclassified into the statement of profit and loss
- cross currency swaps
352,045
(1,211,297)
- forward exchange contracts
40,868
(980,036)
(236,113)
(71,555)
31. CORPORATION TAX
Corporation tax asset
2021
2020
Amounts due in greater than one year
€
€
Corporation tax receivable
3,882,462
4,690,688
Amounts due within one year
Corporation tax receivable
-
2,183,807
Corporation tax liability
Amounts due within one year
Corporation tax payable
908,019
-
Net asset
2,974,443
6,874,495
The Corporation Tax asset greater than one year relates an asset, which relates to a deduction, which has been claimed in respect of licence fees and guarantee fees of €31m, which were charged by GRENKE AG in respect of the years 2010 to 2016. A correlative relief claim was submitted to the Irish Tax Authorities on 8 February 2021 in respect of this amount.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
110
32. CREDIT SUPPORT ACCOUNTS
2021
2020
Assets
€
€
Credit support accounts
14,170,000
16,420,000
2021
2020
Liabilities
€
€
Credit support accounts
-
1,640,000
Net asset arising on support accounts
14,170,000
14,780,000
The Group and Company has credit support annex agreements with Deutsche Bank, HSBC, SEB, DZ Bank, Bayerische Landesbank, and Landesbank Hessen-Thüringen, which are dependent on the value of forward exchange contracts, and foreign currency swaps the Group
and Company has with the respective counterparty. The Group and Company places money on deposit with the respective counterparty if the value of the forward exchange contracts is in favour of the counterparty. If the value is in favour of the Group and Company, the counterparty places money on deposit with the Group and Company. Details of these forward exchange contracts and cross-currency swaps are included in note 29.
33. CASH AND CASH EQUIVALENTS
2021
2020
€
€
Restricted cash
11,759,998
10,862,253
Unrestricted cash
127,764,353
132,812,124
139,524,351
143,674,377
The restricted cash relates to cash held on trust for Coral Purchasing (Ireland) 2 DAC which is a special purpose vehicle which buys lease receivables from the Company’s parent GRENKE AG and to whom the Group and Company provides subordinated loans. The liability to Coral Purchasing (Ireland) 2 DAC is included in bank loans and cash held on trust, see Note 39. The asset in cash and cash equivalents and the liability in bank loans and cash held on trust net to zero in 2021 and 2020.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
111
34. DEBT SECURITIES IN ISSUE CONSOLIDATED AND COMPANY
2021
2020
€
€
Repayable in more than one year
but less than five years
Bonds
1,744,500,000
2,064,905,763
Promissory loan note
37,000,000
87,000,000
Unamortised premium/(discount) on bonds and notes in issue
1,497,317
(4,313,444)
Repayable in more than five years
Bonds
185,755,596
263,425,185
Promissory loan note
13,000,000
131,000,000
Unamortised discount on bonds and notes in issue
(68,498)
(240,502)
1,981,684,415
2,541,777,002
Repayable in less than one year
Bonds
527,669,888
339,914,543
Promissory loan note
20,000,000
95,000,000
Unamortised discount on bonds and notes in issue
(169,915)
(1,475,947)
547,499,973
433,438,596
2,529,184,388
2,975,215,598
The bonds in issue at 31 December 2021 under the debt issuance programme comprise:
Interest
Currency
Issue volume
Weighted average
Weighted average
in millions
maturity period
effective interest rate
(in years)
(in %)
Fixed
Eur
2,306
2.15
1.56
Fixed
JPY
8,000
6.66
0.89
Fixed
HKD
800
7.89
2.72
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
112
34. DEBT SECURITIES IN ISSUE CONSOLIDATED AND COMPANY (Continued)
The bonds in issue at 31 December 2020 under the debt issuance programme comprise:
Interest
Currency
Issue volume
Weighted average
Weighted average
in millions
maturity period
effective interest rate
(in years)
(in %)
Variable
Eur
20
0.53
0.14
Fixed
Eur
2,476
3.47
1.27
Fixed
JPY
8,000
7.66
0.89
Fixed
HKD
800
8.89
2.72
Fixed
SEK
250
0.78
0.65
The bonds issued carry an unconditional and irrevocable guarantee for the proper and punctual payment of principal, interest and other amounts due on the debenture from the ultimate parent GRENKE AG.
The Debt Issuance Programme (DIP) provides a standardised framework for future borrowings. The DIP allows the Company to have in issue bonds with nominal value of €5bn at any time. These bonds are listed on the Luxembourg Stock Exchange. The programme was updated with effect as of 9 July 2021. The programme was approved by the Finance Sector Supervisory Committee (“Commission de Surveillance du Secteur Financier”: CSSF).
No (2020: €210m) euro bonds were issued in the current year under the Debt Issuance Programme. An addition of €125m (2020: € nil) was added to a bond already issued. The net proceeds on the addition to the bond was €130.9m due to a premium net of fees being received on the bond of €5.9m.
Bonds with a nominal amount of €315m (2020: €273m) were repaid in 2021.
A foreign currency bond of SEK 250m was also repaid. The Euro equivalent amount repaid was €23.1m.
Under the terms of cross-currency swaps put in place when the foreign currency bonds were issued €159m (2020: €182m) will be repayable when the bonds mature. Under the terms of the foreign currency swaps the following amounts will be payable annually to pay interest, foreign currency swap fees and bond fees on the foreign currency bonds. The € amounts payable will not change over the life of the foreign currency bonds under the terms of foreign currency swaps.
Foreign currency
Euro amount
Annual
Effective
bond
Repayable
Payment
Interest Rate
Final Payment
¥7,000,000,000
€57,556,323
€959,464
1.67%
02/07/2029
¥1,000,000,000
€8,412,127
€40,799
0.49%
20/09/2022
HK$500,000,000
€57,745,589
€561,691
0.97%
13/09/2029
HK$300,000,000
€35,238,565
€338,290
0.96%
11/03/2030
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
113
34. DEBT SECURITIES IN ISSUE CONSOLIDATED AND COMPANY (Continued)
The promissory loan notes in issue at 31 December 2021 comprise:
Interest
Currency
Issue volume
Weighted average
Weighted average
in millions
maturity period
effective interest rate
(in years)
(in %)
Fixed
Eur
70
1.92
1.14
The promissory loan notes in issue at 31 December 2021 comprise:
Interest
Currency
Issue volume
Weighted average
Weighted average
in millions
maturity period
effective interest rate
(in years)
(in %)
Fixed
Eur
313
3.47
1.27
All promissory notes are bullet debt securities and are subject to constant rating. Promissory notes with a par value of €nil (2020: €19m) were issued in the current year. Promissory notes with a par value of €243m (2020: €57.5m) were repaid in the current year. If the Standard & Poor’s rating for the GRENKE AG Group were to be downgraded below BBB− there is a step up clause in the Group and Company’s promissory note agreements. If that happens, the noteholder can cancel the contract and seek immediate repayment or the noteholder will be entitled to a step up on the interest rate of 0.75% on top of the initially agreed interest rate. GRENKE AG’s Group rating is currently BBB+ by Standard & Poor.
The discounts are released to the Statement of Profit and Loss over the term of the debt securities.
35. AMOUNT OWED TO GRENKE BANK AG CONSOLIDATED AND COMPANY
2021
2020
€
€
Amount due after one year:
Amount owed to GRENKE Bank AG
484,724,617
555,561,982
Amount due in less than one year:
Amount owed to GRENKE Bank AG
311,534,336
316,974,615
The amounts due to GRENKE Bank AG are in respect of proceeds received for the sale of lease instalments. Interest is payable on the balances due to GRENKE Bank AG at an average rate of interest of 1.63% (2020: 1.52%).
The lease instalments sold to Grenke Bank AG remain on the statement of financial position because the Company has retained substantially all of the risks and rewards of the asset ownership and also retains control of the transferred asset. The amounts due to Grenke Bank AG are a refinancing liability and the sale of the lease instalments is to securitise that refinancing liability.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
114
35. AMOUNT OWED TO GRENKE BANK AG CONSOLIDATED AND COMPANY (continued)
The tables below show the amounts due to GRENKE Bank AG and the net present value of the lease receivables in respect of which the lease instalments due for the balance of the primary period have been sold to GRENKE Bank AG.
2021
2020
€
€
Amount due to GRENKE Bank AG
796,258,953
872,536,597
Net present value of lease receivables sold to
Grenke Bank AG recognised as an asset
838,514,197
911,984,329
Net difference
(42,255,244)
(39,447,732)
36. AMOUNT OWED TO GRENKE AG GROUP UNDERTAKINGS
2021
2020
€
€
Amount due on current account
19,088,538
7,400,426
Amount due on cash pool accounts
73,061,117
34,197,653
92,149,655
41,598,079
The amounts due on current account are the intergroup account balances with GRENKE AG Group companies. The balances on the intergroup accounts are non interest bearing and they are not secured.
The cash pool amounts due are surplus cash from GRENKE AG Group companies placed on overnight deposit with the Group and Company. The cash pool balances are interest bearing and they are not secured.
37. ASSET BASED FINANCIAL LIABILITIES CONSOLIDATED
2021
2020
€
€
Non current liabilities
Amount due after one year
81,097,128
193,991,620
Deferred set up costs
-
(57,399)
81,097,128
193,934,221
Current liabilities
Amount due in less than one year
97,403,213
157,296,595
Deferred set up costs
(56,290)
(99,824)
97,346,923
157,196,771
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
115
37. ASSET BASED FINANCIAL LIABILITIES CONSOLIDATED (Continued)
Asset based financial liabilities are liabilities in connection with the ABCP programmes.
The following consolidated special purpose vehicles were in place at the year end date FCT "GK"-COMPARTMENT "G 2" and Elektra Purchase No. 25 Designated Activity Company (UniCredit is the sponsoring bank) (FCT GK 2), FCT GK 3 (HSBC is the sponsoring bank) and FCT "GK"-COMPARTMENT "G 4" (Landesbank Hessen-Thuringern Girozenrale (HeLeBa) is the sponsoring bank) (FCT GK 4).
The ABCP programmes grant the Group and Company the right to refinance or to sell receivables to the respective programmes for a certain period of time. The cap on the purchase
volume is determined by the volume of the programme, which is normally backed by the organising bank in the form of a liquidity commitment in the corresponding amount. The carrying amount is calculated using the effective interest method, whereby incurred transaction costs are amortised over the term of the underlying refinancing package.
The structured entities are refinanced by issuing commercial papers, usually with a term of one month, on a revolving basis. The interest on the commercial papers is based on one-month Euribor. This is a floating interest rate.
There is no currency risk in ABCP refinancing as only euro transactions and euro-based leases are involved.
The asset based liabilities in connection with each ABCP programme and the net present value of the lease receivables which have been sold to the SPV to securitise that liability are set out below:
Asset Based
NPV of lease
Asset Based
NPV of lease
liability
receivables
liability
receivables
sold to SPV
sold to SPV
2021
2021
2020
2020
SPV
€
€
€
€
FCT GK2
(48,306,900)
59,299,036
(116,267,417)
142,602,039
FCT GK3
(27,315,462)
68,902,455
(87,964,620)
123,905,165
FCT GK4
(102,877,979)
116,552,671
(147,056,178)
149,806,328
(178,500,341)
244,754,162
(351,288,215)
416,313,532
The net present value of the lease receivables sold to the SPV remain on the statement of financial position because the Company has retained substantially all of the risks and rewards of the asset ownership and also retains control of the transferred asset. The amounts due to SPV are a refinancing liability and the sale of the lease receivables is to securitise that refinancing liability.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
116
37. ASSET BASED FINANCIAL LIABILITIES CONSOLIDATED (Continued)
Professional fees of €299,194 were incurred in setting up FCT GK 4. These fees have been classified as deferred set up costs and will be amortised to the statement of profit or loss from
the date that the first lease receivables were sold to FCT GK4, which was 6 August 2019, and the earliest date that the programme may be terminated which is 5 August 2022.
If no options are taken to terminate the ABCP programmes at an earlier date the latest date currently the company can sell leasing receivables is April 2023 subject to UniCredit’s consent FCT GK 2 and December 2024 for FCT GK 4.
The option to terminate FCT GK 3 has been taken and if the existing lease receivables held by FCT GK 3 are not bought back by the company at an earlier stage the last lease receivables would mature in February 2025. It is planned that the asset based liability in respect of FCT GK 3 will be fully repaid by July 2022.
38. AMOUNT OWED TO SUBSIDIARY SPVs COMPANY STATEMENT OF FINANCIAL
POSITION
2021
2020
€
€
Amount due after one year
86,979,577
243,978,507
Deferred set up costs
-
(57,399)
86,979,577
243,921,108
Amount due in less than one year
157,774,585
172,335,025
Deferred set up costs
(56,290)
(99,824)
157,718,295
172,235,201
The amounts owed to the SPVs in the Company balance sheet are equal to the net present value of the lease receivables sold to the SPVs, FCT GK 2, FCT GK 3 and FCT GK4 to securitise the funding provided by the SPV to the Company. Details of ABCP programmes are provided in note 37.
The Company has provided subordinated loans of €55m details of which are in note 22 and note 23. The subordinated loans provide additional security in respect of the amounts owed to the SPVs.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
117
39. BANK LOANS AND CASH HELD ON TRUST CONSOLIDATED AND COMPANY
2021
2020
€
€
Amount due after one year:
European investment bank loan
10,000,000
10,000,000
Syndicated loan facility
50,000,000
-
Cash held in trust
11,759,998
10,862,253
61,759,998
10,862,253
The Group and Company has one loan of €10m provided by the European Investment Bank(EIB) at an interest rate of 0% which is repayable on 17 March 2023.
The Group and Company’s parent Grenke AG signed a syndicated revolving loan facility with seven banks for an initial period of two years on 30 June 2021. The seven banks will provide short term revolving loans of up to €250m in total under the facility. Under the terms of the facility the Group and Company may draw down funds of up to €250m for short term periods. The Group and Company sister companies in Switzerland and the United Kingdom are also permitted to utilise the facility up to €75m each. At 31 December 2021 the Group and Company had one outstanding loan under the facility of €50m which was drawn down on 6 December 2021 and was repayable on 6 January 2022 at an interest rate of 0.8%.
39. BANK LOANS AND CASH HELD ON TRUST CONSOLIDATED AND COMPANY (Continued)
The Group and Company is holding cash on trust of €11.8m (2020: €10.8m) at 31 December 2021 for Coral Purchasing (Ireland) 2 DAC. The bank account where the cash is held is included as restricted cash in cash and cash equivalents and details are set out in note 33. The asset in cash and cash equivalents and the liability in bank loans and cash held on trust net to zero in 2021 and 2020.
40. LEASE LIABILITIES CONSOLIDATED AND COMPANY
2021
2020
€
€
Lease liabilities due in greater than one year
332,023
490,135
Lease liabilities due within one year
378,939
263,019
The Group and Company has only four leases. The leases are in respect of Units 209/210, Unit 310, Unit 306/307 and Unit 410/411, Q House, Furze Road, Sandyford Industrial Estate, Dublin 18. The Group and Company has an option to terminate all four of the leases on 6 November 2023.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
118
40. LEASE LIABILITIES CONSOLIDATED AND COMPANY (continued)
These lease liabilities are accounted for in accordance with IFRS 16. Details of the right of use assets related to these lease liabilities are included in note 20.
The lease liabilities at the time of first application were discounted using individual marginal borrowing rates as of January 1, 2019. The weighted average marginal borrowing rate as of January 1, 2019 was 1.17% per annum.
On initial application of IFRS 16 as of 1 January 2019, a liability of €1,273,238 was recognised.
A rent review in respect of unit 306/307 effective from 1 August 2019 was agreed on 27 August 2021. Under the terms of the rent review the rent on unit 306/307 has increased from €65,915 to €118,293 from 1 August 2019.
An additional liability under IFRS 16 of €221,612 was recognised due to the rent review. Rental payments of €270,576 (2020: €270,662) have been offset in 2021 against the initial liability and an interest charge of €6,857 (2020: €9,227) has been added to the liability to arrive at the lease liability as of 31 December 2021 of €710,962 (2020: €753,154).
41. DEFERRED INCOME CONSOLIDATED AND COMPANY
2021
2020
€
€
Amounts due after one year
Deferred income on financial guarantee
3,120
93,363
2021
2020
Amounts due within one year
€
€
Deferred income on financial guarantee
83,719
367,573
Deferred interest income
39,650
14,383
123,369
381,956
The deferred income on financial guarantee is explained in note 51 to the financial statements.
42. ACCRUALS CONSOLIDATED AND COMPANY
2021
2020
€
€
Other accrued expenses
1,455,421
1,362,477
Trade creditors
8,086,638
8,962,829
Social welfare tax payable
44,993
38,641
Accrued interest
21,868,616
25,325,517
Irish vat
46,082
22,947
31,501,750
35,712,411
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
119
43. CALLED UP SHARE CAPITAL CONSOLIDATED AND COMPANY
2021
2020
€
€
Authorised
Ordinary shares of €1 each
50,000
50,000
Allotted, called up and fully paid
Ordinary shares of €1 each
50,000
50,000
44. CASH FLOW HEDGE RESERVE
The following table shows the reconciliation of the cash flow hedge reserve
2021
2020
€
€
Balance at 1 January
(1,695,922)
(2,196,819)
Gains/(losses) arising during the year
- cross currency swaps
4,723,095
(9,168,220)
- forward exchange contracts
309,110
(7,763,335)
- interest rate swaps
-
(26,661)
Reclassified into the statement of profit and loss
- cross currency swaps
(2,816,358)
9,690,379
- forward exchange contracts
(326,952)
7,840,289
Taxes on unrealised gains/losses and on reclassifications
(236,113)
(71,555)
Balance at 31 December
(43,140)
(1,695,922)
45. TRANSACTIONS WITH OWNERS OF THE COMPANY CONTRIBUTIONS AND DISTRIBUTION
2021
2020
€
€
Distribution
120,000,000
90,000,000
The Group and Company paid a dividend to its parent company Grenke AG on 28 December 2021 (2020: 22 December 2020). There have been no dividends paid, proposed or declared since 31 December 2021.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
120
46. RECONCILIATION OF LIABILITIES FROM FINANCING ACTIVITIES TO THE
CONSOLIDATED STATEMENT OF CASH FLOWS
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
121
47. FAIR VALUE OF FINANCIAL INSTRUMENTS CONSOLIDATED
Measurement Methods and Input Parameters Used
The following table presents the measurement methods used to determine the fair values and the applied input parameters and assumptions:
Type and level
Measurement method
Input parameters
FAIR VALUE HIERARCHY LEVEL 1
Exchange-listed bonds
n/a
quoted market price as per the reporting date
FAIR VALUE HIERARCHY LEVEL 2
Forward exchange contracts
market-to-market
discounted present value of estimated future cash flows
available interest rates at the end of the term in the traded currencies using the own counterparty risk (Debt Value Adjustment [DVA]) or the counterparty's credit risk (CVA [Credit Value Adjustment]) derived from available credit default swap (CDS) quotes
Cross-currency swaps
market-to-market
discounted present value of estimated future cash flows
available interest rates at the end of the term in the traded currencies using the own counterparty risk (Debt Value Adjustment [DVA]) or the counterparty's credit risk (CVA [Credit Value Adjustment]) derived from available credit default swap (CDS) quotes
Subordinated loans
Discounted present value of estimated
future cash flows
Available interest rates at comparable conditions and residual terms using the counterparty’s credit risk.
Other financial assets
Discounted present value of estimated
future cash flows
Available interest rates at comparable conditions and residual terms using the counterparty’s credit risk.
Financial liabilities (liabilities from the refinancing of the leasing business, promissory notes, bank liabilities)
Discounted present value of estimated
future cash flows
Available interest rates at comparable conditions and residual terms using the own credit risk (Debt Value Adjustment (DVA)
Fair Values of Subordinated Loans and Derivative Financial Instruments
At the end of the reporting period, all derivative financial instruments and subordinated loans to special purpose vehicles which provide credit enhancement to senior investors in special purpose vehicles which buy lease receivables from the Group’s parent Grenke AG are recognised at fair value by the Group. All subordinated loans and derivative financial instruments are assigned to level 2 of the fair value hierarchy.
The fair value of subordinated loans and derivative financial instruments are set out below:
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
122
47. FAIR VALUE OF FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY (Continued)
Fair Values of Subordinated Loans and Derivative Financial Instruments (Continued)
Fair Value
Fair Value
and carrying
and carrying
amount
amount
31-Dec-21
31-Dec-20
€
€
Financial assets
Subordinated loans
27,223,118
22,099,466
Cross currency swaps
designated as cash flow
hedges
851,537
1,764,528
Forward exchange contracts
designated as cash flow
hedges
467,709
2,068,676
Forward exchange contracts
not designated as hedges
1,806,521
1,539,016
Total
30,348,885
27,471,686
Fair Value
Fair Value
and carrying
and carrying
amount
amount
31-Dec-21
31-Dec-20
€
€
Financial Liabilities
Cross currency swaps
designated as cash flow
hedges
7,987,074
13,623,160
Forward exchange contracts
designated as cash flow
hedges
8,393,738
8,458,371
Forward exchange contracts
not designated as hedges
3,021,265
1,019,229
Total
19,402,077
23,100,760
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
123
47. FAIR VALUE OF FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY (Continued)
Fair Values of Subordinated Loans and Derivative Financial Instruments (Continued)
The fair value of the subordinated loans is measured by applying Euro cost of borrowing plus the Grenke AG risk of default to the projected future cash flows from the subordinated loans.
The projected future cash flows were discounted at 31 December 2021 and at 31 December 2020 on the basis of the following interest rates:
2021
2020
%
%
Interest rate for 3 months
-0.568%
-0.310%
Interest rate for 6 months
-0.500%
0.449%
Interest rate for 9 months
-0.380%
not used
Interest rate for 1 year
-0.205%
0.781%
Interest rate for 2 years
0.780%
1.650%
Interest rate for 3 years
1.614%
2.160%
Interest rate for 4 years
2.160%
2.561%
Interest rate for 5 years
2.558%
2.821%
Interest rate for 6 years
2.614%
not used
Fair values of forward exchange contracts and cross-currency swaps are determined based on valuation models, which include observable input parameters.
The Group and Company uses the so-called OTC derivatives ("over the counter"). These are directly concluded with counterparties having at least an investment grade status. Thus, there are no quoted market prices available.
Forward exchange contracts and cross-currency swaps are measured on the basis of a market-to-market valuation model. The input parameters applied in the valuation models are derived from market quotes. Interest rates with matching maturities in the traded currencies are used for forward exchange contracts and cross-currency contracts. In order to obtain the fair value of such OTC derivatives, the determined amounts are multiplied with the counterparty's credit default swaps (CDS) with matching maturities which are observable on the market or their own credit risk using a so-called "add-on method", including the coupons.
Fair Value of Primary Financial Instruments
The following table presents the carrying amounts and fair values of financial assets and financial liabilities of the Group and Company by category of financial instruments, which are not measured at fair value. The table does not contain information on the fair value of financial assets and financial liabilities if the carrying amount represents an appropriate approximation to the fair value. This includes the following line items of the Group and Company Statement of Financial Position: financial investments, leased assets held for sale, non performing lease
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
124
receivables, trade receivables, credit support accounts, cash and cash equivalents, amounts due to group undertakings except amounts due to GRENKE Bank AG, and trade payables. All
47. FAIR VALUE OF FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY (Continued)
Fair Value of Primary Financial Instruments (Continued)
primary financial instruments are assigned to level 2 of the fair value hierarchy except for exchange-listed bonds, which are included in debt securities in issue and which are assigned to level 1 of the fair value hierarchy. As per the reporting date, the carrying amount of exchange-listed bonds was €2,457,925,4 (2020: €2,668,245,491) and their fair value amounted to €2,427,015,462 (2020: €2,501,540,733). For all other financial instruments the discounted cash flow method was used, taking account of the Grenke AG Group’s credit risk. These fair values are allocated as Level 2.
Consolidated
Fair Value
Carrying Amount
Fair Value
Carrying Amount
31-Dec-21
31-Dec-21
31-Dec-20
31-Dec-20
€
€
€
€
Financial assets
Lease receivables (performing)
1,854,736,324
1,761,247,048
1,930,236,840
1,847,781,911
Amounts due from Grenke AG Group undertakings
1,709,050,784
1,620,675,381
2,139,163,655
2,153,596,490
Amounts due from Grenke AG Group franchisees
169,002,941
163,076,682
141,066,990
140,855,811
Subordinated loans
12,578,569
12,507,033
25,827,019
25,943,283
Financial liabilities
Debt securities in issue
2,497,600,419
2,529,184,388
2,804,459,482
2,975,215,598
Amounts owed to Grenke Bank AG
811,235,541
796,258,953
867,655,955
872,536,597
Asset based financial liabilities
181,256,462
178,444,051
347,104,583
351,130,992
Bank loans and cash held on trust
71,755,044
71,759,998
20,485,109
20,862,253
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY
The exposure of the Company can be broken down into two main categories: financial and non-financial risks.
Risk Management Framework
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
125
The board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The formal procedures and policies operated by the Group and Company to cover leasing, banking, foreign exchange and other treasury matters
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Risk Management Framework (Continued)
are consistent with objectives and policies for financial risk management within the GRENKE AG Group. As the Group and Company is dependent on the cash inflow from leases to third parties and loans to Group companies and Franchisees the principal financial risk facing the
Company is the inability to service its payment obligations due to the inability of counterparties to service their leases or their loans from the Group and Company. This note presents
information about the Group and Company’s exposure to each of the risks identified by the board and the Company’s management of these risks.
Solvency
Given its objectives and strategy, the Company is economically interrelated with the parent company, GRENKE AG. In assessing the general risk profile of the Company, the solvency of the Grenke AG Group as a whole, headed by GRENKE AG, needs to be considered.
Credit Risk
The amount recognised in the Statement of Financial Position is the maximum credit risk in the case that counterparties are unable to fulfil their contractual obligations. In the case of derivative financial instruments, the Company is also exposed to credit risk, which results from the non-performance of contractual agreement on the part of the counterparty.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
126
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk (continued)
The maximum exposure to credit risk at the reporting date was:
2021
2020
€
€
Subordinated loans and reserve accounts
39,730,151
48,042,749
Finance lease receivables
1,812,557,296
1,913,939,933
Amounts due from Grenke AG
Group undertakings
1,620,675,381
2,153,596,490
Amount due from Grenke AG Group franchisees
163,076,682
140,855,811
Trade debtors
1,126,287
443,230
Credit support accounts
14,170,000
16,420,000
Cash and cash equivalents
139,524,351
143,674,377
Derivative financial instruments
3,125,767
5,372,220
Guarantees to Grenke AG and Grenke Limited
3,500,874
17,067,283
Gross Exposure
3,797,486,789
4,439,412,093
Guaranteed by GRENKE AG
1,254,197,459
1,589,458,714
Subordinated Loans (netting with asset based liabilities)
12,437,023
25,728,771
Credit support accounts (netting with liability derivative positions)
14,170,000
16,420,000
Derivative assets (netting with liability derivative positions)
3,125,767
5,372,220
Residual maximum exposure
2,513,556,540
2,802,432,388
Credit Risk – Leasing
Credit risk management is focused on ensuring that prior to entering into new leases the credit risk is minimised. Strategies to minimise risk include
•entering into a high volume of low value leases
•entering into leases for a short duration
•direct debit payment of lease instalments
•no concentration of industrial sectors
•no concentration of sellers of equipment to be leased
•no geographic concentration
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
127
There is an effective credit approval system which means that leases of a relatively small amount have to be approved by the credit centre and ultimately by the Grenke AG board. The total exposure of a lessee to the Grenke AG Group is always taken into consideration as part
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (continued)
of the approval process. There is also an annual review carried out of lessees with a modest overall credit exposure.
The Group and Company also seeks to minimise losses on leases in existence by terminating leases once two instalments have not been paid with the objective of recovering immediately all unpaid instalments including lease instalments due after the termination date.
The following sets out the credit profile of new business entered into the new year.
The Group and Company determines the creditworthiness of clients by calculating expected values for losses. In doing so lessees are assigned a decision value based on a creditworthiness rating of 1 to 6. Category 1 corresponds to the best possible creditworthiness and Category 6 is equivalent to the worst. As per December 31, 2021, the average decision value on new business was 2.38 after 1.99 in the previous year.
New business according to risk category
2021
2020
Percent
%
%
Class 1
35.47%
50.65%
Class 2
26.01%
23.44%
Class 3
16.94%
12.39%
Class 4
11.58%
6.49%
Class 5
6.43%
3.82%
Class 6
3.57%
3.21%
The distribution of the Group and Company new business according to size can be found in the following table:
New business by size
(based on net acquisition values)
2021
2020
Percent
%
%
< €2.5k
26.58%
25.35%
€2.5k - €5k
31.12%
31.32%
€5k - €12.5k
27.85%
28.81%
€12.5k - €25k
8.91%
9.40%
€25k - €50k
3.30%
3.51%
€50k - €100k
1.22%
1.17%
€100k - €250k
0.40%
0.39%
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
128
> €250k
0.62%
0.05%
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (continued)
The average term of the new business contracted in the reporting period was 50 months (2020: 50 months).
New business by term category
2021
2020
Percent
%
%
< 36 Months
29.64%
31.41%
37 - 48 Months
15.30%
14.49%
48 - 60 Months
32.67%
31.69%
> 60 Months
22.39%
22.41%
The Group and Company consider the credit risk of its lessees to be a significant business risk.
This risk is evaluated and controlled using statistical models. The Group and Company credit centre is an additional tool to limit risk. The statistical models utilised by the Group and Company lead to an expected value of future credit losses, which are taken into account as an imputed cost of risk in the contribution margin calculation.
A review of credit risk is performed regularly and at least once per quarter on the basis of actual loss figures using database reports containing both publicly available data and internally gen- erated historical data. This system is continually enhanced by the Group and Company.
Target / actual comparisons are carried out continually for all portfolios, in which the initially expected credit losses are compared with the updated loss expectancy. Findings from this comparison flow into statistical models, thereby forming a loop system. The plan ensures that the ongoing costs of operations can still be generated even when the actual losses significantly exceed the expected losses.
When contracting lease agreements attention is given to achieve the broadest diversified port- folio possible based on the following:
•Lessees: Diversified portfolio of lessees consisting of business and corporate clients (B2B). Leases were contracted with 66,968 (2020: 70,356) different lessees of which the top 10 accounted for 2.18% (2020: 1.93%) of new business and the top 100 accounted for 7.01% (2020: 6.76%) of new business and the average value of new business contracted with each lessee was €9,871 (2020: €9,905).
•Resellers / manufacturers: No individual dependencies
•Leased assets: No significant outstanding residual values (full cost recovery); maintenance and warranty risks are always borne by suppliers / manufacturers; leased assets are seen as part of the customer’s value chain
•Categories of lease items: IT products, small machinery and systems and medical devices
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
129
•Lease agreements: A large number of current contracts with an average contract term of roughly four years and a focus on small tickets below EUR 25k each (94 percent of all leases)
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (Continued)
•Sales channels: Our agents have a variety of sales channels with an extensive network of resellers, direct business and brokers
•Geographic presence: The Group and Company is represented in eleven European economies
The majority of finance leases concluded provide for full economic cost recovery. This means that payments made by the lessee during the basic lease period, including the guaranteed residual values, exceed the acquisition and contract costs. Accordingly, there are no material residual value risks in the Group and Company leasing business model. In accordance with IFRS 16, residual values are calculated for the recognition of lease receivables on a portfolio basis. Therefore, over the total period, gains / losses from disposals do not contribute a material amount to earnings.
The revenue that is generated from rentals in the secondary lease period together with proceeds from the sale of the lease is expected to result in a break-even result from disposals.
The high degree of portfolio diversification is demonstrated by the comparatively low mean acquisition value per leasing contract of the Group and Company. The mean acquisition value of all leases that were active in 2021 was €8,631. A concentration of risk is largely avoided through the Group and Company’s focus on small-ticket leasing. Within Group and Company, the total exposure to any single lessee did not exceed 4.05 percent of the Group and Company’s equity. At the end of the 2021 fiscal year there were 7 borrowers in the leasing business whose exposure exceeded the limit of EUR 1.5 million. Together they amounted to less than 1.54 per- cent of the total performing lease receivables. Commitments above a size of EUR 750k are monitored closely, as are cluster risks of our sales partners with regard to individual resellers or agents.
To determine risk provisions for lease receivables pursuant to IFRS 9, the receivables are divided into three Stages depending on their respective credit risk. Impairment losses for Stage 1 leases correspond to the expected loss for a twelve-month period. For lease receivables in Stage 2, impairment losses are recognised in the amount of the expected loss for the entire remaining contract period. For Stage 3 lease receivables, expected losses are recognised as impairment. As per December 31, 2021, 89.42 percent of the net receivables of the Leasing
segment were allocated to Stage 1. The expected credit loss allowance on finance lease receivables was €28.2m (2020: €66.4m).
Country risk at the end of the 2021 fiscal year was concentrated in France which accounted for 62 percent of the total performing finance lease receivables volume of the leasing business. The respective Euler Hermes’ Country Risk Rating for France is “AA1 Low Risk”. Of the countries in which the Group and Company carries out leasing 96% of the performing lease receivables are located in countries with Euler Hermes risk rating of “A1 Low Risk” or a better risk rating. The Group and Company has performing finance lease receivables in Slovenia of €23m (1.28% of total performing finance lease receivables) which is given a BB2 medium risk
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
130
rating by Euler Hermes. There are performing finance lease receivables of €57m (3.16% of total performing finance lease receivables) from Hungary and Romania which have a Euler Hermes risk rating of B3 sensitive risk.
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (Continued)
Sensitivity Analysis – Leasing
Change
Change in risk provision
€
Change in provision rates
Increase of 1%
1,177,677
Change in proportion of overdue customers
Increase of 50% in cases overdue 30 to 90 days
359,622
Change in proportion of overdue customers
Decrease of 50% in cases overdue 30 to 90 days
(738,441)
Change in proportion of overdue customers
Increase of 20% in cases overdue >= 90 days
978,863
Change in proportion of overdue customers
Decrease of 20% in cases overdue >=90 days
91,418
A 1%-point increase in the provision for credit impaired leases would increase the expected credit loss allowances on non performing lease receivables by €1,177,677
If our customers’ expected payment behaviour deteriorated to the extent that as per the reporting date we would observe 50% more cases with 30 to 90 days overdue, we would be required to increase our risk provisions by around €359,622 based on our total receivables as per December 31, 2021. In contrast, risk provisions would be reduced by €738,441 based on the Stage of receivables as per the reporting date if our customers’ expected payment behaviour improved to such an extent that we would observe 50% fewer cases with 30 to 90 days overdue per the reporting date.
Alternatively, if the payment behaviour of lessees deteriorated to the extent that we would observe 20% more non-terminated cases with 90 or more days overdue, we would have to increase risk provisions by around €978,863 based on our total receivables as per December 31, 2021. Risk provisions would be increased by €91,418 based on the Stage of receivables as per the reporting date if we would observe 20% fewer cases of non-terminated lease receivables with 90 or more days overdue.
If the country risk in the two major markets – France and Spain (74% of performing finance lease receivables) – were to increase, resulting in an increase in the average expected credit loss in these countries of 10%, this would lead to an increase in risk provisions of €2,802,457,
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
131
based on the lease receivables portfolio as per December 31, 2021. A reduction in the average expected credit loss in the these markets associated with a 10% lower average probability of
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (Continued)
Sensitivity Analysis – Leasing (Continued)
default would lead to a reduction in risk provisions of €2,802,457 based on the lease receivables portfolio as per December 31, 2021.
A global recovery of the GDP growth of 1% in the countries in which the Group and Company lease would result in a reduction of the expected credit losses of €4,355,560.
Credit Risk - Amounts due from Group Companies and Franchisees
The counterparty for the Group and Company amounts due from Grenke AG undertakings and franchisees is the specific group or franchise company. The specific group and company will be able to repay the loan provided by the Group and Company if it does not have a major default in its portfolio of lease receivables or invoices purchased. Therefore, the main risk to the Group and Company is the collectability of lease receivables and invoices purchased by
the GRENKE AG Group companies and GRENKE AG Group franchise companies.
The Group and Company has lent €1.6bn (2020: €2.2bn) to GRENKE AG Group companies who are carrying out leasing activities. The collectability of these loans is dependent on the performance of the underlying lease receivables in those Group companies. The Group portfolio of lease receivables has a similar profile to that which has been presented above in respect of the Group and Company lease receivables. All that has been set out above with regard to the Group and Company lease receivables can be applied to the underlying lease receivables in the GRENKE AG Group companies to which the Group and Company lends money.
The Group and Company also lends money to GRENKE AG Group companies and GRENKE AG Group franchisees that carry out factoring business, €30m at 31 December 2021. If these companies had difficulties in collecting amounts due to them it would result in the Group and Company having difficulties in collecting the amounts due from GRENKE AG Group and GRENKE AG Group Franchise Companies carrying out factoring. The GRENKE AG Group’s factoring business is also focused on the small-ticket segment. The GRENKE AG factoring entities located in Germany, Switzerland, Ireland and Poland mainly offer so-called "notification factoring". The advantage for the Group and Company and for the factoring customers is that the invoice recipient (debtor) is notified of the assignment of existing receivables, which provides an opportunity to address the recipient directly in the event of default. This leads to relief for the factoring customers and also provides transparency with regard to the monitoring of the outstanding receivables. Under certain conditions, the GRENKE AG Group also offer non-notification factoring contracts. As opposed to notification factoring, the debtor is not notified of their outstanding receivables being assigned to the factoring company.
The main criteria for selection include creditworthiness, average annual revenues, industry affiliation, and the accounts receivables ledger of the factoring clients. The ongoing monitoring
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
132
of factoring customers allows for risk-adjusted pricing. Under the loan decision, a credit check of the accounts receivable of the factoring clients on the basis of data from external credit reporting agencies is performed, which is evaluated by GRENKE AG's credit support centre.
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
For the most part, contracts with domestic debtors are processed since the verifiability of foreign debtors is associated with significant risks. An ongoing review and evaluation of the customer is made within the contract period on the basis of payment history. With only a few
Credit Risk - Amounts due from Group Companies and Franchisees (Continued)
exceptions, the factoring Group and Company is exposed to counterparty default risk solely with respect to the debtor.
The amounts due from Grenke AG Group Companies and Franchisees by geographical region is set out below:
Amounts due from GRENKE AG Group
2021
2020
undertakings
€
€
Italy
745,300,807
1,072,071,399
Germany
436,695,769
575,895,417
Belgium
103,263,094
105,691,328
Sweden
96,002,865
100,819,223
Denmark
74,435,944
73,220,483
Spain
69,217,551
70,907,621
United Arab Emirates
32,120,095
31,214,442
Ireland
14,131,655
122,327
United Kingdom
13,049,676
82,722,720
Czech Republic
11,770,322
14,832,043
Slovakia
8,364,692
9,578,319
Finland
7,278,642
7,918,369
Switzerland
6,612,594
31,530,477
Romania
5,293,048
4,520,968
Malta
1,573,570
1,427,192
Luxembourg
1,025,699
1,289,866
Poland
908,237
-
Netherlands
-
377,071
Slovenia
-
75,495
1,627,044,260
2,184,214,760
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
133
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk - Amounts due from Group Companies and Franchisees (Continued)
Amounts due from GRENKE AG Group
2021
2020
franchisees
€
€
Australia
58,854,828
55,497,770
Canada
58,274,398
53,511,737
Singapore
22,034,881
20,777,186
Poland
8,146,821
1,037,126
Ireland
6,587,878
6,145,520
Chile
4,708,725
5,228,885
United Kingdom
4,299,107
6,000
USA
622,750
410,666
Latvia
271
110,624
163,529,659
142,725,514
Credit Risk – Cash and Derivative Financial Instruments
The credit risk for treasury activities is mitigated by entering into such contracts only with parties of first-class credit standing. Cash is on deposit with the following banks:
2021
2020
Bank
Credit Rating
€
€
Deutsche Bank
A-2 S&P
57,648,196
6,990,044
DZ Bank
A-1 S&P
41,949,932
41,774,299
SEB
A-1 S&P
22,457,097
21,916,911
HSBC
A-2 S&P
10,072,380
31,145,064
Nord LB
A/F1 Fitch
9,998,790
9,999,100
Heleba
P-1 Moody's
6,504,981
4,975,588
Bayern LB
P-1 Moody's
304,956
19,999,749
Commerz Bank
A-2 S&P
-
21,649,481
Other Banks
4,758,019
1,644,141
153,694,351
160,094,377
Shown on the statement of financial positions as follows:
Credit support accounts
14,170,000
16,420,000
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
134
Cash and cash equivalents
139,524,351
143,674,377
153,694,351
160,094,377
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Cash and Derivative Financial Instruments (Continued)
The counterparty bank for the derivative financial instruments shown as assets in the Statement of Financial Position are as follows:
2021
2020
Bank
Credit Rating
€
€
HSBC
A-2 S&P
1,296,447
533,004
Deutsche Bank
A-2 S&P
1,175,090
2,049,511
Bayern LB
P-1 Moody's
328,554
480,688
DZ Bank
A-1 S&P
161,541
496,768
Heleba
P-1 Moody's
104,904
1,696,737
SEB
A-1 S&P
59,231
115,512
3,125,767
5,372,220
Liquidity and refinancing risk
The Group and Company refinances itself independently of individual banking institutions and has direct access to the capital markets. The Group and Company also ensures that its liabilities are well diversified and work together with several partner banks.
The Group and Company’s refinancing instruments range from traditional bank financing to revolving loan facilities and ABCP programs. This financing is fixed with agreed terms and maturities so that there are no risks relating to their availability within the agreed framework. In addition, the Group and Company has direct access to the capital markets because of the Group and Company’s debt issuance program. Using these instruments the Group and Company can make use of the most attractive financing channels offered at any time on the capital markets.
The ABCP programmes are financing loans based on defined underlying assets, i.e. lease receivables. Other refinancing instruments described are not asset−oriented, making them
appropriate for use in line with the business performance as the Group and Company deems necessary.
The management of liquidity risk ensures that the Group and Company is always able to meet its payment obligations on time.
The table below shows the cash that the Group and Company expects to generate from its assets held at 31 December 2021 inclusive of future income not credited to the statement of profit or loss at 31 December 2021. The non current assets overseas VAT (€35m Note 28), overseas withholding tax (€5m Note 28) and corporation tax receivable (€4m Note 31) has not been included in the table below because of the difficulty of projecting the precise time that the
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
135
claims will be agreed with the relevant tax authority. The table also includes details of the Group and Company financial obligations in respect of its liabilities at 31 December 2021
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
inclusive of future financial expenses not charged to the statement of profit or loss at 31 December 2021.
Refinancing Risks (Continued)
Short term liquidity
Liquidity risk management comprises of the day to day management of incoming and outgoing payments. A “liquidity overview” for the GRENKE AG Group is prepared for short term reporting on a weekly basis, i.e. on the first working day of each calendar week. It includes all relevant information on short−term cash developments in the coming weeks. The weekly liquidity overview provides the current liquidity status of the GRENKE AG Group and the Group and Company. It focuses on cash flows from the leasing business.
Reporting distinguishes between four liquidity levels:
•Cash liquidity: credit on all bank accounts plus overdrafts and all “immediate” (one week) cash flows
•Liquidity 1: cash liquidity plus cash flows due or received within one month. This also includes tied−up assets that can be monetised within this period
•Liquidity 2: liquidity 1 plus cash flows due or received within three months. This also includes tied up assets that can be monetised within this period.
•Liquidity 3: liquidity 2 plus cash flows due or received in more than three months. This also includes tied-up assets that can only be monetised in a period of more than three months.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
136
Medium and long term liquidity
Monthly static liquidity planning is carried out in addition to short- term liquidity management and weekly reporting. The basic assumption of this planning is the liquidation of the existing
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Medium and long term liquidity (Continued)
leasing and lending portfolio in accordance with the contractual agreements so that the proceeds from the assets flow in due time. The liabilities are also repaid on time on the basis
of contractual agreements. As the duration of the liabilities side approximates that of the asset portfolio, financing largely matching maturities is ensured.
In addition, dynamic liquidity planning is carried out at least once every quarter with the aim of replicating the liquidity status for the next periods, which serves to manage the liquidity of the Group and Company.
Grenke AG unconditionally and irrevocably guarantees all debt securities of the Group and Company.
Market Risk
Market risk is defined as potential losses that may result from uncertainty about future development (amount and volatility) of market prices. Financial market price fluctuations can have a significant effect on the Group and Company cash flow and profit after tax. Of particular importance are changes in interest rate markets and certain currencies. Market risks at the Group and Company are considered material.
The Group and Company strategic approach is to enter into market risk exclusively in conjunction with the operating business and reduce these risks to the greatest extent possible. As part of the risk management and ongoing monitoring of interest and currency positions, the
Group and Company actively manages its positions and risk (for example, by hedging open currency positions) in the course of ordinary business.
In addition to risk-prone, market-sensitive positions such as floating-rate notes or receivables in foreign currencies, we also consider the sensitivity and elasticity of the respective market prices to be important factors when dealing with interest and currency risks. The goal of the Group and Company is to limit the effect of market price volatility on the Group and Company’s net profit. This means striving to ensure the highest possible independence of net profit to interest rate and currency market developments while maintaining a proper balance between the costs and benefits of hedge relationships. The parameters used for conducting risk analysis by means of a sensitivity analysis are:
•a concurrent parallel increase or decrease of 10 percent in the value of the euro compared with all major foreign currencies and
•a parallel shift of 100 basis points (one percentage point) in the term structure of interest rates.
The potential economic effects identified in the analyses are estimates based on fictitiously assumed changes in market prices and that all other conditions will remain unchanged. This is the reason that the shift in the term structure of interest rates is viewed independently of any
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
137
related effects on other interest rate-induced market developments. The actual impact on the consolidated income statement can differ significantly from this as a result of the actual developments.
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
The predominant market risks and the outstanding interest rate and currency risk positions are discussed at least once monthly with the responsible member of the Board of Directors in the
Market Risk Task Force and on the basis of ongoing analyses. The Group and Company is not exposed to the risk of changes in equity prices or raw material prices.
Market Risk (Continued)
The Group and Company uses derivative financial instruments specifically when ordinary business activities involve risks that can be minimised or eliminated through the appropriate derivatives. The sole instruments used are interest rate and currency swaps and forward exchange contracts. Each derivative contract relates to an underlying economic transaction with a corresponding opposing risk position. The contract partners are only those banks with predominantly good or very good credit ratings with an S&P rating of BBB+ or higher.
Interest rate risk for the Group and Company arises from the effects of changes in the market interest level on the positions of the interest book (interest-bearing asset and liability items) and the corresponding impact on net interest income. This affects the Group and Company’s variable-interest financial liabilities (mainly ABCP programmes). Since the Group and Company does not utilise maturity transformation to generate net interest income, the effects of future interest rate developments on the existing portfolio are low.
A change of 100 basis points (bps) in interest rates in the reporting year would have increased or decreased equity and profit before tax for the year (each before income taxes) by less than €1m. This assessment assumes that all other influential factors, particularly exchange rates, will remain unchanged.
Most of the Group and Company’s financial instruments have fixed rates of interest. The variable rate instruments are as follows:
2021
2020
€
€
Debt securities in issue
-
(20,000,000)
Credit support accounts
14,170,000
14,780,000
Amount owed by Grenke AG
63,000,000
243,000,000
Cash pool balances
448,453,919
355,213,713
Subordinated loans and reserve accounts
78,871,265
89,222,037
Amount owed to special purpose vehicles
(244,754,162)
(416,313,532)
Net Exposure to interest rate risk
359,741,022
265,902,218
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
138
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
The potential impact on profit before tax of a change in interest rates of plus or minus 100 basis points as per the reporting date is shown below.
Company and consolidated
2021
2021
2020
2020
+100 bp
-100 bp
+100 bp
-100 bp
€
€
€
€
Potential (decrease)/increase in profit
3,597,410
(3,597,410)
2,659,022
(2,659,022)
Open interest rate positions are assessed monthly according to the internal definition and the required action is initiated. Refinancing is then completed by the team using the hedging transactions decided by the Board of Directors.
Due to the international nature of its business, the Group and Company has unsettled foreign currency positions, thereby exposing the Group and Company to currency risk. Hedging strategies defined internally are applied in an effort to limit or eliminate these risks. The
derivatives used are recognised on the statement of financial position at their fair values under the line items financial assets or financial liabilities.
Currency risks mainly relate to the financing of Group companies and franchisees operating outside the euro- zone. The hedging of unsettled foreign currency cash flows takes place on the basis of internally defined hedging limits that take effect when the holding at the day’s exchange rate amounts to €500k per currency. The exchange rate is fixed by means of contracts and is therefore well known for the entire internal financing of the operational business in Australia, Canada, Switzerland, Denmark, Great Britain, Sweden, Chile, Poland, USA and Singapore. The exchange rate is also fixed for a majority of the financing in the United Arab Emirates, the Czech Republic and Hungary. As a result, the only risk that remains is the risk on the respective open tranches where the hedging limit of €500k continues to apply.
In general, risks arise from currency fluctuations which relate to financial assets and financial liabilities. The use of derivatives (forward exchange contracts and currency swaps are used for currency risk) lessens the market sensitivity of the underlying transaction, i.e. cash flows from financial assets and financial liabilities. Ideally, the instruments are offset almost entirely.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
139
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
The Group and Company’s currency risk is generally hedged. The unhedged foreign currency balances of the Group and Company converted at the spot rate for the Euro at 31 December are set out below:
Year End 31 December 2021
Foreign currency
Nominal value of foreign currency balances in foreign currency
Nominal Value of Forwards Exchange Contracts in foreign currency
Unhedged amount in foreign currency
Unhedged amount in €
€
AED
133,822,435
139,668,766
(5,846,331)
(1,403,310)
AUD
91,842,906
92,930,000
(1,087,094)
(696,186)
CAD
83,875,445
85,485,000
(1,609,555)
(1,118,290)
CHF
6,606,993
6,600,000
6,993
6,769
CLP
4,566,662,476
4,500,000,000
66,662,476
68,736
CZK
305,907,589
311,137,000
(5,229,411)
(210,371)
DKK
553,269,070
572,225,000
(18,955,930)
(2,549,073)
GBP
15,932,792
14,513,282
1,419,509
1,689,329
HRK
500
-
500
67
HUF
4,134,345,226
2,709,874,400
1,424,470,826
3,858,368
PLN
40,247,078
40,000,000
247,078
53,749
RON
40,000,005
-
40,000,005
8,082,442
SEK
984,064,854
1,011,835,000
(27,770,146)
(2,709,203)
SGD
33,668,745
33,727,060
(58,315)
(38,167)
USD
706,386
700,000
6,386
5,638
JPY
33,250,000,000
33,250,000,000
-
-
TRY
1,592
-
1,592
105
NOK
1,350
-
1,350
135
Total exposure in €
5,040,738
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
140
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
Year End 31 December 2020
Foreign currency
Nominal value of foreign currency balances in foreign currency
Nominal Value of Forwards Exchange Contracts in foreign currency
Unhedged amount in foreign currency
Unhedged amount in €
AED
140,516,310
146,291,011
(5,774,701)
(1,286,039)
AUD
88,180,488
91,378,000
(3,197,512)
(2,011,520)
CAD
83,664,013
84,496,000
(831,987)
(532,199)
CHF
34,017,367
34,536,585
(519,219)
(480,669)
CLP
4,542,123,350
4,500,000,000
42,123,350
48,492
CZK
409,342,776
409,690,000
(347,224)
(13,232)
DKK
544,537,586
562,040,000
(17,502,414)
(2,352,191)
GBP
75,670,843
75,720,282
(49,439)
(54,992)
HRK
11,052
-
11,052
1,463
HUF
4,842,522,399
3,194,258,025
1,648,264,374
4,529,568
NOK
1,350
-
1,350
129
PLN
3,529,850
3,500,000
29,850
6,547
RON
35,528,248
-
35,528,248
7,297,876
SEK
1,011,698,807
1,043,831,000
(32,132,193)
(3,202,236)
SGD
33,701,052
33,773,060
(72,008)
(44,400)
TRY
8,292
-
8,292
910
USD
506,404
500,000
6,404
5,219
Total exposure in €
1,912,726
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
141
48. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
The following table shows the Group and Company’s sensitivity to a 10 percent appreciation or depreciation in the Euro against the respective other currencies as per 31 December 2021 and 31 December 2020 their impact on the profit before tax.
Foreign
2021
2021
2020
2020
currency
10%
-10%
10%
-10%
Depreciation
Appreciation
Depreciation
Appreciation
€
€
€
€
AED
(155,923)
127,574
(142,893)
116,913
AUD
(77,354)
63,290
(223,502)
182,865
CAD
(124,254)
101,663
(59,133)
48,382
CHF
752
(615)
(53,408)
43,697
CLP
7,637
(6,249)
5,388
(4,408)
CZK
(23,375)
19,125
(1,470)
1,203
DKK
(283,230)
231,734
(261,355)
213,836
GBP
187,703
(153,575)
(6,110)
4,999
HRK
7
(6)
163
(133)
HUF
428,708
(350,761)
503,285
(411,779)
PLN
5,972
(4,886)
-
-
RON
898,049
(734,767)
810,875
(663,443)
SEK
(301,023)
246,291
(355,804)
291,112
SGD
(4,241)
3,470
(4,933)
4,036
USD
626
(513)
580
(474)
TRY
12
(10)
101
(83)
NOK
15
(12)
14
(12)
Contractual Risk
Contractual risk relates to risks to net assets and earnings as a result of unguaranteed residual values. Contractual risk is limited by generally concluding full pay out leases and never entering into maintenance or warranty risks.
49. ULTIMATE PARENT UNDERTAKING GROUP AND COMPANY
The parent undertaking of the smallest and largest group of undertaking for which group financial statements are drawn up, and of which the Group and Company is a member and is consolidated, is GRENKE AG, a company incorporated in Germany. Copies of its GRENKE AG Group financial statements are available at Neuer Markt 2, 76532 Baden−Baden, Germany
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
142
and also at www.GRENKE.de. GRENKE AG is the immediate and ultimate parent undertaking and controlling party.
50. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY
2021
2020
€
€
GRENKE AG transactions
Management charges from Grenke AG
181,688
175,595
Licence fee charge from Grenke AG
7,813,614
8,440,969
Guarantee fee charge from Grenke AG
3,042,762
3,764,476
GRENKE Bank AG transactions
Interest paid to GRENKE Bank AG
13,843,976
12,063,737
Amounts due to GRENKE Bank AG
796,258,953
872,536,597
Risk premium fees paid to GRENKE Bank AG
16,521,222
34,069,217
Debt forgiven by Grenke Bank AG under the risk
premium agreement
14,348,956
10,986,539
Payments to GRENKE Bank AG in respect of
leases guaranteed
186,545
199,553
Other transactions with GRENKE AG Group companies
Accountancy fees charged to GRENKE AG
group companies
1,459,086
1,537,844
Accountancy fees charged to GRENKE AG
group franchisees
188,009
143,709
Office rents paid by GRENKE AG Group companies
companies
84,214
84,214
Lease commissions paid to GRENKE AG Group
companies
48,255,657
48,890,160
Commissions for fees to protect lease equipment
paid to GRENKE AG Group companies
15,371,326
15,376,946
Interest received from GRENKE AG Group
companies
41,798,966
48,863,650
Interest received from GRENKE AG Group
franchisees
5,781,914
5,136,895
Interest paid to GRENKE AG Group companies
1,101,579
1,361,954
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
143
50. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
Other transactions with GRENKE AG Group companies (Continued)
2021
2020
€
€
Secured amounts owed by GRENKE AG Group
companies
49,716,296
53,850,414
Unsecured amounts owed by GRENKE AG Group
companies
1,577,327,965
2,130,364,345
Secured amounts owed by GRENKE AG Group
franchisees
58,854,828
-
Unsecured amounts owed by GRENKE AG Group
franchisees
104,674,831
142,725,515
Unsecured amounts owed to GRENKE AG Group
companies
19,088,538
7,400,426
Cash pool amounts owed to GRENKE AG Group
companies
73,061,117
34,197,653
Related party disclosures Company
transactions with SPVs
Interest received from Kebnekaise Funding Limited
74,660
89,531
Interest received from Opusalpha Purchaser II
Limited
97,439
97,787
Interest received from Elektra Purchase No. 25
Limited
217,101
400,876
Interest received from Coral Purchasing (Jersey)
Limited
-
208,937
Interest received from Coral Purchasing (Ireland)
2 DAC
103,108
74,001
Amount due from Kebnekaise Funding Limited
8,400,000
5,786,200
Amount due from Coral Purchasing (Ireland)
2 DAC
9,659,997
9,067,069
Amount due from Opusalpha Purchaser II Limited
33,141,560
33,199,716
Amount due from FCT "GK" Compartment G3
41,586,993
35,940,545
Amount due from Elektra Purchase No. 25 Limited
10,241,463
24,655,893
Amount due from FCT "GK" Compartment G2
750,523
1,708,108
Amount due from FCT "GK" Compartment G4
1,970,000
2,750,000
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
144
Interest and expenses paid to FCT "GK"
Compartment G2
541,096
1,123,283
50. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
Related party disclosures Company transactions with SPVs (Continued)
Interest and expenses paid to FCT "GK"
Compartment G3
450,105
1,041,891
Interest and expenses paid to FCT "GK"
Compartment G4
665,187
734,595
Amount owed to FCT "GK" Compartment G2
59,299,036
142,602,039
Amount owed to FCT "GK" Compartment G3
68,902,455
123,905,165
Amount owed to FCT "GK" Compartment G4
116,552,671
149,806,328
Amount owed to Coral Purchasing (Ireland)
2 DAC
11,759,998
10,862,253
Amount paid to directors
Amounts paid to Directors
359,280
311,528
All of the above entities are related parties because they are members of the Grenke AG Group
which owns 100% of the share capital of the Company.
The management charges from GRENKE AG are for IT services and for administrative services from GRENKE AG Group.
The licence fee charge from Grenke AG is for the use of the Grenke brand, business model and proprietary systems.
The guarantee fee charge from Grenke AG is for the provision of guarantees and other means of explicit support by Grenke AG to the Company for the purposes of its financing activities.
The transactions on which interest is paid to GRENKE Bank AG and the amounts due to GRENKE Bank AG are explained in note 35.
The transactions on which guarantee fees are paid to GRENKE Bank AG and which payments from GRENKE Bank AG are received are explained in note 13 and note 35.
The transactions on which guarantee fees are received from GRENKE Bank AG and which payments are made to GRENKE Bank AG are explained in note 51.
The accountancy fees charged to GRENKE AG Group companies and Grenke AG Group franchisees are explained in note 16.
Grenke Limited currently occupies unit 306 and unit 307 Q House, Sandyford Industrial Estate, Dublin 18 from the Group and Company in respect of which it pays the Group and Company
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
145
€65,912 which is an amount equal to the rent paid by the Group and Company to the landlord for unit 306 and unit 307. Grenke Limited also co shares the meeting rooms at Unit 310 Q
50. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
House in respect of which it pays the Group and Company an amount equal to 50% of the cost of the rent €36,604 for Unit 310 in Q House. There is no lease agreement between Grenke
Limited and the Group and Company. The Group and Company can request that Grenke Limited vacate the units at any time if it requires the units for its own business activities. Details of the rental income are included in note 16.
GRENKE AG Group Companies in France, Spain, Portugal, Netherlands, Luxembourg, Hungary, Slovenia, Finland, Romania, Malta, Germany and Italy act as agents for the Group and Company. The agents write leases on behalf of the Group and Company, collect lease instalments on behalf of the Group and Company sell leased equipment on behalf of the Group and Company and secure fees for protecting the Group and Company leased equipment in return for which they are paid commissions.
Interest received from GRENKE AG Group companies, secured amounts owed by GRENKE AG Group companies, unsecured amounts owed by GRENKE AG Group companies is explained in note 26.
Interest received from GRENKE AG Group franchisees, secured amounts owed by GRENKE AG Group franchisees, unsecured amounts owed by GRENKE AG Group franchisees is explained in note 27.
Interest paid to GRENKE AG Group companies and cash pool amounts owed to GRENKE AG Group companies is explained in note 13.
Unsecured amounts owed to Grenke AG Group companies and Cash pool amounts owed to Grenke AG companies is explained in note 36.
Interest income from SPV Investments and subordinated loans provided to group SPVs is explained in note 22.
Company interest and expenses paid to SPVs is explained in note 38.
Company amount owed to SPVs is explained in note 38.
Details of the directors remuneration is set out in note 18. Three of the directors receive remuneration from Grenke Finance plc. The Company does not have other key management personal apart from the directors who receive remuneration. Therefore, the details regarding the compensation of key management personnel is described in note 18.
All related party transactions were made at arm’s length.
In its responsibility to assist the financing of business activities conducted by companies of the Grenke AG Group, Grenke Finance plc applies transfer prices for financial instruments in conformity with external market levels and in accordance with national and international tax requirements.
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
146
51. GUARANTEES
The Company had entered into an agreement with GRENKE Bank AG, a member of the GRENKE AG Group, where the Company provides guarantees to GRENKE Bank AG over
51. GUARANTEES (Continued)
lease receivables that GRENKE Bank AG purchases from other companies in the GRENKE AG Group. The balance of lease receivables guaranteed under this agreement was €3,500,874 (2020: €17,067,283 ) at the Statement of Financial Position date. The balance of the lease receivables guaranteed is the maximum credit exposure remaining under this agreement at the reporting date. These guarantees remain in place for the life of the lease receivable contracts that GRENKE Bank AG has purchased. This agreement ceased during the year ended 31 December 2018 and once the leases guaranteed prior to the agreement ceasing mature the Company will no longer have any obligations under this agreement.
If a lease which has been guaranteed by the Company becomes non performing the Company pays GRENKE Bank AG the net present value of the outstanding lease receivables at the date the lease became non performing. The Company then recognises the lease as a non performing lease and includes the lease in its lease receivables in the Statement of Financial Position. Note 11 of the financial statements provides details of the amount charged through the Statement of Profit or Loss in respect of these non performing leases.
The Group and Company has assessed the lease receivables for impairment at the Statement of Financial Position date and consider the fair value of the guarantee negligible. Premiums
received of €87k (2020: €461k) have been deferred and excluded from income. The premiums deferred are included in deferred income on the Statement of Financial Position and are disclosed in note 41.
The premiums deferred will be released to the Group and Company Statement of Profit or Loss over the life of the underlying lease receivables guaranteed. The expected maturity of the underlying lease receivables is as follows:
As per Dec, 31 2021
Up to 3 months
4 to 12 months
1 to 5 years
Total
Type of liability
€
€
€
€
Net Present Value of Lease Receivables Guaranteed
1,473,073
1,906,177
121,624
3,500,874
As per Dec, 31 2020
Up to 3 months
4 to 12 months
1 to 5 years
Total
GRENKE FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2021
147
Type of liability
€
€
€
€
Net Present Value of Lease Receivables Guaranteed
4,541,016
8,493,170
4,033,096
17,067,283
51. GUARANTEES (Continued)
€374k (2020: €1.1m) was released to the Group Statement of Profit or Loss in the current year and is included in other income in the Group Statement of Profit or Loss. The premiums are released to Group Statement of Profit or Loss over the period of the lease receivables, which
are being guaranteed. If a lease which is being guaranteed is terminated the whole unreleased deferred premium is released to Group Statement of Profit or Loss.
52. CAPITAL MANAGEMENT GROUP AND COMPANY
For the purpose of the Group and Company’s capital management, capital includes share capital and capital reserve and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Group and Company’s capital management is to maximise the shareholder value.
The Group and Company manages its capital structure and makes adjustments in light of changes in economic conditions and the business and liquidity requirements of its parent GRENKE AG. To maintain or adjust the capital structure, the Group and Company may adjust the dividend payment to its parent, return capital to its parent, issue new shares or obtain capital contributions. The Group and Company has no externally imposed capital requirements.
53. IMPORTANT EVENTS SINCE THE YEAR END GROUP AND COMPANY
The continuing conflict in Ukraine is causing significant financial market volatility and social dislocation. Although the Group and Company has no exposure to Russian or Ukrainian markets it is not possible to determine the ultimate effect of the crisis on the Company. The Directors continues to monitor the effect on the investments and operations of the Company.
No other events have occurred since the Statement of Financial Position date outside the normal course of the Group and Company’s business.
54. APPROVAL OF THE FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY
The Group and Company financial statements of GRENKE Finance PLC were approved and authorised for issue by the Directors on 16 March 2022.