GRENKE FINANCE PLC
GRENKE FINANCE PLC
DIRECTORS REPORT AND FINANCIAL STATEMENTS
for the year ended 31 December 2022
TABLE OF CONTENTSPAGE
COMPANY INFORMATION1
DIRECTORS’ REPORT2
INDEPENDENT AUDITOR'S REPORT11
CONSOLIDATED STATEMENT OF PROFIT OR LOSS22
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME23
CONSOLIDATED STATEMENT OF FINANCIAL POSITION24
COMPANY STATEMENT OF FINANCIAL POSITION26
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY28
COMPANY STATEMENT OF CHANGES IN EQUITY29
CONSOLIDATED STATEMENT OF CASH FLOWS30
NOTES TO THE FINANCIAL STATEMENTS32
GRENKE FINANCE PLC
1
COMPANY INFORMATIONSuite 306, Q House,
DIRECTORS
Patrick Spain
Stephan Denig
John McQuillan
Angelika Wiedemann
SECRETARY
Patrick Spain
REGISTERED OFFICE
Furze Road,
Sandyford,
Dublin 18
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
2
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 2022
The Directors present their Directors’ Report for the year ended 31 December 2022.
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 papers, 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 €59,665,506 (2021: €95,896,648). The profit for the year end 31 December 2022 has decreased by €36m.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2022 (Continued)
BUSINESS REVIEW (Continued)
The Group and Company’s key financial and other performance indicators during the year were as follows:
2022
2021
Change
€ 000
€ 000
%
Lease income
116,990
119,615
-2%
Expected credit loss allowance on finance
lease receivables
39,785
28,260
41%
Income from protecting lease equipment
43,180
42,763
1%
Interest income and similar income
53,721
47,885
12%
Interest expense and other charges
73,675
68,749
7%
Profit before tax
66,918
109,290
-39%
Increase/(Decrease) in amounts due from Grenke AG
Group undertakings and franchisees
(23,047)
536,366
-104%
Acquisition of new lease equipment
851,565
624,121
36%
Expected credit loss charge to the statement
of profit or loss on non performing finance
lease receivables as a % of the average net present
value (NPV) of performing finance lease receivables
1.54%
2.23%
-31%
Expected credit loss allowance at year end on
performing finance lease receivables as a %
of NPV of performing finance lease receivables
at year end
2.50%
2.08%
20%
Interest and other charges on debt securities in issue as a % of the average of debt securities in issue
1.70%
1.42%
20%
The principal reason for the decline in profit was a charge in the statement of profit or loss of €3.6m for expected credit loss allowance on other financial assets in contrast to last year when there was a credit of €25.7m in the statement of profit or loss for expected credit allowance on other financial assets. The charge in the current year and the credit 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 (o) 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 2022 (Continued)
BUSINESS REVIEW (Continued)
The Grenke AG Group 1 year risk of default increased from 0.277% at 31 December 2021 to 0.483% at 31 December 2022. In the previous year it decreased from 1.31% to 0.277%. The increase in the risk of default % has resulted in a charge to the statement of profit and loss of €3.6m 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 decrease in the risk of default % in the previous year resulted in a credit to profit and loss
statement of €18m.
The increase of 0.206% in the Grenke AG Group 1 year risk of default is due to the deterioration in the European macro economic environment due to Russia’s invasion of the Ukraine and the inflationary pressures in the European economy.
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 due from Grenke AG Group undertakings of €553m. The expected credit loss allowance at 31 December 2021 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. Whereas in the current year there was a slight increase in the amounts due to Grenke AG Group undertakings and franchisees of €21m which resulted in a charge to profit and loss of €57k on expected credit loss allowances on other financial assets in year end 31 December 2022 in contrast to the €8m credit last year.
The net impairment loss on finance lease receivables increased from €28m in 2021 to €40m in 2022.
The expected credit loss on performing finance lease receivables increased from 2.08% of the net present value of performing finance lease receivables at 31 December 2021 to 2.5% of the net present value of performing finance lease receivables at 31 December 2022 which led to an increase in the charge to the statement of profit or loss on performing finance lease receivables of €8.1m. The increase in expected credit loss allowance per cent of 0.42% on performing finance lease receivables can be explained by the current deterioration in the European economy due to the Russian invasion of Ukraine together with the inflationary pressures in the European economy as a consequence of the Russian invasion and supply chain shortages as the world economies emerge from the COVID 19 pandemic. There was an additional charge to the statement of profit or loss in year end 31 December 2022 in respect of expected credit loss allowance on finance lease receivables of €2.7m due to the net present value of performing finance lease receivables increasing by €129m. The increase was due to the growth in new leasing business of 36% from €624m to €852m.
Interest income has increased by €5.8m to €53.7m due to an increase in average interest rates earned on loans of 3% from 2.35% which has increased the credit to the statement of profit or loss by €11.6m. This increase in income has been offset by a decline in the average lending to Group companies and Franchisees of €246m from €2bn to €1.8bn which has resulted in reduced interest income of €5.8m. Average lending has declined due to a decrease in the finance required by Group companies and franchisees due to the decline in their lease receivables because of the reductions in new business in 2020 and 2021 due to the Covid 19 pandemic.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2022 (Continued)
BUSINESS REVIEW (Continued)
Interest expense and other charges increased by €4.9m to €73.7m. The average cost of borrowing increased from 1.74% to 1.97% due to the increases in interest rates in the Eurozone which led to increased charge to the statement of profit or loss of €8.8m. This increase in costs was partially offset by a reduction in the interest expenses and charges of €3.9m due to a decline in average borrowing from €3.9bn to €3.7bn. Average borrowing has declined due to a decrease in the finance required by the Group and Company for its leasing business and also the finance required by Group companies and franchisees due to the decline in lease receivables because of the reductions in new business in 2020 and 2021 due to the Covid 19 pandemic.
Other income increased by €6.6m to €9.6m because of interest income payable of €7.7m by the Italian tax authority in respect of a €35m VAT claim in respect of the years 2009 to 2011 which the Italian tax authority has finally accepted in 2022.
The Group and Company had a cash outflow of €101m (2021: €4m). The Group and Company has a cash outflow from operating activities of €94m (2021: inflow €765m) which was due to the return to growth in the Group and Company leasing business in 2022. New leasing business grew by 36% from €624m to €851m which meant that the net present value of lease receivables increased by €122m. The increased cash required of €94m for its operating acitvities was funded by increased financing of €83m. The Group and Company had €139m of cash on hand at 31 December 2021 which was partially utilised to pay an interim dividend to the Group and Company parent Grenke AG of €90m. It is not proposed to pay a final dividend. The cash generated from operating activities of €765m in year end 31 December 2021 was due mainly to repayments received of amounts due from Grenke AG Group undertakings because of their lower financing requirements for their leasing business due to COVID 19. The cash generated in the previous year was used to repay financing of €649m in 2021 and to pay an interim dividend of €120m.
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 47 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 2022 (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 2022 (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 are expecting good growth in its own leasing activities and there is 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.
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 2022, which will be publicly available on www.GRENKE.de from 16 March 2022.
POLITICAL AND CHARITABLE DONATIONS
The Group and Company made no political and charitable donations (2021: Nil) during the year.
RESEARCH AND DEVELOPMENT
The Group and Company did not incur any expenditure in research and development during the year (2021: Nil).
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 2022.
GRENKE FINANCE PLC
8
DIRECTORS’ REPORT
for the year ended 31 December 2022 (Continued)
DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES
The Directors and secretary, who held office during the year 31 December 2022, 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 2021 and 31 December 2022 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
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 2022 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.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2022 (Continued)
DIRECTORS' RESPONSIBILITIES STATEMENT (Continued)
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.
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.
GRENKE FINANCE PLC
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DIRECTORS’ REPORT
for the year ended 31 December 2022 (Continued)
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
•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
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 2022 and pursuant to section 383(2) will continue in office.
On behalf of the Directors
Patrick Spain Angelika Wiedemann
Director Director
Date: 14 March 2023
Independent auditor’s report to the members of Grenke Finance Plc
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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 635400ILKD2MBMANBG03-2022-12-31-en.zip, which comprise the Consolidated Statement of Profit and 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 2022, 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 2022 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 2022; 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) (‘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 Group and Company. 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
12
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director’s 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 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;
•Considering solvency and going concern assessment of the ultimate parent entity;
•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 of the current financial year and include the most significant assessed risks of material misstatement (whether or not due to fraud) 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.
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
Independent auditor’s report to the members of Grenke Finance Plc
13
Key audit matters (continued)
Overall audit strategy (continued)
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. We also placed reliance on the results of certain centralised audit procedures performed by the GRENKE AG Group auditor in relation to functions outsourced to the ultimate parent entity.
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, 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.
Based on our professional judgement, we determined materiality for the Group and Company based on a metric of 5% of profit before tax for the financial year ended 31 December 2022. 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.
Independent auditor’s report to the members of Grenke Finance Plc
14
Key audit matters (continued)
Materiality and audit approach (continued)
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 prior year experience of the risk of misstatements, business risks and fraud risks associated with the Group and Company 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.
Key audit matter
Our audit response
Valuation of finance lease receivables and completeness and accuracy of the related Expected Credit Loss (ECL) provision
Note 24 to the Financial Statements reflects gross lease receivables of €2,116m (2021: €1,974m) of which impaired leases are €175m (2021: €164m) and the related ECL provision for performing leases is €48m (2021: €37m) and for impaired leases is €135m (2021: €124m).
At each reporting period year, 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
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,
Independent auditor’s report to the members of Grenke Finance Plc
15
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, recent macroeconomic developments, and potential impacts from the Russia-Ukraine conflict 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 misstatement in relation to completeness and accuracy of ECL 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 on impairment of financial assets in Note 4 to the Financial Statements, pages 44 to 47.
assumptions and models relating to ECL calculation on finance lease receivables, and assessed its relevance for the purposes of Group and Company statutory audit.
The procedures included:
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);
oAssessment of which models are used to determine PDs (stage 1 and 2), EADs, LGDs and SICR and model 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;
oAssessment of SICR and staging using analytical procedures;
oTesting of mathematical accuracy of ECL components;
oReperformance of source codes for the performing model components, including derivation of macroeconomic shift factors.
oAssessment of internal validation concepts and model validation results, including back testing;
oRecomputing ECL in the course of individual file review as well as on portfolio basis;
•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
Independent auditor’s report to the members of Grenke Finance Plc
16
December 2022 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.
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 €1,934m (2021: €1,813m). The consolidated statement of profit or loss reflects lease income of €117m (2021: €120m).
The Group and Company carries on its own leasing activities through commission agents, who are GRENKE AG Group companies in 12 European countries, including France, Germany, Italy, Netherlands, Spain, Slovenia, Malta, Luxembourg, 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
The following audit work has been performed to address the risks:
•Performed an understanding of lease origination and commission model business processes, 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.
•Reconciled the balances from transfer sheet to the general ledger and agreed to the respective invoices and bank statements for a sample of months/agents.
•Agreed key lease terms to signed lease contracts and ensured these are captured correctly in the system.
•For a sample of leases determined using the statistical sampling methodology, obtained amortisation schedules,
Independent auditor’s report to the members of Grenke Finance Plc
17
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 37 to 38 and 51 and 52, respectively.
recalculated present values based on the lease terms and agreed amounts to ledger. Capitalised initial direct costs and other lease income were tested concurrently with this procedure.
•Performed test of detail using the statistical sampling methodology on lease interest income, secondary lease income and loss on termination, earned during the year by recalculating the interest and other income earned from the lease contracts using the signed lease contracts and other evidence to verify the calculation inputs.
•Performed test of detail using the statistical sampling methodology to test accuracy of commission fees and other lease related expenses with reference to cooperation agreements and relevant lease contracts, and traced to invoices.
Our planned audit procedures were completed without material exception.
Other information
Other information comprises information included in the annual report, other than the financial statements and the auditor’s report thereon, including the Director’s Report. 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 which we consider necessary for the purposes of our audit.
•In our opinion the accounting records of the 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.
Independent auditor’s report to the members of Grenke Finance Plc
18
Matters on which we are required to report by exception
Based on our knowledge and understanding of the 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 sections 305 to 312 of the Act have not been made. We have no exceptions to report arising from this responsibility.
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 more fully 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 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 are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Independent auditor’s report to the members of Grenke Finance Plc
19
Responsibilities of the auditor for the audit of the financial statements (continued)
A further description of our responsibilities for the audit of the financial statements is located on the Irish Auditing and Accounting Supervisory Authority’s website at: http://www.iaasa.ie/getmedia/b23890131cf6458b9b8fa98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf. This description forms part of our auditor’s report.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatement in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (Ireland).
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
Based on our understanding of the Group and Company, and the industry in which it operates, we identified that the principal risks of non-compliance with laws and regulations related to compliance with EU Transparency Directive (“Transparency Law” in Luxembourg) and Luxembourg Stock Exchange listing and reporting requirements; Market Abuse (Directive 2003/6/EC) Regulations 2005; Prospectus (Directive 2003/71/EC) Regulations 2005; Criminal Justice (Corruption Offenses) Act 2018; Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (Updated 2021); General Data Protection Regulation (GDPR) along with further national rules set out in the Irish Data Protection Act 2018; Safety, Health and Welfare at Work Act 2005, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as Irish tax laws, the Companies Act 2014, and the reporting requirements and the European Single Electronic Format (ESEF) requirements. We evaluated managements incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial performance and management bias through judgements and assumptions in significant accounting estimates.
We apply professional scepticism through the audit to consider potential deliberate omission or concealment of significant transactions, or incomplete/inaccurate disclosures in the financial statement.
In response to these principal risks, our audit procedures included but not limited to:
•inquiries of management on the policies and procedures in place regarding compliance with laws and regulations, including consideration of known or suspected instances of non- compliance and whether they have knowledge of any actual, suspected or alleged fraud;
•inspection of the Group and Company’s regulatory and legal correspondence and review of minutes during the year to corroborate inquiries made;
•gaining an understanding of internal controls established to mitigate risk related to fraud;
Independent auditor’s report to the members of Grenke Finance Plc
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Responsibilities of the auditor for the audit of the financial statements (continued)
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud (continued)
•discussion amongst the engagement team in relation to the identified laws and regulations and regarding the risk of fraud, and remaining alert to any indications of non-compliance or opportunities for fraudulent manipulation of financial statements throughout the audit;
•identifying and testing journal entries to address the risk of inappropriate journals and management override of controls;
•designing audit procedures to incorporate unpredictability around the nature, timing and extent of our testing;
•challenging assumptions and judgements made by management in their significant accounting estimates, including determination of impairment of finance lease receivables; and
•evaluating 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; and
•assessment of the appropriateness of the collective competence and capabilities of the engagement team included consideration of the engagement team's:
ounderstanding of, and practical experience with audit engagements of a similar nature and complexity through appropriate training and participation;
oinvolvement of internal IT, modelling and tax specialists;
oknowledge of the finance leasing industry in which the client operates; and
ounderstanding of the legal and regulatory requirements specific to the Group and Company including:
▪the provisions of the applicable legislation;
▪the regulators’ rules and related guidance, including guidance issued by relevant authorities that interprets those rules; and
▪the applicable statutory provisions.
The primary responsibility for the prevention and detection of irregularities rests with those charged with governance and management. As with any audit, there remains a risk of non-detection or irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or override of internal controls.
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 2022. This is the second 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.
Independent auditor’s report to the members of Grenke Finance Plc
21
Report on other legal and regulatory requirements (continued)
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 the 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.
For and on behalf of
Grant Thornton
Chartered Accountants & Statutory Audit Firm
13-18 City Quay
Dublin 2
D02 ED70
Ireland
Date: 14 March 2023
GRENKE FINANCE PLC
22
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
for the financial year ended 31 December 2022
Note
Continuing Operations
2022
2021
Note
€
€
Lease income
7
Income from protecting lease equipment
8
Interest income and similar income
9
Total operating income
Expected credit loss allowance on finance lease receivables
10
(39,785,499 )
(28,260,302 )
Expected credit loss allowance on other financial assets
11
(3,555,453 )
Interest expense and other charges
12
(73,675,469 )
(68,748,674 )
Fair value adjustment for subordinated loans
21
Foreign exchange gain
13
Net loss on financial instruments at fair value through profit or loss
14
(15,944,281 )
(13,877,397 )
Other income
15
Other operating expenses
16
(34,537,861 )
(31,251,955 )
Profit before tax
Taxation
18
(7,252,338 )
(13,393,740 )
Profit for the period
The accompanying notes form an integral part of these consolidated financial statements.
GRENKE FINANCE PLC
23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME59,665,506 95,896,648 14,373,920 1,888,895 12,577,179 1,652,782 72,242,685 97,549,430
for the financial year ended 31 December 2022
Note
2022
2021
€
€
Profit for the period
Other Comprehensive Income
Items that may be reclassified to profit or loss in
subsequent years
Gains/(losses) relating to cash flow hedges
28
Tax relating to cash flow hedges
29
(1,796,741 )
(236,113 )
Other comprehensive income net of tax
Total comprehensive income for the period
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
24
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2022
The accompanying notes form an integral part of these financial statements.
Note
2022
2021
NON−CURRENT ASSETS
€
€
Property, plant & equipment
19
Subordinated loans and reserve accounts
21
Finance lease receivables due after one year
24
Amounts due from GRENKE AG Group
undertakings
25
Amounts due from GRENKE AG Group
franchisees
26
Trade and other receivables
27
Derivative financial instruments
28
Deferred tax asset
29
Corporation tax receivable
30
CURRENT ASSETS
Subordinated loans and reserve accounts
21
Leased assets held for sale
23
Finance lease receivables due within one
year
24
Amounts due from GRENKE AG Group
undertakings
25
Amounts due from GRENKE AG Group
franchisees
26
Trade and other receivables
27
Derivative financial instruments
28
Corporation tax receivable
30
Credit support accounts
31
Cash and cash equivalents
32
TOTAL ASSETS
GRENKE FINANCE PLC
25
CONSOLIDATED STATEMENT OF FINANCIAL POSITION1,605,264,170 1,981,684,415 502,085,002 484,724,617 264,526,673 81,097,128 - 10,000,000 - 332,023 169 3,120 3,180,624 8,863,659 1,770,438 - 2,376,827,076 2,566,704,962 625,274,696 547,499,973 306,758,127 311,534,336 158,698,975 92,149,655 166,284,036 97,346,923 16,290,000 - 180,005,281 61,759,998 339,631 378,939 2,788,184 10,538,418 3,006 123,369 30,682,017 31,501,750 - 908,019 1,487,123,953 1,153,741,380 3,863,951,029 3,720,446,342 50,000 50,000 67,000,000 67,000,000 118,062,994 148,397,488 12,534,039 197,647,033 215,404,348 4,061,598,062 3,935,850,690
as at 31 December 2022 (Continued)
2022
2021
NON CURRENT LIABILITIES
€
€
Debt securities in issue
33
Amount owed to Grenke Bank AG
34
Asset based financial liabilities
36
Bank loans and cash held on trust
38
Lease liabilities
39
Deferred income
40
Derivative financial instruments
28
Deferred tax liability
29
CURRENT LIABILITIES
Debt securities in issue
33
Amount owed to Grenke Bank AG
34
Amount owed to Grenke AG Group
Undertakings
35
Asset based financial liabilities
36
Credit support accounts
31
Bank loans and cash held on trust
38
Lease liabilities
39
Derivative financial instruments
28
Deferred income
40
Accruals
41
Corporation tax payable
30
TOTAL LIABILITIES
CAPITAL AND RESERVES
Share capital
42
Capital contribution
Retained earnings
Cash flow hedge reserve
43
(43,140 )
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
14 March 2023
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
26
COMPANY STATEMENT OF FINANCIAL POSITION
as at 31 December 2022
Note
2022
2021
NON−CURRENT ASSETS
€
€
Property, plant & equipment
19
374,838
806,207
Financial investments
20
450
300
Subordinated loans and reserve accounts
21
46,730,526
24,453,479
Amounts due from subsidiaries
22
34,221,563
5,882,149
Finance lease receivables due after one year
24
1,229,700,967
1,131,394,202
Amounts due from GRENKE AG Group
undertakings
25
640,930,341
586,366,737
Amounts due from GRENKE AG Group
franchisees
26
-
440,239
Trade and other receivables
27
33,553,753
63,737,558
Derivative financial instruments
28
14,441,960
1,378,996
Deferred tax asset
29
-
16,569
Corporation tax receivable
30
3,882,462
3,882,462
2,003,836,860
1,818,358,898
CURRENT ASSETS
Subordinated loans and reserve accounts
21
25,261,871
15,276,672
Amounts due from subsidiaries
22
12,937,917
60,371,372
Leased assets held for sale
23
1,048,553
895,995
Finance lease receivables due within one
year
24
703,941,988
681,163,094
Amounts due from GRENKE AG Group
undertakings
25
993,498,481
1,034,308,644
Amounts due from GRENKE AG Group
franchisees
26
168,814,811
162,636,443
Trade and other receivables
27
151,953,627
73,652,271
Derivative financial instruments
28
8,169,853
1,746,771
Corporation tax receivable
30
324,759
-
Credit support accounts
31
-
14,170,000
Cash and cash equivalents
32
38,969,272
139,524,351
2,104,921,132
2,183,745,613
TOTAL ASSETS
4,108,757,992
4,002,104,511
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
27
COMPANY STATEMENT OF FINANCIAL POSITION
as at 31 December 2022 (Continued)
2022
2021
NON CURRENT LIABILITIES
€
€
Debt securities in issue
33
1,605,264,170
1,981,684,415
Amount owed to Grenke Bank AG
34
502,085,002
484,724,617
Amount owed to subsidiary SPVs
37
298,748,686
86,979,577
Bank loans and cash held on trust
38
-
10,000,000
Lease liabilities
39
-
332,023
Deferred income
40
169
3,120
Derivative financial instruments
28
3,180,624
8,863,659
Deferred tax liability
29
1,770,438
-
2,411,049,089
2,572,587,411
CURRENT LIABILITIES
Debt securities in issue
33
625,274,696
547,499,973
Amount owed to Grenke Bank AG
34
306,758,127
311,534,336
Amount owed to Grenke AG Group
Undertakings
35
158,698,975
92,149,655
Amount owed to subsidiary SPVs
37
179,221,953
157,718,295
Credit support accounts
31
16,290,000
-
Bank loans and cash held on trust
38
180,005,281
61,759,998
Lease liabilities
39
339,631
378,939
Derivative financial instruments
28
2,788,184
10,538,418
Deferred income
40
3,006
123,369
Accruals
41
30,682,017
31,501,750
Corporation tax payable
30
-
908,019
1,500,061,870
1,214,112,752
TOTAL LIABILITIES
3,911,110,959
3,786,700,163
CAPITAL AND RESERVES
Share capital
42
50,000
50,000
Capital contribution
67,000,000
67,000,000
Retained earnings
118,062,994
148,397,488
Cash flow hedge reserve
43
12,534,039
(43,140)
TOTAL EQUITY
197,647,033
215,404,348
TOTAL EQUITY AND LIABILITIES
4,108,757,992
4,002,104,511
Approved and authorised by the Board of Directors and signed on its behalf:
Patrick Spain Angelika Wiedemann
Director Director
14 March 2023
The accompanying notes form an integral part of these financial statements.
GRENKE FINANCE PLC
28
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
for the financial year ended 31 December 2022
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 44)
(120,000,000 )
(120,000,000 )
At 31 December 2021
(43,140 )
Issued capital
Capital
Retained
Cash flow
Total equity
contribution
earnings
hedge reserve
€
€
€
€
€
As at 1 January 2022
(43,140 )
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with owners of
the company contributions
and distributions (Note 44)
(90,000,000 )
(90,000,000 )
At 31 December 2022
GRENKE FINANCE PLC
29
COMPANY STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2022
Issued capital
Capital
Retained
Cash flow
Total equity
contribution
earnings
hedge reserve
€
€
€
€
€
As at 1 January 2022
50,000
67,000,000
148,397,488
(43,140)
215,404,348
Profit for the year
-
-
59,665,506
-
59,665,506
Other comprehensive income
-
-
-
12,577,179
12,577,179
Total comprehensive income
-
-
59,665,506
12,577,179
72,242,685
Transactions with owners of
the company contributions
and distributions (Note 44)
-
-
(90,000,000)
-
(90,000,000)
At 31 December 2022
50,000
67,000,000
118,062,994
12,534,039
197,647,033
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 44)
-
-
(120,000,000)
-
(120,000,000)
At 31 December 2021
50,000
67,000,000
148,397,488
(43,140)
215,404,348
GRENKE FINANCE PLC
30
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022
Restated
2022
2021
CASH INFLOWS FROM OPERATING ACTIVITIES
Note
€
€
Profit for the financial year
Adjustments for non-cash items:
Taxation
18
Interest expense
5
Interest income
9
(53,720,849 )
(47,884,706 )
Depreciation
19
Expected credit loss allowance on finance lease receivables
10
Expected credit loss allowance on other financial assets
11
(25,666,116 )
Expected credit allowance trade debtors
16
(32,450 )
Currency translation differences on lease receivables
Currency translation differences on amounts due from
Grenke AG Group undertakings
(5,443,492 )
(5,820,217 )
Currency translation differences on amounts due from
Grenke AG Group franchisees
(5,702,120 )
(3,983,124 )
Fair value measurement of subordinated loans
Foreign exchange translation adjustment to cash
(2 )
Deferred income on financial guarantee
5
(83,664 )
(374,097 )
Amortisation of deferred professional fees
Tax on health insurance premiums
Prepayment adjustment to lease liability
(52,933 )
Changes in operating assets and liabilities
(Increase)/decrease in subordinated loans and reserve
accounts
5
(32,878,569 )
(Increase)/decrease in leased assets held for sale
5
(152,558 )
(Increase)/decrease in performing lease receivables
5
(130,191,745 )
Increase in impaired leases and leases past due
5
(31,495,074 )
(26,804,607 )
Change in amounts due/owed from Grenke AG Group undertakings
5
Increase in amounts due from Grenke AG Group franchisees
5
(6,737,597 )
(14,318,696 )
Increase in trade and other receivables
5
(45,568,315 )
(15,719,842 )
Change in the fair value of derivative financial instruments not designated as hedges
5
(322,832 )
Increase/(Decrease) in accruals
5
(753,760 )
Change in credit support accounts
5
(Decrease)/Increase in cash held in trust
5
(11,759,998 )
Interest received
5
Interest paid
5
(52,875,991 )
(58,431,392 )
Payments to Grenke Bank AG in respect of deferred risk
premium
5
(13,879,206 )
(2,172,266 )
Asset based interest and expenses paid
5
(4,403,557 )
(1,482,451 )
Derivative cross currency interest paid
5
(1,900,244 )
Derivative swap interest paid
(946,139 )
Derivative swap interest received
Payments to lessors classified as interest under IFRS 16
12
(4,566 )
(6,857 )
Tax paid
5
(8,497,049 )
(9,500,000 )
Net cash (outflow)/inflow from operating activities
(93,580,429 )
GRENKE FINANCE PLC
31
Restated
2022
2021
CASH OUTFLOWS FROM INVESTING ACTIVITIES
Note
€
€
Payments for the acquisition of property, plant
and equipment
19
(13,077 )
(4,488 )
Cash outflow from investing activities
(13,077 )
(4,488 )
CASH OUTFLOWS FROM FINANCING
ACTIVITIES
Proceeds of debt securities issued
45
Repayment of debt securities in Issue
45
(618,412,128 )
(581,136,366 )
Proceeds from amounts owed to GRENKE AG Bank
45
Repayment of amounts owed to GRENKE AG Bank
45
(419,180,895 )
(401,187,374 )
Proceeds from amounts owed to asset-based liabilities
45
Repayment of amounts owed to asset based liabilities
45
(68,758,816 )
(197,940,930 )
Proceeds from syndicated loans drawn down
45
Repayments of syndicated loans
45
(490,000,000 )
Proceeds from money market lines drawn down
45
Payment to lessors for right of use assets
45
(318,398 )
(263,718 )
Dividend paid
44
(90,000,000 )
(120,000,000 )
Cash outflow from financing activities
(6,966,856 )
(769,577,602 )
Cash and cash equivalents at the beginning of the year
32
Foreign exchange translation adjustment
(2 )
Cash and cash equivalents at the end of the year
32
Bank overdraft at the end of the year
(5,281 )
Change in cash and cash equivalents during the year
(100,560,362 )
(4,149,549 )
Net cash inflow from operating activities
(93,580,429 )
Cash outflow from investing activities
(13,077 )
(4,488 )
Cash outflow from financing activities
(6,966,856 )
(769,577,602 )
Total cash outflow
(100,560,362 )
(4,149,549 )
There has been a reclassification made to the 2021 comparative for the adjustment for the non cash item, change in the fair value of derivative financial instruments not designated as hedges, in order to provide the reader with more precise information on cash flows. The reclassification is disclosed in note 51.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022
(continued)
GRENKE FINANCE PLC
32
NOTES TO THE FINANCIAL STATEMENTSThe 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 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
AT 31 December 2022
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 flows for the Company has been included
•The requirements of IFRS 7 Financial Instruments: Disclosures have not been followed by the Company when the equivalent disclosures are included in these financial statements in respect of the Group.
The accounting policies applied in the preparation of the Group and Company financial statements for the year ended 31 December 2022 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.
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 2022.
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 €59,665,506 for the year ended 31 December 2022 and, as
at that date, the total assets exceed total liabilities by €197,647,033.
2. GRENKE AG GROUP
GRENKE FINANCE PLC
33
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
2. GRENKE AG GROUP (Continued)
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 2022 financial statements are expected to be publicly available at www.GRENKE.de on 16 March 2023.
3. CHANGES IN ACCOUNTING POLICIES
(a) Accounting standards implemented in 2022
The following amendments to standards whose application was mandatory as of fiscal year 2022 had no or only an immaterial effect on the Group and Company financial statements:
•Amendments to IFRS 3 "Business Combinations", IAS 16 "Property, Plant and Equipment", IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" and Annual Improvements to IFRS 2018-2020.
Several limited IFRS amendments including the omnibus amendment standard of the annual improvement, 2018-2020 cycle, which makes amendments to IFRS 1 "First-time Adoption of IFRS", IFRS 9 "Financial Instruments", IAS 41 "Agriculture" and an example to IFRS 16 "Leases", were issued by the IASB on 14 May 2020 and became effective on 1 January 2022.
The amendments to IFRS 3 updated the reference to the IFRS framework. Similarly, IFRS 3 was amended to include the requirement that an acquirer apply these requirements instead of the Framework when identifying obligations assumed within the scope of IAS 37 or IFRIC 21. The rules for accounting for business combinations were not changed in terms of content.
According to the amendment to IAS 16, entities are no longer permitted to deduct revenue from the sale of goods produced while an item of property, plant and equipment is being brought to the location and condition intended from the cost of that item of property, plant and equipment. Instead, these revenues are to be recognised in the income statement together with the production costs of the property, plant and equipment.
The amendment to IAS 37 specifies which costs an entity should consider when assessing whether a contract is onerous or loss-making and focuses on costs that are directly related to the contract (directly related cost approach). Costs related to the performance of contracts for the supply of goods or services include both the directly attributable (incremental) costs of fulfilling the contract and overhead costs that relate directly to contract performance activities. General administrative costs are not directly related to the contract and are therefore not included in contract performance costs, unless the contract explicitly provides for charging to the customer.
The annual improvements to the omnibus amendment standard (2018-2020 cycle) relate to minor amendments to IFRS 1 'First-time Adoption of IFRS', first-time adoption by a subsidiary, an accompanying example to IFRS 16 'Leases' and the significance of tax effects on fair value measurement in IAS 41 'Agriculture'. In addition, IFRS 9 "Financial Instruments" was amended, according to which only costs and fees paid by the entity to the creditor and vice versa are to be taken into account in the 10 per cent present value test before derecognition of financial liabilities. Costs or fees paid to other third parties may not be included.
GRENKE FINANCE PLC
34
NOTES TO THE FINANCIAL STATEMENTSThe 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
AT 31 December 2022
3. CHANGES IN ACCOUNTING POLICIES (Continued)
(b) Accounting standards and interpretations already published – not yet implemented
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.
Accounting standard or interpretation
Description
Publication by IASB
Start of Application
Adoption by EU
Implementation IFRS 17 "Insurance Contracts”
18.05.2017
IFRS 17
Amendments to IFRS 17 "Insurance Contracts”
25.06.2020
01.01.2023
Yes (23.11.2021)
IAS 8
Amendments to IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors"
12.02.2021
01.01.2023
Yes (02.03.2022)
Amendments to IAS 1 "Presentation of Financial Statements" and
IAS 1, IFRS Practice Statement 2
the IFRS Practice Statement 2 "Making Materiality Judgements”
12.02.2021
01.01.2023
Yes (02.03.2022)
IAS 12
Amendments to IAS 12 "Income Taxes on the Recognition of Deferred Taxes Arising from a Single Transaction".
07.05.2021
01.01.2023
Yes (12.08.2022)
IFRS 17
Amendments to IFRS 17 "Insurance Contracts": First-time Adoption of IFRS 17 and IFRS 9 - Comparative Information
09.12.2021
01.01.2023
Yes (09.09.2022)
IFRS 16
Amendments to IFRS 16 "Leases" on the subsequent measurement of a lease liability in the event of a sale and leaseback transaction
22.09.2022
01.01.2024
No
Amendments to IAS 1 "Presentation of Financial Statements":
- Classification of debt as current or non-current
23.01.2020
01.01.2024
No
- Postponement of the date of first application
15.07.2020
IAS 1
- Classification of debt with constraints
31.10.2022
GRENKE FINANCE PLC
35
NOTES TO THE FINANCIAL STATEMENTS 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 .
AT 31 December 2022
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 2022 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 (n) & (o).
The profit attributable to equity shareholders disclosed in the financial statements of the Company was €60m (2021: €96m). In accordance with Section 304 of the Companies Act 2014, GRENKE Finance PLC (the ‘Company’) is availing of the exemption from presenting its
Basis of consolidation
The Group Financial Statements comprise the Financial Statements of the Company
undertaking and five structured entities, FCT “GK”-Compartment “G2” (FCT GK 2), FCT “GK”-Compartment “G4” (FCT GK 4), FCT “GK”-Compartment “G5” (FCT GK 5) and Elektra Purchase No. 25 Designated Activity Company.
In the prior year the structured entity FCT “GK” 3 was also included in the consolidation. The total asset based liabilities in connection with FCT “GK” 3 as at 31 December 2021 of €27.3m have all been repaid by the Company undertaking and all lease receivables sold to the structured entity FCT GK 3 have either matured or been bought back by the Company undertaking. There is therefore no assets or liabilities in FCT GK 3 as at 31 December 2022 and it is therefore not included in the consolidation. Net profit in FCT GK 3 in year end 31 December 2022 and 31 December 2021 was €nil. Net assets in FCT GK3 in year end 31 December 2022 and 31 December 2021 was €nil.
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, FCT GK 5 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
GRENKE FINANCE PLC
36
NOTES TO THE FINANCIAL STATEMENTSSubsidiary 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. The company ceased to use FCT GK 3 as a funding vehicle in September 2022 and there is no assets or liabilities of FCT GK 3 included in the statement of financial position at 31 December 2022. There was no material gains or losses from ceasing to use FCT GK 3 as a funding vehicle and therefore FCT GK 3 is no longer considered to be a subsidiary .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(a) Basis of preparation (Continued)
Basis of consolidation (Continued)
invests by way of subordinated loans should not be consolidated because it effectively does not control these entities.
Subsidiaries
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, 2022
Equity Interest Dec 31, 2021
FCT "GK"-COMPARTMENT "G2"
St-Denis/France
50%
50%
FCT GK 3
St-Denis/France
-
0%
FCT "GK4"-COMPARTMENT "G4"
St-Denis/France
50%
50%
FCT "GK5"-COMPARTMENT "G5"
St-Denis/France
50%
50%
Elektra Purchase No 25 Designated Activity Company
Dublin/Ireland
0%
0%
(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.
GRENKE FINANCE PLC
37
NOTES TO THE FINANCIAL STATEMENTSThe 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
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(b) Leases (Continued)
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.
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
GRENKE FINANCE PLC
38
NOTES TO THE FINANCIAL STATEMENTSThe 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 .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 .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 .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
b) Leases (Continued)
FINANCE LEASES (Continued)
The Company and Group as lessee (Continued)
over the useful life and, if necessary, impaired in accordance with IAS 36 “Impairment of Assets”.
(c) Other operating expenses
(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
(e) 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
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.
GRENKE FINANCE PLC
39
NOTES TO THE FINANCIAL STATEMENTSor 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 .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(e) Measurement of fair values (Continued)
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
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.
(f) Financial Instruments
Categories of financial instruments
Financial instruments within the scope of IFRS 9 “Financial Instruments” are divided into the following classes:
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.
GRENKE FINANCE PLC
40
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Categories of financial instruments (Continued)
FINANCIAL ASSETS (Continued)
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, trade and other receivables and amounts due from subsidiaries.
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
41
NOTES TO THE FINANCIAL STATEMENTSThe 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 .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
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.
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
42
NOTES TO THE FINANCIAL STATEMENTSthrough 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 .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 .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
FINANCIAL ASSETS (Continued)
Financial assets at fair value through profit or loss (FVPL) (Continued)
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
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.
GRENKE FINANCE PLC
43
NOTES TO THE FINANCIAL STATEMENTSThe 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.
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
FINANCIAL LIABILITIES (Continued)
Financial liabilities at amortised cost (Continued)
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.
Interest expense on financial liabilities are recognised using the effective interest rate method.
Financial liabilities at fair value
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.
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44
NOTES TO THE FINANCIAL STATEMENTSThe impairment allowances under IFRS 9 are not applied to cash and cash equivalents because any allowances required would be immaterial.
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING PRACTICES (Continued)
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
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 (o) 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, amounts due from Grenke AG Group franchisees measured at amortised cost, trade debtors and finance lease receivables under IFRS 16 "Leases".
GRENKE FINANCE PLC
45
NOTES TO THE FINANCIAL STATEMENTSFor 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).
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
IMPAIRMENT OF FINANCIAL ASSETS (Continued)
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
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.
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:
GRENKE FINANCE PLC
46
NOTES TO THE FINANCIAL STATEMENTS •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 .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
IMPAIRMENT OF FINANCIAL ASSETS (Continued)
Significant increase in credit risk and credit impairment (Continued)
•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
was signed. Creditworthiness is impaired if contractually agreed payments are more than 90 days overdue, the contract has been terminated by the Company, or at least one of the two conditions was not met at the measurement date but was met within the three proceeding months. 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.
GRENKE FINANCE PLC
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NOTES TO THE FINANCIAL STATEMENTS•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 receivables is based on credit ratings, which are determined by observing published external credit ratings
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
IMPAIRMENT OF FINANCIAL ASSETS (Continued)
Significant increase in credit risk and credit impairment (Continued)
•Trade debtors: 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.
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
GRENKE FINANCE PLC
48
NOTES TO THE FINANCIAL STATEMENTSThe 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 against the expenses that are still incurred until the sale in order to correspond to the net realisable value .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 .services of employees. These contributions are recognised as expenses when the employees have rendered their services .
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(f) Financial Instruments (Continued)
Measurement of financial instruments (Continued)
DERECOGNITION OF FINANCIAL LIABILITIES (Continued)
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.
(g) Leased assets for resale
(h) 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)
(i) 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
GRENKE FINANCE PLC
49
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(j) 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.
(k) 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.
(l) 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,
GRENKE FINANCE PLC
50
NOTES TO THE FINANCIAL STATEMENTSWhere 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.
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(l) Taxes (Continued)
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.
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.
(m) 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
GRENKE FINANCE PLC
51
NOTES TO THE FINANCIAL STATEMENTSThe 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
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(m) Revenue recognition (Continued)
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.
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.
GRENKE FINANCE PLC
52
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(m) Revenue recognition (Continued)
Lease Income (Continued)
•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
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.
(n) 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 GK2, FCT GK4 and FCT GK5, 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
GRENKE FINANCE PLC
53
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(n) Accounting judgements
Consolidation of structured companies (Continued)
consolidation. FCT GK2, FCT GK4 and FCT GK5 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.
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.
GRENKE FINANCE PLC
54
NOTES TO THE FINANCIAL STATEMENTSThe 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 2022 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. 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
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(n) Accounting judgements
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
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
(o) 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.
GRENKE FINANCE PLC
55
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(o) Use of assumptions and estimates(Continued)
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
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
GRENKE FINANCE PLC
56
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(o) Use of assumptions and estimates (Continued)
Determination of impairment of finance lease receivables (Continued)
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.
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 (so called “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 (f) 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 classified as performing lease receivables and are allocated to stage 3 if the contractually lease payments are more than 90 days overdue at the reporting date or if the contractual lease payments were more than 90 days overdue in the proceeding three months or if the contract was terminated but reinstated due to arrears being repaid in the proceeding three months .
Determination of loss allowances on unsecured 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.
GRENKE FINANCE PLC
57
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(o) Use of assumptions and estimates (Continued)
Determination of loss allowances on unsecured amounts due from group companies and amounts due from franchisees (Continued)
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. There is €1.6bn (2021: €1.6bn) of the amount due from group companies being 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 €23m (2021: €19m) of the amounts due from group companies is used to finance the purchase of low value invoices in Germany and Switzerland.
GRENKE AG, the Company’s ultimate parent has also provided a guarantee in respect of €1.067bn (2021: €1.254bn) of the amounts due from Group Companies at 31 December 2022 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 that there will be future expected losses on loans from Group companies and franchisees 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 2021 annual report, which is available at www.grenke.de, on page 270 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
GRENKE FINANCE PLC
58
NOTES TO THE FINANCIAL STATEMENTSThe 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
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(o) Use of assumptions and estimates (Continued)
Determination of loss allowances amounts on unsecured amounts due from group companies and amounts due from franchisees (Continued)
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 2022 was 0.483% (2021: 0.277%). If the risk of default decreased to 0% the expected credit loss would decline by €8.5m and if the risk of default increased by 1% to 1.483% the expected credit loss would increase by €18m.
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 7.96% of the cost of the lease object for all leases which were in the primary period at 31 December 2022.
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
The Group and Company 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.
Fair value of financial instruments
GRENKE FINANCE PLC
59
AT 31 December 2022
4. ACCOUNTING POLICIES (Continued)
(o) Use of assumptions and estimates (Continued)
Fair value of financial instruments (Continued)
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
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
2022
12
40,342,471
Interest expense on amounts owed to
Grenke AG Group undertakings
2022
12
763,119
Refinancing interest and expenses
2022
12
4,575,854
Interest payable to Grenke Bank
2022
12
12,472,251
Amortisation of Grenke Bank AG guarantee
2022
12
10,630,655
Amortisation of guarantee paid to franchisees
2022
12
12,900
Interest on lease liabilities
2022
12
4,566
Interest expense add back in Cash Flow
68,801,816
GRENKE FINANCE PLC
60
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Deferred income on financial guarantee
due after one year
2021
40
(3,120)
Deferred income on financial guarantee
due within one year
2021
40
(83,719)
Deferred income on financial guarantee
due after one year
2022
40
169
Deferred income on financial guarantee
due within one year
2022
40
3,006
Deduct non cash reduction of deferred income liability
(83,664)
Year
Note
€
Subordinated loans at fair value non current
2021
21
16,703,889
Subordinated loans at amortised cost non current
2021
21
7,749,590
Reserve accounts held with SPVs
Subordinated loans at fair value current
2021
21
10,519,229
Subordinated loans at amortised cost current
2021
21
4,687,433
Reserve accounts held with SPVs
and banks current
2021
21
70,010
Subordinated loans at fair value non current
2022
21
(21,327,733)
Subordinated loans at amortised cost non current
2022
21
(25,402,793)
Subordinated loans at fair value current
2022
21
(13,693,951)
Subordinated loans at amortised cost current
2022
21
(11,567,910)
Reserve accounts held with SPVs
and banks current
2022
21
(10)
Fair value adjustment for subordinated loans
2022
SOPL
(616,323)
Increase in subordinated loans
(32,878,569)
Year
Note
€
Leased assets held for sale
2021
23
895,995
Leased assets held for sale
2022
23
(1,048,553)
Increase in leased assets held for sale
(152,558)
Note
€
GRENKE FINANCE PLC
61
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
25
1,254,536,496
Year
Note
€
Finance lease receivables due after one year
2021
24
1,154,930,210
Finance lease receivables due within one year
2021
24
643,697,991
Finance lease receivables due after one year
2022
24
(1,260,512,606)
Finance lease receivables due within one year
2022
24
(667,491,679)
Currency translation differences
on lease receivables
(815,661)
Increase in performing lease receivables
(130,191,745)
25
644,018,647
Year
Note
€
Finance lease receivables past due
not credit impaired
2021
24
12,181,110
Non performing finance lease receivables
2021
24
163,556,430
Finance lease receivables past due
not credit impaired
2022
24
(13,697,468)
Non performing finance lease receivables
2022
24
(174,792,034)
Write off of lease receivables
2022
24
(18,743,112)
Increase in impaired leases past due
(31,495,074)
GRENKE FINANCE PLC
62
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
(109,312)
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Secured amounts due from GRENKE AG Group
undertakings due in greater than one year
2021
25
24,460,314
Unsecured amounts due from GRENKE AG Group
undertakings due in greater than one year
2021
25
564,453,799
Secured amounts due from GRENKE AG Group
undertakings due in less than one year
2021
25
25,255,982
Unsecured amounts due from GRENKE AG Group
undertakings due in less than one year
2021
25
1,012,874,166
Secured amounts due from GRENKE AG Group
undertakings due in greater than one year
2022
25
(28,941,049)
Unsecured amounts due from GRENKE AG Group
undertakings due in greater than one year
2022
25
(616,002,590)
Secured amounts due from GRENKE AG Group
undertakings due in less than one year
2022
25
(23,176,213)
Unsecured amounts due from GRENKE AG Group
undertakings due in less than one year
2022
25
(975,866,948)
Amount owed to Grenke AG Group Undertakings
2021
25
(92,149,655)
Amount owed to Grenke AG Group Undertakings
2022
25
158,698,975
Currency translation differences on amounts
due from Grenke AG Group undertakings
(3,995,176)
Change in amounts due/owed from Grenke AG Group
undertakings
45,611,605
GRENKE FINANCE PLC
63
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
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
2021
26
441,462
Amounts due from GRENKE AG Group
franchisees due in less than one year
2021
26
104,233,369
Secured amounts due from GRENKE AG Group
franchisees due in less than one year
58,854,828
Secured amounts due from GRENKE AG Group
franchisees due in less than one year
2022
26
(74,321,217)
Amounts due from GRENKE AG Group
franchisees due in less than one year
2022
26
(95,312,927)
Currency translation differences on amounts due
from Grenke AG Group franchisees
(633,112)
Increase in amounts due from Grenke AG Group franchisees
(6,737,597)
Year
Note
€
Overseas withholding tax non current asset
2021
27
4,884,925
Overseas VAT non current asset
2021
27
35,099,477
Overseas VAT current asset
2021
27
50,987,082
Other assets current asset
2021
27
576,016
Trade debtors current asset
2021
27
2,833,273
Deferred financing costs non current asset
2021
27
342,358
Deferred financing costs current asset
2021
27
700,278
Interest on tax repaid late current asset
2021
27
762,174
Overseas withholding tax non current asset
2022
27
(4,884,925)
Overseas VAT current asset
2022
27
(125,127,196)
Deferred financing costs current asset
2022
27
(334,577)
Other assets current asset
2022
27
(347,894)
Trade debtors current asset
2022
27
(2,927,035)
Interest on tax repaid late current asset
2022
27
(7,711,664)
Irish VAT
2022
27
(27,999)
Write off of dealers bad debts
2022
(392,608)
Decrease in trade and other receivables
(45,568,315)
GRENKE FINANCE PLC
64
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
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
not designated as hedges
2021
28
(1,214,744)
Net liability arising on
derivative financial instruments
not designated as hedges
2022
28
907,110
Amortisation costs of hedging
2022
14
293,283
Movement in part of fair value
attributable to derivative financial instruments
designated as hedges in respect of period
prior to 30 September 2020 when hedge
accounting was first carried out
(308,481)
Change in the fair value of derivative financial
instruments not designated as hedges
(322,832)
Year
Note
€
Other accrued expenses
2021
41
(1,455,421)
Trade creditors
2021
41
(8,086,638)
Social welfare tax payable
2021
41
(44,993)
Irish vat
2021
41
(46,082)
Other accrued expenses
2022
41
1,935,627
Trade creditors
2022
41
8,533,438
Social welfare tax payable
2022
41
49,912
Decrease in accruals
885,843
Note
€
GRENKE FINANCE PLC
65
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Net asset arising on support accounts
2021
31
14,170,000
Net liability arising on support accounts
2022
31
16,290,000
Decrease in credit support accounts
30,460,000
41
(1,455,421)
Year
Note
€
Cash held in trust
2021
38
(11,759,998)
Cash held in trust
2022
38
-
Decrease in cash held in trust
(11,759,998)
Year
Note
€
Deferred interest income
2021
40
(39,650)
Interest income
2022
9
53,720,849
Interest received
53,681,199
Year
Note
€
Interest and other charges on debt securities in issue
2022
12
(40,342,471)
Interest expense on amounts owed to
Grenke AG Group undertakings
2022
12
(763,119)
Interest paid to Grenke Bank AG
2022
12
(12,472,251)
Accrued interest
2021
41
(21,868,616)
Accrued interest
2022
41
20,163,040
Amortisation of Debt Securities excluded
2022
507,182
Derivative cross currency interest paid disclosed
separately in consolidated cash flow statement
2022
1,900,244
Interest paid
(52,875,991)
GRENKE FINANCE PLC
66
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
5. RECONCILIATION OF CERTAIN AMOUNTS IN THE CONSOLIDATED CASH FLOW TO THE NOTES TO THE ACCOUNTS (Continued)
Year
Note
€
Amortisation of Grenke Bank AG risk premium
2022
12
(10,630,655)
Deferred risk premium paid to Grenke Bank AG
non current asset
2021
27
23,405,164
Deferred risk premium paid to Grenke Bank AG
current asset
2021
27
19,487,533
Deferred risk premium paid to Grenke Bank AG
non current asset
2022
27
(28,668,828)
Deferred risk premium paid to Grenke Bank AG
current asset
2022
27
(17,472,420)
GRENKE AG Bank guarantee paid
(13,879,206)
Year
Note
€
Refinancing interest and expenses
12
(4,575,854)
Deferred set up costs non current liabilities
2021
36
0
Deferred set up costs current liabilities
2021
36
56,290
Deferred set up costs current liabilities
2022
36
(178,826)
Derivative swap interest paid disclosed on a
separate line
946,139
Derivative swap interest received disclosed on a
separate line
(651,306)
Asset based interest paid
(4,403,557)
Year
Note
€
Tax charge in the accounts
2022
18
(7,262,071)
Corporation tax receivable in greater than one year
2021
30
3,882,462
Corporation tax receivable within one year
2021
30
-
Corporation tax payable within one year
2021
(908,019)
Corporation tax receivable in greater than one year
2022
30
(3,882,462)
Corporation tax payable within one year
2022
30
(324,759)
Tax on health insurance premiums
(2,200)
Tax paid
(8,497,049)
GRENKE FINANCE PLC
67
NOTES TO THE FINANCIAL STATEMENTSThe 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 2022 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 2022. 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 segmental reporting purposes looks at the treasury business based on what countries it lends money to.
AT 31 December 2022
6. SEGMENTAL REPORTING
The chief operating decision makers (CODM) are the board of directors of the Group and Company.
GRENKE FINANCE PLC
68
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (Continued)
Lease income
Total operating income
Other income
Expected credit loss allowance on finance lease receivables
Expected credit loss allownace on other financial assets
Interest expense and other charges
Foreign exchange (loss)/gain
2022
2022
2022
2022
2022
2022
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
France
75,810
-
(20,270)
-
(22,442)
-
Spain
12,383
-
(10,970)
-
(4,471)
-
Netherlands
10,371
-
(2,356)
-
(2,956)
-
Portugal
5,996
-
(1,462)
-
(2,662)
-
Romania
3,702
-
(460)
(11)
(1,104)
-
Finland
5,263
-
(2,259)
(17)
(2,357)
-
Slovenia
1,269
-
(371)
(1)
(475)
-
Hungary
1,086
-
(77)
-
(223)
(916)
Malta
406
-
(155)
1
(196)
-
Luxembourg
686
-
(816)
(1)
(300)
-
Germany
(368)
-
(408)
-
(142)
-
Italy
385
7,709
-
-
(742)
-
Lease income
116,989
7,709
(39,604)
(29)
(38,070)
(916)
GRENKE FINANCE PLC
69
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Lease income (continued)
Net gain/(loss) on financial instruments at fair value through profit or loss
Other operating expenses
Profit before tax
Tax
Profit after Tax
2022
2022
2022
2022
2022
€ 000
€ 000
€ 000
€ 000
€ 000
France
-
(8,753)
24,345
(2,982)
21,363
Spain
-
(3,011)
(6,069)
743
(5,326)
Netherlands
-
(1,070)
3,989
(489)
3,500
Portugal
-
(1,149)
723
(89)
634
Romania
-
(354)
1,773
(217)
1,556
Finland
-
(774)
(144)
17
(127)
Slovenia
-
(155)
267
(33)
234
Hungary
444
(146)
168
(21)
147
Malta
-
(54)
2
-
2
Luxembourg
-
(115)
(546)
67
(479)
Germany
-
(69)
(987)
121
(866)
Italy
-
(385)
6,967
91
7,058
Lease income
444
(16,035)
30,488
(2,792)
27,696
GRENKE FINANCE PLC
70
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Income from protecting lease equipment
Total operating income
Other operating expenses
Profit before tax
Tax
Profit after Tax
2022
2022
2022
2022
2022
€ 000
€ 000
€ 000
€ 000
€ 000
France
28,393
(10,244)
18,149
(2,223)
15,926
Portugal
3,071
(1,180)
1,891
(232)
1,659
Spain
3,777
(1,412)
2,365
(290)
2,075
Netherlands
2,555
(910)
1,645
(201)
1,444
Finland
2,046
(763)
1,283
(157)
1,126
Romania
1,991
(661)
1,330
(163)
1,167
Slovenia
594
(222)
372
(46)
326
Luxembourg
413
(154)
259
(32)
227
Hungary
252
(92)
160
(20)
140
Malta
87
(19)
68
(8)
60
Germany
1
(3)
(2)
-
(2)
Income from protecting lease equipment
43,180
(15,660)
27,520
(3,372)
24,148
GRENKE FINANCE PLC
71
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Treasury income and other income
Total operating income
Other income
Expected credit loss allowance on finance lease receivables
Expected credit loss allownace on other financial assets
Interest expense and other charges
Fair value adjustment for subordinated loans
2022
2022
2022
2022
2022
2022
Treasury Income
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Italy
16,626
-
-
(948)
(13,051)
-
Germany
12,307
84
-
(1,196)
(10,455)
616
Sweden
3,298
-
-
(208)
(1,843)
-
Belgium
2,949
-
-
(257)
(2,048)
-
United Arab Emirates
1,918
-
-
144
(608)
-
Canada
3,064
-
-
(133)
(1,131)
-
United Kingdom
682
-
-
(98)
(451)
-
Australia
3,039
-
-
(196)
(1,264)
-
Denmark
2,067
-
-
(182)
(1,469)
-
Spain
2,210
-
-
(190)
(1,406)
-
Czech Republic
650
12
(306)
47
(216)
-
Singapore
1,023
-
-
(53)
(433)
-
Switzerland
261
-
-
(40)
(177)
-
Slovakia
314
-
-
(62)
(166)
-
Ireland
470
-
-
27
(258)
-
Romania
92
-
-
(9)
(45)
-
Chile
752
-
-
(36)
(141)
-
Malta
130
-
-
(6)
(30)
-
Luxembourg
62
-
-
(1)
(16)
-
Poland
1,660
-
-
(97)
(325)
-
United States of America
94
-
-
(14)
(36)
-
Latvia
-
-
-
-
-
-
Netherlands
53
-
-
(19)
(37)
-
Total treasury income
53,721
96
(306)
(3,527)
(35,606)
616
Other Income
-
1,790
123
-
-
-
Total Group and Company income
213,890
9,595
(39,787)
(3,556)
(73,676)
616
GRENKE FINANCE PLC
72
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Treasury income and other income (continued)
Foreign exchange (loss)/gain
Net gain/(loss) on financial instruments at fair value through profit or loss
Other operating expenses
Profit before tax
Tax
Profit after Tax
2022
2022
2022
2022
2022
2022
Treasury Income
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Italy
-
-
(824)
1,803
(221)
1,582
Germany
-
662
(660)
1,358
(166)
1,192
Sweden
140
(385)
(116)
886
(108)
778
Belgium
-
-
(129)
515
(63)
452
United Arab Emirates
1,301
(2,493)
(38)
224
(27)
197
Canada
3,577
(4,545)
(71)
761
(93)
668
United Kingdom
504
(708)
(28)
(99)
12
(87)
Australia
1,805
(2,797)
(384)
203
(25)
178
Denmark
26
(34)
(93)
315
(39)
276
Spain
-
-
(89)
525
(64)
461
Czech Republic
426
(1,080)
(177)
(644)
79
(565)
Singapore
2,642
(3,002)
(27)
150
(18)
132
Switzerland
1,043
(419)
(11)
657
(81)
576
Slovakia
-
-
(10)
76
(9)
67
Ireland
-
-
(91)
148
(18)
130
Romania
(1)
(13)
(3)
21
(3)
18
Chile
(79)
(475)
(9)
12
(1)
11
Malta
-
-
(2)
92
(11)
81
Luxembourg
-
-
(1)
44
(5)
39
Poland
(179)
(1,049)
(72)
(62)
8
(54)
United States of America
25
(51)
(2)
16
(2)
14
Latvia
-
-
-
-
-
-
Netherlands
-
-
(2)
(5)
1
(4)
Total treasury income
11,230
(16,389)
(2,839)
6,996
(854)
6,142
Other Income
-
-
-
1,913
(234)
1,679
Total Group and Company income
10,314
(15,945)
(34,534)
66,917
(7,252)
59,665
GRENKE FINANCE PLC
73
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Lease income
Total operating income
Other income
Expected credit loss allowance on finance lease receivables
Expected credit loss allowance on other financial assets
Interest expense and other charges
Foreign exchange (loss)/gain
2021
2021
2021
2021
2021
2021
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
France
79,897
-
(14,503)
-
(19,864)
-
Spain
10,942
113
(9,289)
58
(3,777)
-
Netherlands
9,677
-
(884)
5
(2,600)
-
Portugal
6,145
-
(1,501)
-
(2,330)
-
Romania
3,604
760
(309)
14
(880)
-
Finland
4,940
-
(1,021)
84
(1,673)
-
Slovenia
1,370
-
(101)
1
(413)
-
Hungary
922
-
89
-
(208)
(105)
Malta
604
-
465
4
(235)
-
Luxembourg
905
-
(812)
6
(273)
-
Germany
329
-
191
-
(211)
-
Italy
281
-
15
-
(592)
-
Lease income
119,616
873
(27,660)
172
(33,056)
(105)
GRENKE FINANCE PLC
74
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Lease income (continued)
Net gain/(loss) on financial instruments at fair value through profit or loss
Other operating expenses
Profit before tax
Tax
Profit after Tax
2021
2021
2021
2021
2021
€ 000
€ 000
€ 000
€ 000
€ 000
France
-
(7,383)
38,147
(4,675)
33,472
Spain
-
(2,497)
(4,450)
545
(3,905)
Netherlands
-
(933)
5,265
(645)
4,620
Portugal
-
(985)
1,329
(163)
1,166
Romania
-
(335)
2,854
(350)
2,504
Finland
-
(543)
1,787
(219)
1,568
Slovenia
-
(135)
722
(88)
634
Hungary
(1,789)
(94)
(1,185)
145
(1,040)
Malta
-
(137)
701
(86)
615
Luxembourg
-
(213)
(387)
47
(340)
Germany
-
(60)
249
(30)
219
Italy
-
(234)
(530)
65
(465)
Lease income
(1,789)
(13,549)
44,502
(5,454)
39,048
GRENKE FINANCE PLC
75
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Income from protecting lease equipment
Total operating income
Other operating expenses
Profit before tax
Tax
Profit after Tax
2021
2021
2021
2021
2021
€ 000
€ 000
€ 000
€ 000
€ 000
France
30,040
(10,855)
19,185
(2,351)
16,834
Portugal
3,080
(1,183)
1,897
(233)
1,664
Spain
3,218
(1,167)
2,051
(251)
1,800
Netherlands
2,306
(868)
1,438
(176)
1,262
Finland
1,842
(682)
1,160
(142)
1,018
Romania
969
(364)
605
(74)
531
Slovenia
577
(225)
352
(43)
309
Luxembourg
391
(142)
249
(31)
218
Hungary
240
(89)
151
(18)
133
Malta
100
(47)
53
(7)
46
Germany
-
(6)
(6)
1
(5)
Income from protecting lease equipment
42,763
(15,628)
27,135
(3,325)
23,810
GRENKE FINANCE PLC
76
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Treasury income
Total operating income
Other income
Expected credit loss allowance on finance lease receivables
Expected credit loss allowance on other financial assets
Interest expense and other charges
Fair value adjustment for subordinated loans
2021
2021
2021
2021
2021
2021
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Italy
17,867
-
-
11,980
(15,237)
-
Germany
10,844
374
-
6,356
(9,923)
243
Sweden
2,669
-
-
1,055
(1,646)
-
Belgium
2,363
-
-
1,099
(1,748)
-
United Arab Emirates
1,750
-
-
635
(500)
-
Canada
2,068
-
-
540
(935)
-
United Kingdom
1,594
-
-
1,036
(834)
-
Australia
2,062
-
-
564
(957)
-
Denmark
1,654
-
-
753
(1,235)
-
Spain
1,638
-
-
679
(1,135)
-
Czech Republic
696
50
(597)
72
(231)
-
Singapore
737
-
-
211
(358)
-
Switzerland
514
-
-
395
(318)
-
Slovakia
303
-
-
22
(150)
-
Ireland
270
-
-
25
(231)
-
Romania
79
-
-
7
(41)
-
Chile
236
-
-
55
(83)
-
Malta
82
-
-
10
(19)
-
Luxembourg
67
-
-
8
(15)
-
Poland
366
-
-
(11)
(85)
-
United States of America
15
-
-
4
(9)
-
Latvia
2
-
-
1
(1)
-
Netherlands
9
-
-
-
-
-
Total treasury income
47,885
424
(597)
25,496
(35,691)
243
Other Income
-
1,731
(3)
-
-
-
Total
210,264
3,028
(28,260)
25,668
(68,747)
243
GRENKE FINANCE PLC
77
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Treasury income (continued)
Foreign exchange (loss)/gain
Net gain/(loss) on financial instruments at fair value through profit or loss
Other operating expenses
Profit before tax
Tax
Profit after Tax
2021
2021
2021
2021
2021
2021
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Italy
-
-
(753)
13,857
(1,698)
12,159
Germany
-
-
(491)
7,403
(907)
6,496
Sweden
1,292
(1,733)
(81)
1,556
(191)
1,365
Belgium
-
-
(86)
1,628
(199)
1,429
United Arab Emirates
1,945
(2,552)
(25)
1,253
(154)
1,099
Canada
3,467
(3,969)
(46)
1,125
(138)
987
United Kingdom
4,083
(2,513)
(41)
3,325
(407)
2,918
Australia
648
(1,254)
(261)
802
(98)
704
Denmark
43
77
(61)
1,231
(151)
1,080
Spain
-
-
(56)
1,126
(138)
988
Czech Republic
848
(231)
(11)
596
(73)
523
Singapore
(85)
(112)
(55)
338
(42)
296
Switzerland
510
(128)
(16)
957
(117)
840
Slovakia
-
-
(7)
168
(21)
147
Ireland
(15)
15
(11)
53
(6)
47
Romania
(91)
(1)
(2)
(49)
6
(43)
Chile
(132)
66
(28)
114
(14)
100
Malta
-
-
(1)
72
(9)
63
Luxembourg
-
-
(1)
59
(7)
52
Poland
(335)
251
(43)
143
(18)
125
United States of America
154
(4)
-
160
(19)
141
Latvia
-
-
-
2
-
2
Netherlands
-
-
-
9
(1)
8
Total treasury income
12,332
(12,088)
(2,076)
35,928
(4,402)
31,526
Other Income
-
-
-
1,728
(212)
1,516
Total Group and Company Income
12,227
(13,877)
(31,253)
109,293
(13,393)
95,900
GRENKE FINANCE PLC
78
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Leasing operating assets
2022
2021
€
€
France
1,214,027,289
1,141,930,944
Spain
244,053,656
225,254,753
Netherlands
159,130,263
151,183,917
Portugal
145,523,928
133,948,194
Finland
145,135,874
102,273,474
Romania
62,521,800
53,391,498
Italy
42,810,256
35,120,865
Slovenia
26,660,422
23,245,508
Luxembourg
16,428,344
15,034,607
Hungary
11,948,304
11,464,538
Malta
8,895,477
11,650,857
Germany
5,253,228
9,628,995
Leasing operating assets
2,082,388,841
1,914,128,150
GRENKE FINANCE PLC
79
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
6. SEGMENTAL REPORTING (continued)
Treasury operating assets
2022
2021
€
€
Italy
623,846,226
746,180,788
Germany
577,062,886
520,526,864
Belgium
111,971,647
102,977,890
Sweden
97,745,295
95,737,713
Denmark
79,979,330
74,230,358
Spain
78,600,976
69,026,378
Australia
73,981,500
58,692,276
Canada
60,637,235
58,113,449
France
36,980,327
12,590,535
Dubai
33,395,989
30,423,745
United Kingdom
30,020,514
17,300,867
Poland
25,135,230
9,030,048
Singapore
23,525,321
21,974,022
Switzerland
11,996,287
6,594,331
Czech
10,516,437
12,116,154
Chile
10,126,754
4,695,720
Slovakia
9,096,925
8,296,163
Ireland
6,216,554
20,857,346
Netherlands
3,852,637
-
USA
3,204,405
621,030
Romania
2,539,232
2,140,782
Malta
1,921,178
1,246,694
Luxembourg
693,192
993,760
Latvia
-
271
Unallocated cash
38,969,272
139,524,351
Treasury operating assets
1,952,015,349
2,013,891,535
Non-operating assets
27,193,872
7,831,005
Total assets
4,061,598,062
3,935,850,690
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
80
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
7. LEASE INCOME
2022
2021
€
€
Lease interest income
129,554,749
124,937,610
Capitalised initial direct costs
46,229,921
36,405,074
Secondary lease income
57,495,554
53,967,686
Other lease income
9,149,743
7,046,499
Loss on termination of leases
(35,222,957)
(29,869,179)
Commissions payable to agents and dealers
(90,200,456)
(72,872,291)
Asset storage
(16,500)
-
116,990,054
119,615,399
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.
8. INCOME FROM PROTECTING LEASE EQUIPMENT
2022
2021
€
€
Income from lessees for protecting lease equipment
44,543,286
43,919,515
Cost of equipment replaced
(1,208,929)
(1,105,261)
Adjustments to insurance claims made to insurer
(154,171)
(51,146)
43,180,186
42,763,108
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
81
NOTES TO THE FINANCIAL STATEMENTS Non performing leases are leases in processing category 2-7 which are described in note 4 (o) .
AT 31 December 2022
9. INTEREST INCOME AND SIMILAR INCOME
2022
2021
€
€
Interest income from GRENKE AG group loans
44,702,770
41,798,966
Interest income from subordinated loans
503,373
303,826
Interest income from franchise loans
8,514,706
5,781,914
53,720,849
47,884,706
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.
10. EXPECTED CREDIT LOSS ALLOWANCE ON FINANCE LEASE RECEIVABLES
2022
2021
€
€
Expected credit loss allowance non performing
finance lease receivables (stage 3)
28,764,889
41,197,281
Expected credit loss allowance performing
finance lease receivables (stage 1/2)
10,834,465
(13,392,078)
Expected credit loss allowance for non performing
finance lease receivables acquired under
guarantee (stage 3)
(40,174)
(141,950)
Expected credit loss allowance for non performing
finance lease receivables acquired relating to loans
to Grenke AG group companies (stage 3)
226,319
597,049
39,785,499
28,260,302
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 (f) & (o).
GRENKE FINANCE PLC
82
NOTES TO THE FINANCIAL STATEMENTSAccounting policy note 4 (o) 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 .
AT 31 December 2022
11. 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 2022 to 0.483% from 0.277% at 31 December 2021. In year end 31 December 2021 it decreased from 1.31% at 31 December 2020 to 0.277% at 31 December 2021.
2022
2021
€
€
Expected credit loss allowance on amounts due from
Grenke AG Group undertakings
3,189,097
(24,249,389)
Expected credit loss allowance on amounts due from
Grenke AG Group franchisees
366,356
(1,416,727)
3,555,453
(25,666,116)
12. INTEREST EXPENSE AND OTHER CHARGES
2022
2021
€
€
Interest and other charges on debt securities in issue
40,342,471
39,022,504
Interest on bank loans
974,528
130,000
Interest expense on amounts owed to Grenke AG Group undertakings
763,119
1,101,579
Refinancing interest and expenses
4,575,854
1,583,384
Interest payable to Grenke Bank
12,472,251
13,843,976
Amortisation of Grenke Bank AG risk premium
10,630,655
8,690,983
Guarantee fee payable to Grenke AG
2,886,340
3,042,762
Amortisation of guarantee paid to franchisees
12,900
75,897
Bank overdraft interest and other charges
1,012,785
1,250,733
Interest on lease liabilities
4,566
6,856
73,675,469
68,748,674
GRENKE FINANCE PLC
83
NOTES TO THE FINANCIAL STATEMENTSThe 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 . The net foreign exchange gain 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 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 14 was €6,292,090 (2021: €1,650,051).
AT 31 December 2022
12. INTEREST EXPENSE AND OTHER CHARGES (Continued)
13. FOREIGN EXCHANGE GAIN/(LOSS)
2022
2021
€
€
Foreign exchange (loss)/gain
(7,907,945)
8,102,260
Reclassified from other comprehensive income
- forward exchange contracts
15,773,902
1,308,728
- cross currency swaps
2,448,661
2,816,358
10,314,618
12,227,346
14. NET (LOSS)/GAIN ON FINANCIAL INSTRUMENTS
AT FAIR VALUE THROUGH PROFIT OR LOSS
2022
2021
€
€
Fair value movement on interest rate swaps
not designated in hedge relationships
662,427
-
Fair value movement on forward exchange
contracts not designated in hedge relationships
(46,311)
(3,579,975)
Amortisation of cost of hedging
(293,283)
(981,777)
Realised loss on forward exchange contracts
(16,267,114)
(9,315,645)
(15,944,281)
(13,877,397)
GRENKE FINANCE PLC
84
NOTES TO THE FINANCIAL STATEMENTS 31,251,955
AT 31 December 2022
15. OTHER INCOME
2022
2021
€
€
Accounting services
1,679,661
1,647,094
Commission financial guarantee (note 51)
83,664
374,097
Interest income from tax repaid late
7,708,543
873,592
Rental Income
110,405
84,214
Income from security on securitised loans
12,104
49,673
9,594,377
3,028,670
The Group and Company provides accounting services to other companies in the GRENKE AG Group and to franchise companies of the GRENKE AG Group.
16. OTHER OPERATING EXPENSES
2022
2021
€
€
Commissions paid to agents for
sale of lease equipment protection
15,560,253
15,371,326
Insurance
103,282
258,416
Licence fee
8,042,657
7,813,614
Fees in respect of recovering debts
4,633,822
4,032,079
Expected credit loss
allowance trade debtors (stage 3)
686,415
(32,450)
Wages and salaries
1,690,988
1,413,777
Professional fees
2,242,457
1,240,794
Overseas tax
593,856
305,483
Management charges
223,699
181,688
Non recoverable VAT
168,458
165,603
Property costs
23,025
70,505
Depreciation on right of use assets
346,649
255,989
Depreciation
97,797
100,352
Other
50,299
20,151
Information technology costs
40,641
20,875
Recruitment
25,200
24,750
Training
8,363
9,003
34,537,861
GRENKE FINANCE PLC
85
NOTES TO THE FINANCIAL STATEMENTSIncluded in trade and other receivables is trade debtors of €2.9m (2021: €2.8m) 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 €2m (2021: €1.7m) in respect of all amounts which are overdue by 180 days .
AT 31 December 2022
16. 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.
17. PROFIT BEFORE TAXATION
2022
2021
The profit before tax is stated after charging:
€
€
Staff costs
1,690,988
1,413,777
Depreciation
97,797
100,352
Depreciation on right of use assets
346,649
255,989
Net foreign exchange gain/(loss)
on foreign currency
(6,292,090)
(1,650,051)
2022
2021
Fees payable to Grant Thornton:
€
€
Statutory audit
210,000
235,000
Comfort letter in respect of financial information in debt issuance programme prospectus
20,000
20,000
230,000
255,000
GRENKE FINANCE PLC
86
NOTES TO THE FINANCIAL STATEMENTS 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 (2021: €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 (2021: None) .
AT 31 December 2022
17. PROFIT BEFORE TAXATION (Continued)
2022
2021
The staff cost comprises:
€
€
Salaries
1,387,758
1,162,185
Benefit in kind
22,250
22,032
Contributions to defined contribution plans
131,374
100,599
Social welfare costs
149,606
128,961
1,690,988
1,413,777
There is €2,924 (2021: €4,815) payable in respect of pensions as at 31 December 2022. 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
2022
2021
follows:
Number
Number
Administration
19
17
Included in staff cost above is directors'
2022
2021
remuneration of:
€
€
Salaries
335,499
299,160
Benefit in kind
4,432
4,390
Contributions to defined contribution plans
75,344
55,730
Social welfare costs
36,567
35,642
451,842
394,922
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.
GRENKE FINANCE PLC
87
NOTES TO THE FINANCIAL STATEMENTS €963,705 of other adjustments relates to the tax effect of interest payable of €7,709,643 by the Italian Tax Authorities in respect of VAT refunded late .
AT 31 December 2022
18. TAXATION
2022
2021
€
€
Current year tax charge
7,263,768
13,398,117
Prior year tax adjustment
(1,697)
(282)
7,262,071
13,397,835
Deferred tax
(9,733)
(4,095)
Taxation
7,252,338
13,393,740
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%) (2021: 12.5%). The differences are explained below:
2022
2021
€
€
Profit before tax
66,917,844
109,290,388
Profit multiplied by standard rate of corporation tax in the Republic of Ireland of 12.5% (2021: 12.5%)
8,364,731
13,661,299
Effects of:
Adjustment to prior year corporation tax
(1,697)
(282)
Foreign tax adjustments
(146,101)
(158,355)
Other adjustments
(964,595)
(108,922)
Current year tax charge
7,252,338
13,393,740
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
88
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
19. PROPERTY, PLANT & EQUIPMENT CONSOLIDATED AND COMPANY
Right of
Leasehold
Fixtures and
use assets
improvements
fittings
Total
€
€
€
€
Cost
At 31 December 2021
1,832,734
320,482
456,608
2,609,824
Additions
-
-
13,077
13,077
At 31 December 2022
1,832,734
320,482
469,685
2,622,901
Accumulated Depreciation
At 31 December 2021
1,197,210
230,850
375,557
1,803,617
Charge for the year
346,649
47,423
50,374
444,446
At 31 December 2022
1,543,859
278,273
425,931
2,248,063
Net book amounts
At 31 December 2022
288,875
42,209
43,754
374,838
At 31 December 2021
635,524
89,632
81,051
806,207
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 exercised its 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 has exercised its option to terminate the leases on 6 November 2023. Details of the lease liabilities relating to these right of use assets are disclosed in note 39.
GRENKE FINANCE PLC
89
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
19. PROPERTY, PLANT & EQUIPMENT CONSOLIDATED AND COMPANY (Continued)
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
20. FINANCIAL INVESTMENTS COMPANY
2022
2021
€
€
Investment in equity
Investment in FCT “GK” COMPARTMENT “G2”
150
150
Investment in FCT “GK4” COMPARTMENT “G4”
150
150
Investment in FCT “GK5” COMPARTMENT “G5”
150
-
450
300
The Company holds a 50% interest in FCT “GK”COMPARTMENT “G2”, (FCT GK 2), a 50% interest in FCT “GK”COMPARTMENT “G4”, (FCT GK 4) and a 50% interest in FCT “GK”COMPARTMENT “G5”, (FCT GK 5). The investments in FCT GK 2 of €150 (2021: €150), FCT GK 4 of €150 (2021: €150) and FCT GK 5 of €150 are shown at cost less impairment. FCT GK 2 is a French securitisation vehicle which was set up in 2012, FCT GK 4 is a French
GRENKE FINANCE PLC
90
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
20. FINANCIAL INVESTMENTS COMPANY (Continued)
securitisation vehicle set up in 2019 and FCT GK 5 is a French securitisation vehicle set up in 2022. 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. FCT GK 5 is financed through the issue of FCT notes, which are exclusively subscribed by Special Purpose Vehicle Coral Purchasing Ireland 2 DAC. 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, FCT GK 4 and FCT GK 5 are shown as asset based financial liabilities.
The maximum exposure to credit loss is the carrying amount of the investment held.
21. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY
2022
2021
Non − Current
€
€
Unlisted:
Subordinated loans at fair value
21,327,733
16,703,889
Subordinated loans at amortised cost
25,402,793
7,749,590
Financial assets classified as non current
46,730,526
24,453,479
Current
Unlisted:
Subordinated loans at fair value
13,693,951
10,519,229
Subordinated loans at amortised cost
11,567,910
4,687,433
Reserve accounts held with SPVs and banks
10
70,010
Financial assets classified as current
25,261,871
15,276,672
Reconciliation of Financial Assets:
At beginning of year
39,730,151
48,042,749
Payment out on subordinated loans and on reserve
accounts
53,361,568
4,735,779
Repayment of subordinated loans and reserve accounts
(21,715,645)
(13,291,748)
Movement in fair value
616,323
243,371
Closing balance
71,992,397
39,730,151
GRENKE FINANCE PLC
91
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
21. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
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
enhancement to the senior investors in respect of the lease receivables bought from Grenke AG is measured at fair value. The Group and Company has provided three subordinated loans to Coral Purchasing (Ireland) 2 DAC and only the loan which provides credit 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 36.
The two subordinated loans provided to Coral Purchasing (Ireland) 2 DAC which provide credit enhancement to senior investors in FCT GK 5 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 36.
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:
GRENKE FINANCE PLC
92
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
21. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
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 nominal value of the subordinated loans to the Grenke AG SPVs measured at fair value in 2022.
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 Group and Company is required under the terms of a loan agreements to provide two credit enhancement loans to Coral Purchasing (Ireland) 2 DAC equal to a % of the net present value of the lease receivables held by the SPV, FCT GK5 on the 15th of each month. The required % is set out in the table above under the column “% of NPV of lease receivables”.
GRENKE FINANCE PLC
93
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
21. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
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 2022
Group and
Total asset
Company
value of the
Investment in
SPVs
the SPVs
€
€
Coral Purchasing (Ireland) 2 DAC
115,216,652
10,599,932
Opusalpha Purchaser II Limited
150,000,000
13,500,000
Kebnekaise Funding Ltd
126,778,800
10,142,304
The Group and Company has also provided subordinated loans of €15,105,173 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 in note 36. The amount owing to FCT GK4 investors would be reduced by any amount not 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 Group and Company has also provided subordinated loans of €22,065,653 to Coral Purchasing (Ireland) 2 DAC in respect of FCT GK 5. The total amount owing to the investors in FCT GK 5 is shown as an asset based financial liability in the consolidated Statement of Financial Position in note 36. The amount owing to FCT GK5 investors would be reduced by any amount not recovered on the Coral Purchasing (Ireland) 2 DAC subordinated loans relating to FCT GK 5 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 Coral Purchasing (Ireland) 2 DAC subordinated loans relating to FCT GK 5 because the FCT GK 5 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.
GRENKE FINANCE PLC
94
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
21. SUBORDINATED LOANS AND RESERVE ACCOUNTS CONSOLIDATED AND
COMPANY (Continued)
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 and FCT GK 5.
22. AMOUNTS DUE FROM SUBSIDIARIES COMPANY
2022
2021
Non − Current
€
€
Unlisted:
Subordinated loans to subsidiary SPVs
15,201,212
3,381,849
Reserve accounts held with subsidiary SPVs
19,020,351
2,500,300
34,221,563
5,882,149
Current
Unlisted:
Subordinated loans to subsidiary SPVs
12,763,585
40,862,614
Reserve accounts held with subsidiary SPVs
174,332
19,508,758
12,937,917
60,371,372
GRENKE FINANCE PLC
95
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
22. AMOUNTS DUE FROM SUBSIDIARIES COMPANY (Continued)
The subsidiary SPVs referred to in the narrative below are FCT GK 2, FCT GK 3, FCT GK 4 and FCT GK 5.
Details of the Company subordinated loans as at 31 December are set out below:
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 FCT GK 2, FCT GK 3, FCT GK 4 and FCT G5 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.
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.
GRENKE FINANCE PLC
96
NOTES TO THE FINANCIAL STATEMENTS895,995 €852m (2021: €838m) 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 34 .
AT 31 December 2022
23. LEASED ASSETS HELD FOR RESALE
2022
2021
€
€
Leased assets held for resale
1,048,553
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 .
24. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY
2022
2021
€
€
Finance lease receivables due after one year
1,260,512,606
1,154,930,210
Expected credit loss allowance on performing
finance lease receivables
(30,811,639)
(23,536,008)
1,229,700,967
1,131,394,202
Finance lease receivables due within one year
667,491,679
643,697,991
Finance lease receivables past due not credit
impaired
13,697,468
12,181,110
Non performing finance lease receivables
174,792,034
163,556,430
Expected credit loss allowance on non performing
finance lease receivables
(134,635,213)
(124,427,292)
Expected credit loss allowance on performing
finance lease receivables
(17,403,980)
(13,845,145)
703,941,988
681,163,094
The cost of assets acquired for the purpose of leasing under finance leases during the period
was €852m (2021: €624m). During 2022, the Group and Company made a net investment in new finance leases of €898m (2021: €660m). 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.
€478m (2021: €245m) 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 36.
GRENKE FINANCE PLC
97
NOTES TO THE FINANCIAL STATEMENTSaccounting policy note 4(f) & 4 (o) “Use of assumptions and estimates” under the heading “Determination of impairment of finance lease receivables.”
AT 31 December 2022
24. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
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.
2022
2021
€
€
Outstanding minimum lease payments
2,134,822,310
1,967,934,969
Guaranteed residual values
526,695
528,526
Outstanding minimum lease payments
2,135,349,005
1,968,463,495
Non-guaranteed residual values
250,187,158
234,057,005
Gross investment
2,385,536,163
2,202,520,500
Present value of unguaranteed residual values
(209,111,238)
(204,063,346)
Unrealised finance income
(269,042,376)
(228,154,759)
Present value of minimum lease payments
1,907,382,549
1,770,302,395
Present value of unguaranteed residual values
209,111,238
204,063,346
Expected credit loss allowance
(182,850,832)
(161,808,445)
Net investment
1,933,642,955
1,812,557,296
2022
2021
€
€
Due within one year
928,101,443
877,221,206
Due between one and two years
532,209,376
505,354,266
Due between two and three years
353,950,942
331,581,779
Due between three and four years
213,666,017
172,301,434
Due between four and five years
95,748,583
71,498,893
Due in greater than five years
11,145,949
9,977,391
Outstanding minimum lease payments
2,134,822,310
1,967,934,969
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 2022 and 2021. The impairment loss and the definition of the default risk rating class are determined by the procedure described in the
GRENKE FINANCE PLC
98
NOTES TO THE FINANCIAL STATEMENTS1,812,557,296
AT 31 December 2022
24. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
2022
2022
2022
2022
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Category 0: low risk
1,759,678,760
113,304,640
10,230,817
1,883,214,217
Category 1: higher risk
371,798
22,569,549
35,546,189
58,487,536
Category 2-7 doubtful receivables
-
-
174,792,034
174,792,034
Total gross receivables
1,760,050,558
135,874,189
220,569,040
2,116,493,787
Expected credit loss allowance
(22,899,882)
(15,822,615)
(144,128,335)
(182,850,832)
Carrying amounts
1,737,150,676
120,051,574
76,440,705
1,933,642,955
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
GRENKE FINANCE PLC
99
NOTES TO THE FINANCIAL STATEMENTSThe following tables show changes in expected credit loss allowance for finance lease receivables in the years beginning 1 January 2022 and 1 January 2021 :
AT 31 December 2022
24. FINANCE LEASE RECEIVABLES CONSOLIDATED AND COMPANY (Continued)
*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.
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Expected credit loss allowance
as per January 1, 2022
15,951,590
14,040,914
131,815,941
161,808,445
Newly extended or acquired
financial assets*
10,178,157
4,708,136
8,791,039
23,677,332
Reclassifications:
to Stage 1
1,198,237
(722,929)
(475,308)
-
to Stage 2
(900,089)
3,160,025
(2,259,936)
-
to Stage 3
(719,651)
(2,618,845)
3,338,496
-
Change in credit loss allowance
due to change in stage
(994,136)
1,692,227
22,014,757
22,712,848
Mutually agreed termination of
contracts or payment for
financial assets (without
derecognition)
(5,250,961)
(3,710,462)
(10,162,412)
(19,123,835)
Change in credit loss allowance
due to change in processing
category (processing categories
explained in note 4 (o))
-
-
7,538,704
7,538,704
Change in models/risk
parameters used in extra credit
loss allowance calculation
2,306,855
(1,505,065)
(1,480,690)
(678,900)
Derecognition of financial assets
(5,408)
(24,526)
(15,534,711)
(15,564,645)
Currency translation and other
differences
(9,970)
(8,884)
(27,632)
(46,486)
Accrued interest
1,145,258
812,024
570,087
2,527,369
Expected credit loss allowance
as per 31 December, 2022
22,899,882
15,822,615
144,128,335
GRENKE FINANCE PLC
100
NOTES TO THE FINANCIAL STATEMENTS*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 .
AT 31 December 2022
24. 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 (o))
-
-
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
GRENKE FINANCE PLC
101
NOTES TO THE FINANCIAL STATEMENTS 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 46 .
AT 31 December 2022
24. 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:
2022
2021
€
€
Expected credit loss allowance at 1 January
161,808,445
159,755,339
Expected credit loss allowance on finance
lease receivables charged to the statement of profit
or loss
39,785,499
28,260,302
Exclude write off of lease receivables
(18,743,112)
(26,207,196)
Expected credit allowance at 31 December
182,850,832
161,808,445
25. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY
2022
2021
€
€
Amount due in greater than one year
Secured amounts due from GRENKE AG Group
undertakings
28,941,049
24,460,314
Unsecured amounts due from GRENKE AG Group
undertakings
616,002,590
564,453,799
Expected credit loss allowance
(4,013,298)
(2,547,376)
640,930,341
586,366,737
Amount due in less than one year
Secured amounts due from GRENKE AG Group
undertakings
23,176,213
25,255,982
Unsecured amounts due from GRENKE AG Group
undertakings
975,866,948
1,012,874,166
Expected credit loss allowance
(5,544,680)
(3,821,504)
993,498,481
1,034,308,644
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
102
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
25. 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 70% (2021: 73%) have a fixed interest rate and 30% (2021: 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:
2022
2021
€
€
Weighted average maturity period in years
1.00
0.84
Weighted average effective interest rate (in %)
2.82%
2.28%
The following table shows the maturity structure of the amounts due from group companies without any adjustment for extra credit loss allowances.
2022
2021
€
€
Due within one year
999,043,161
1,038,130,148
Due between one and five years
644,898,372
588,914,113
More than five years
45,267
-
1,643,986,800
1,627,044,261
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 (2021: €1.6bn) 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 (o). The amounts referred to here are all classified in Stage one. The Expected credit loss allowances in respect of these amounts are €7.7m (2021: €4.4m).
The secured amounts of €52.1m (2021: €49.7m) are due from Grenke AG group companies
GRENKE FINANCE PLC
103
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
25. AMOUNTS DUE FROM GRENKE AG GROUP UNDERTAKINGS CONSOLIDATED AND
COMPANY (Continued)
in Slovakia, Czech Republic, Romania and United Arab Emirates. They relate 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 2022 the Grenke AG group companies in Slovakia, Romania and United Arab Emirates have always bought
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 €42m in 2022 and €38m in 2021. 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 €1,291,998 (2021: €1,193,749) in respect of secured amounts due from Grenke AG Group companies in Stage One.
2022
2022
2022
2022
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Category 0: low risk
1,639,369,588
2,642,226
371,251
1,642,383,065
Category 1: higher risk
19,564
423,482
1,160,689
1,603,735
Total gross receivables
1,639,389,152
3,065,708
1,531,940
1,643,986,800
Expected credit loss allowance
(8,980,725)
(200,526)
(376,727)
(9,557,978)
Carrying amounts
1,630,408,427
2,865,182
1,155,213
1,634,428,822
2021
2021
2021
2021
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Category 0: low risk
1,619,827,328
3,361,642
780,115
1,623,969,085
Category 1: higher risk
-
613,687
2,461,489
3,075,176
Total gross receivables
1,619,827,328
3,975,329
3,241,604
1,627,044,261
Expected credit loss allowance
(5,562,945)
(269,466)
(536,469)
(6,368,880)
Carrying amounts
1,614,264,383
3,705,863
2,705,135
1,620,675,381
GRENKE FINANCE PLC
104
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
25. 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 2022 and 1 January 2021:
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
Expected credit loss allowance
as per January 1, 2022
5,562,945
269,466
536,469
6,368,880
Newly extended or acquired
financial assets
632,309
54,570
55,500
742,379
Reclassifications
-
-
-
-
to Stage 1
184,022
(79,178)
(104,844)
-
to Stage 2
(58,916)
111,966
(53,050)
-
to Stage 3
(29,847)
(12,891)
42,738
-
Change in credit loss allowance
due to change in stage
(144,941)
(29,851)
69,625
(105,167)
Mutually agreed termination of
contracts or payment for
financial assets (without
derecognition)
(657,708)
(146,308)
(173,357)
(977,373)
Change in credit loss allowance
due to change in processing
category (processing categories
explained in note 4 (o))
-
-
(21,203)
(21,203)
Change in models/risk
parameters used in extra credit
loss allowance calculation
3,279,251
-
-
3,279,251
Derecognition of financial assets
(2,277)
(66)
(10,589)
(12,932)
Currency translation and other
differences
76,558
7,882
7,749
92,189
Accrued interest
139,329
24,936
27,689
191,954
Expected credit loss allowance
as per 31 December, 2022
8,980,725
200,526
376,727
9,557,978
GRENKE FINANCE PLC
105
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
25. 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, 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 (o))
-
-
(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
106
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
26. AMOUNTS DUE FROM GRENKE AG GROUP FRANCHISEES CONSOLIDATED AND COMPANY
2022
2021
€
€
Amount due in greater than one year
Amounts due from GRENKE AG Group
franchisees
-
441,462
Expected credit loss allowance
-
(1,223)
-
440,239
Amount due in less than one year
Secured amounts due from GRENKE AG Group
franchisees
74,321,217
58,854,828
Amounts due from GRENKE AG Group
franchisees
95,312,927
104,233,369
Expected credit loss allowance
(819,333)
(451,754)
168,814,811
162,636,443
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 2022.
GRENKE FINANCE PLC
107
NOTES TO THE FINANCIAL STATEMENTS 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 €2m (2021 €1.7m) 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 .
AT 31 December 2022
27. TRADE AND OTHER RECEIVABLES CONSOLIDATED AND COMPANY
2022
2021
€
€
Non current assets
Overseas VAT
-
35,099,477
Overseas withholding tax
4,884,925
4,884,925
Deferred risk premium paid to Grenke Bank AG
28,668,828
23,405,164
Deferred risk premium paid to Grenke AG Group
companies
-
5,634
Deferred financing costs
-
342,358
33,553,753
63,737,558
Current assets
Overseas VAT
125,127,196
50,987,082
Irish VAT
27,999
-
Deferred risk premium paid to Grenke Bank AG
17,472,420
19,487,533
Deferred risk premium paid to Grenke AG Group
companies
5,635
12,901
Deferred financing costs
334,577
700,278
Other assets
347,894
576,016
Trade debtors
2,927,035
2,833,273
Expected credit loss allowance
(2,000,793)
(1,706,986)
Interest on tax repaid late
7,711,664
762,174
151,953,627
73,652,271
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.
GRENKE FINANCE PLC
108
NOTES TO THE FINANCIAL STATEMENTS 16,643,005
AT 31 December 2022
28. 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 2022
Derivative assets
Within one year - current assets
7,333,378
836,475
8,169,853
Between one and five years
4,755,384
1,284,218
6,039,602
After five years
8,402,358
-
8,402,358
Non current assets
13,157,742
1,284,218
14,441,960
Total derivative assets
20,491,120
2,120,693
22,611,813
Derivative liabilities
Within one year - current liabilities
1,104,476
1,683,708
2,788,184
Between one and five years
579,083
1,344,095
1,923,178
After five years
1,257,446
-
1,257,446
Non-current liabilities
1,836,529
1,344,095
3,180,624
Total derivative liabilities
2,941,005
3,027,803
5,968,808
Net asset/(liability) arising on derivative financial instruments
17,550,115
(907,110)
GRENKE FINANCE PLC
109
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
28. 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 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
110
NOTES TO THE FINANCIAL STATEMENTSTo 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. The hedging relationships between the interest rate swaps and the asset based liabilities when there has been a hedging relationship designated has proven to be highly effective .
AT 31 December 2022
28. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
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
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 and interest rate swaps on variable interest rate payable on asset based liabilities, 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.
GRENKE FINANCE PLC
111
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
28. 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 2022
Foreign exchange contracts (highly
probable loan repayments)
Notional amounts (in € 000)
4,705
4,705
Average forward rate (Eur/AED)
3.89
Notional amounts (in € 000)
73,595
73,595
Average forward rate (Eur/AUD)
1.56
Notional amounts (in € 000)
61,672
61,672
Average forward rate (Eur/CAD)
1.40
Notional amounts (in € 000)
11,802
11,802
Average forward rate (Eur/CHF)
0.98
Notional amounts (in € 000)
8,800
8,800
Average forward rate (Eur/CLP)
1,022.74
Notional amounts (in € 000)
7,528
21,379
50,733
79,639
Average forward rate (Eur/DKK)
7.44
7.44
7.44
Notional amounts (in € 000)
30,705
30,705
Average forward rate (Eur/GBP)
0.87
Notional amounts (in € 000)
14,462
614
7,826
22,901
Average forward rate (Eur/PLN)
4.77
4.89
5.49
Notional amounts (in € 000)
8,372
31,738
61,350
101,460
Average forward rate (Eur/SEK)
10.75
10.46
10.74
GRENKE FINANCE PLC
112
NOTES TO THE FINANCIAL STATEMENTS One to Three months
AT 31 December 2022
28. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
Three to twelve months
One to five years
Five to ten years
Total
At 31 December 2022
Foreign exchange contracts (highly
probable loan repayments)
Notional amounts (in € 000)
23,195
23,195
Average forward rate (Eur/SGD)
1.44
Notional amounts (in € 000)
2,550
2,550
Average forward rate (Eur/USD)
1.08
Cross currency swaps (certain
foreign currency bond interest
and bond repayments)
Notional amounts (in € 000)
480
480
3,838
59,475
64,273
Average hedged rate (Eur/JPY)
116.15
116.15
116.15
116.15
Notional amounts (in € 000)
340
562
3,598
95,122
99,622
Average hedged rate (Eur/HKD)
9.63
9.63
9.63
9.63
Interest rate swaps variable
interest rate payments on asset
based liabilities
Notional amounts (in € 000)
212,833
158,945
12,868
384,647
Average interest rate
0.97%
1.10%
1.96%
GRENKE FINANCE PLC
113
NOTES TO THE FINANCIAL STATEMENTS One to Three months
AT 31 December 2022
28. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
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
GRENKE FINANCE PLC
114
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
28. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
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)
20,562
20,562
Average forward rate (Eur/SGD)
1.624
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
GRENKE FINANCE PLC
115
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
28. 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
2022
2022
2021
2021
€
€
€
€
Assets
Cash flow hedges
Interest Rate Swaps
265,000,000
4,099,049
-
-
Cross Currency Swaps
99,622,315
8,402,358
62,239,120
851,537
Forward Exchange Contracts
276,698,257
7,989,713
57,058,055
467,709
641,320,572
20,491,120
119,297,175
1,319,246
Not designated as hedges
Interest Rate Swaps
170,000,000
662,427
-
-
Forward Exchange Contracts
27,950,804
1,458,266
(6,382,281)
1,806,521
197,950,804
2,120,693
(6,382,281)
1,806,521
839,271,377
22,611,813
112,914,894
3,125,767
Liabilities
Cash flow hedges
Cross Currency Swaps
64,272,570
1,257,446
111,968,137
7,987,074
Forward Exchange Contracts
144,326,325
1,683,559
283,352,589
8,393,738
208,598,895
2,941,005
395,320,726
16,380,812
Not designated as hedges
Forward Exchange Contracts
41,785,378
3,027,803
61,768,343
3,021,265
250,384,273
5,968,808
457,089,069
19,402,077
GRENKE FINANCE PLC
116
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
28. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
At 31 December 2022 and 2021, 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, cross-currency swaps and interest rate swaps. These instruments hedge risks arising to future cash flows from movements in foreign exchange rates and interest rates. Cash flow hedges are expected to affect profit or loss over the period to maturity.
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
2022
2021
Gains/(losses) arising during the year
€
€
- cross currency swaps
14,280,449
4,723,095
- forward exchange contracts
13,923,703
309,110
- interest rate swaps
4,099,048
-
Reclassified into the statement of profit and loss
- cross currency swaps
(2,448,661)
(2,816,358)
- forward exchange contracts
(15,480,619)
(326,952)
14,373,920
1,888,895
Fair value hierarchy
2022
2021
Assets measured at fair value
Level 2
Level 2
Cash flows hedges
€
€
Interest rate swaps
4,099,049
-
Cross currency swaps
8,402,358
851,537
Forward exchange contracts
7,989,713
467,709
Not designated as hedges
Interest rate swaps
662,427
Forward exchange contracts
1,458,266
1,806,521
22,611,813
3,125,767
GRENKE FINANCE PLC
117
NOTES TO THE FINANCIAL STATEMENTS19,402,077 details of which are set out in note 31. The fair value of the relevant derivatives which these credit support accounts could be offset against are a positive value of €16.6m . 16,569
AT 31 December 2022
28. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY
(Continued)
Fair value hierarchy
2,022
2021
Liabilities measured at fair value
Level 2
Level 2
Cash flows hedges
€
€
Cross currency swaps
1,257,446
7,987,074
Forward exchange contracts
1,683,559
8,393,738
Not designated as hedges
Forward exchange contracts
3,027,803
3,021,265
5,968,808
At 31 December 2022 and 2021 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 46.
If the counterparties were to default in their obligations under the derivative contracts the Group and Company would be entitled to retain the cash in the credit support accounts of €16.3m
29. DEFERRED TAX CONSOLIDATED AND COMPANY
2022
2021
€
€
Deferred tax asset
-
16,569
Deferred tax liability
1,770,438
-
2022
2021
Deferred tax asset/(liability) is comprised of:
€
€
Taxable temporary differences attributable to accelerated
tax depreciation
6,942
373
Leased right of use assets
12,960
9,430
Other deductible temporary differences
238
603
Tax relating to cash flow hedges
(1,790,578)
6,163
(1,770,438)
GRENKE FINANCE PLC
118
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
29. DEFERRED TAX CONSOLIDATED AND COMPANY (Continued)
2022
2021
€
€
Opening balance at start of year
16,569
248,586
Taxable temporary differences attributable to accelerated
tax depreciation
6,569
4,991
Leased right of use assets
3,530
(966)
Other deductible temporary differences
(365)
71
Tax relating to cash flow hedges
(1,796,741)
(236,113)
(1,770,438)
16,569
Components of other comprehensive income -
2022
2021
Tax relating to cash flow hedges
€
€
Gains/(losses) arising during the year
- cross currency swaps
(1,785,056)
(590,387)
- forward exchange contracts
(1,740,463)
(38,639)
- interest rate swaps
(512,381)
-
Reclassified into the statement of profit and loss
- cross currency swaps
306,083
352,045
- forward exchange contracts
1,935,076
40,868
(1,796,741)
(236,113)
GRENKE FINANCE PLC
119
NOTES TO THE FINANCIAL STATEMENTSand 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 28.
AT 31 December 2022
30. CORPORATION TAX
Corporation tax asset
2022
2021
Amounts due in greater than one year
€
€
Corporation tax receivable
3,882,462
3,882,462
Amounts due within one year
Corporation tax receivable
324,759
-
Corporation tax liability
Amounts due within one year
Corporation tax payable
-
908,019
Net asset
4,207,221
2,974,443
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.
31. CREDIT SUPPORT ACCOUNTS
2022
2021
Assets
€
€
Credit support accounts
-
14,170,000
2022
2021
Liabilities
€
€
Credit support accounts
16,290,000
-
Net (liability)/asset arising on support accounts
(16,290,000)
14,170,000
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
GRENKE FINANCE PLC
120
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
32. CASH AND CASH EQUIVALENTS
2022
2021
€
€
Restricted cash
-
11,759,998
Unrestricted cash
38,969,272
127,764,353
38,969,272
139,524,351
33. DEBT SECURITIES IN ISSUE CONSOLIDATED AND COMPANY
2022
2021
€
€
Repayable in more than one year
but less than five years
Bonds
1,397,500,000
1,744,500,000
Promissory loan note
12,000,000
37,000,000
Unamortised premium/(discount) on bonds and notes in issue
(2,658,196)
1,497,317
Repayable in more than five years
Bonds
187,462,018
185,755,596
Promissory loan note
11,000,000
13,000,000
Unamortised discount on bonds and notes in issue
(39,652)
(68,498)
1,605,264,170
1,981,684,415
Repayable in less than one year
Bonds
567,000,000
527,669,888
Promissory loan note
37,000,000
20,000,000
Commercial paper
25,000,000
-
Unamortised discount on bonds and notes in issue
(3,725,304)
(169,915)
625,274,696
547,499,973
2,230,538,866
2,529,184,388
The bonds in issue at 31 December 2022 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
2,006
1.70
1.92
Fixed
JPY
7,000
6.51
0.95
Fixed
HKD
800
6.89
2.72
GRENKE FINANCE PLC
121
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
33. DEBT SECURITIES IN ISSUE CONSOLIDATED AND COMPANY (Continued)
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
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 23 March 2022. The programme was approved by the Finance Sector Supervisory Committee (“Commission de Surveillance du Secteur Financier”: CSSF).
Two (2021: €Nil) euro bonds were issued in the current year under the Debt Issuance Programme with a nominal value of €170m. An addition of €50m (2021: € 125m) was added to a €300m 0.625% bond already issued. The net proceeds on the addition to the bond was €43.2m due to a discount on the bond of €7m and accrued interest paid by the subscribers of €0.3m.
Bonds with a nominal amount of €520m (2021: €315m) were repaid in 2022.
A foreign currency bond of JPY 1bn was also repaid. The Euro equivalent amount repaid was €8.4m.
Under the terms of cross-currency swaps put in place when the foreign currency bonds were issued, €151m (2021: €159m) 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
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
122
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
33. DEBT SECURITIES IN ISSUE CONSOLIDATED AND COMPANY (Continued)
The promissory loan notes in issue at 31 December 2022 comprise:
Interest
Currency
Issue volume
Weighted average
Weighted average
in millions
maturity period
effective interest
(in years)
rate (in %)
Fixed
Eur
60
1.81
1.84
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
(in years)
rate (in %)
Fixed
Eur
70
1.92
1.14
All promissory notes are bullet debt securities and are subject to constant rating. A promissory notes with a par value of €10m (2021: €nil) were issued in the current year. Promissory notes with a par value of €20m (2021: €243m) 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 commercial paper in issue at 31 December 2022 (2021 €Nil) comprise:
Interest
Currency
Issue volume
Weighted average
Weighted average
in millions
maturity period
effective interest rate
(in years)
(in %)
Fixed
Eur
25
0.14
2.49
Commercial paper with a nominal value of €95m (2021: €Nil) was issued in 2022 and €70m (2021: €Nil) was repaid in 2022.
GRENKE FINANCE PLC
123
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
34. AMOUNT OWED TO GRENKE BANK AG CONSOLIDATED AND COMPANY
2022
2021
€
€
Amount due after one year:
Amount owed to GRENKE Bank AG
502,085,002
484,724,617
Amount due in less than one year:
Amount owed to GRENKE Bank AG
306,758,127
311,534,336
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 1.62% (2021: 1.63%).
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.
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.
2022
2021
€
€
Amount due to GRENKE Bank AG
808,843,129
796,258,953
Net present value of lease receivables sold to GRENKE Bank AG recognised
Bank AG recognised as an asset
851,552,565
838,514,197
Net difference
(42,709,436)
(42,255,244)
35. AMOUNT OWED TO GRENKE AG GROUP UNDERTAKINGS
2022
2021
€
€
Amount due on current account
82,582,895
19,088,538
Amount due on cash pool accounts
76,116,080
73,061,117
158,698,975
92,149,655
GRENKE FINANCE PLC
124
NOTES TO THE FINANCIAL STATEMENTSThe 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 . 97,346,923
AT 31 December 2022
35. AMOUNT OWED TO GRENKE AG GROUP UNDERTAKINGS (Continued)
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.
36. ASSET BASED FINANCIAL LIABILITIES CONSOLIDATED
2022
2021
€
€
Non current liabilities
Amount due after one year
264,560,831
81,097,128
Deferred set up costs
(34,158)
-
264,526,673
81,097,128
Current liabilities
Amount due in less than one year
166,428,704
97,403,213
Deferred set up costs
(144,668)
(56,290)
166,284,036
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"-COMPARTMENT "G 4" (Landesbank Hessen-Thuringern Girozenrale (HeLeBa) is the sponsoring bank) (FCT GK 4) and FCT "GK"-COMPARTMENT "G 5" (DZ Bank) 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.
GRENKE FINANCE PLC
125
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
36. ASSET BASED FINANCIAL LIABILITIES CONSOLIDATED (Continued)
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
2022
2022
2021
2021
SPV
€
€
€
€
FCT GK2
(162,926,177)
197,910,807
(48,306,900)
59,299,036
FCT GK3
-
-
(27,315,462)
68,902,455
FCT GK4
(124,884,186)
131,349,336
(102,877,979)
116,552,671
FCT GK5
(143,179,172)
148,889,322
-
-
(430,989,535)
478,149,465
(178,500,341)
244,754,162
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.
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.
Professional fees of €289,336 were incurred in setting up FCT GK 5. 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 GK5, which was 31 March 2022, and the earliest date that the programme may be terminated which is 31 March 2024.
If no options are taken to terminate the ABCP programmes at an earlier date the latest date currently the company can sell leasing receivables to FCT GK 2 is April 2025 subject to UniCredit’s consent, December 2024 for FCT GK 4 and March 2024 for FCT GK 5.
The option to terminate FCT GK 3 was exercised in 2022. All liabilities in respect of FCT GK 3 have been repaid.
GRENKE FINANCE PLC
126
NOTES TO THE FINANCIAL STATEMENTSThe 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.
AT 31 December 2022
37. AMOUNT OWED TO SUBSIDIARY SPVs COMPANY STATEMENT OF FINANCIAL
POSITION
2022
2021
€
€
Amount due after one year
298,782,844
86,979,577
Deferred set up costs
(34,158)
-
298,748,686
86,979,577
Amount due in less than one year
179,366,621
157,774,585
Deferred set up costs
(144,668)
(56,290)
179,221,953
157,718,295
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 4 and FCT GK 5 to securitise the funding provided by the SPV to the Company. Details of ABCP programmes are provided in note 36.
The Company has provided subordinated loans of €56m details of which are in note 21 and note 22. The subordinated loans provide additional security in respect of the amounts owed to the SPVs.
38. BANK LOANS AND CASH HELD ON TRUST CONSOLIDATED AND COMPANY
2022
2021
€
€
Amount due after one year:
European investment bank loan
-
10,000,000
European investment bank loan
10,000,000
-
Syndicated loan facility
130,000,000
50,000,000
Money market lines
40,000,000
Cash held in trust
-
11,759,998
Bank Overdraft
5,281
-
180,005,281
61,759,998
GRENKE FINANCE PLC
127
NOTES TO THE FINANCIAL STATEMENTS378,939 Rental payments of €322,964 (2021: €270,576) have been offset in 2022 against the initial liability, a correction of €52,933 to the calculation of pre paid rent has also reduced the liability. An interest charge of €4,566 (2021: €6,857) has been added to the liability to arrive at the lease liability as of 31 December 2022 of €339,631 (2021: €710,962) .
AT 31 December 2022
38. BANK LOANS AND CASH HELD ON TRUST CONSOLIDATED AND COMPANY
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 2022 the Group and Company had seven outstanding loans under the facility totalling €130m (2021: €50m) which had an average maturity 69 days (2021: 6 days) and an average effective interest rate of 2.773% (2021: 0.8%).
The Group and Company has two money market loans of €20m each which are repayable on 4 January 2023 and 27 January 2023. The average effective interest rate on these loans is 2.77%.
39. LEASE LIABILITIES CONSOLIDATED AND COMPANY
2022
2021
€
€
Lease liabilities due in greater than one year
-
332,023
Lease liabilities due within one year
339,631
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 exercised an option to terminate all four of the leases on 6 November 2023.
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 19.
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.
GRENKE FINANCE PLC
128
NOTES TO THE FINANCIAL STATEMENTSThe deferred income on financial guarantee is explained in note 50 to the financial statements.
AT 31 December 2022
40. DEFERRED INCOME CONSOLIDATED AND COMPANY
2022
2021
€
€
Amounts due after one year
Deferred income on financial guarantee
169
3,120
2022
2021
Amounts due within one year
€
€
Deferred income on financial guarantee
3,006
83,719
Deferred interest income
-
39,650
3,006
123,369
41. ACCRUALS CONSOLIDATED AND COMPANY
2022
2021
€
€
Other accrued expenses
1,935,627
1,455,421
Trade creditors
8,533,438
8,086,638
Social welfare tax payable
49,912
44,993
Accrued interest
20,163,040
21,868,616
Irish vat
-
46,082
30,682,017
31,501,750
42. CALLED UP SHARE CAPITAL CONSOLIDATED AND COMPANY
2022
2021
€
€
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
GRENKE FINANCE PLC
129
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
43. CASH FLOW HEDGE RESERVE
The following table shows the reconciliation of the cash flow hedge reserve
2022
2021
€
€
Balance at 1 January
(43,140)
(1,695,922)
Gains/(losses) arising during the year
- cross currency swaps
14,280,449
4,723,095
- forward exchange contracts
13,923,703
309,110
- interest rate swaps
4,099,048
0
Reclassified into the statement of profit and loss
- cross currency swaps
(2,448,661)
(2,816,358)
- forward exchange contracts
(15,480,619)
(326,952)
Taxes on unrealised gains/losses and on reclassifications
(1,796,741)
(236,113)
Balance at 31 December
12,534,039
(43,140)
44. TRANSACTIONS WITH OWNERS OF THE COMPANY CONTRIBUTIONS AND DISTRIBUTION
2022
2021
€
€
Distribution
90,000,000
120,000,000
The Group and Company paid a dividend of €1,800 (2021: €2,400 ) per share to its parent company Grenke AG on 29 December 2022 (2021: 28 December 2021). There have been no dividends paid, proposed or declared since 31 December 2022.
GRENKE FINANCE PLC
130
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
45. RECONCILIATION OF LIABILITIES FROM FINANCING ACTIVITIES TO THE
CONSOLIDATED STATEMENT OF CASH FLOWS
Debt securities in issue
Amount owed to Grenke Bank AG
Asset based financial liabilities
Syndicated loan facility
Money market lines
Lease liabilities
Year
2022
2022
2022
2022
2022
2022
Accounting Note
33
34
36
38
38
39
€
€
€
€
€
€
Non-current
1,981,684,415
484,724,617
81,097,128
-
-
332,023
Current
547,499,973
311,534,336
97,346,923
50,000,000
-
378,939
Opening Balance
2,529,184,388
796,258,953
178,444,051
50,000,000
710,962
Cash outflows
(618,412,128)
(419,180,895)
(68,758,816)
(490,000,000)
-
(322,964)
Cash inflows
316,690,300
431,765,071
321,248,010
570,000,000
40,000,000
-
Non cash movements
Amortisation of discounts
507,184
-
-
-
-
-
Amortisation of deferred
professional fees
120,461
-
-
-
-
-
Deferral of transaction costs
-
-
(122,536)
-
-
-
Foreign exchange
2,448,661
-
-
-
-
-
Interest on lease
-
-
-
-
-
4,566
Prepayment correction
(52,933)
Closing Balance
2,230,538,866
808,843,129
430,810,709
130,000,000
40,000,000
339,631
GRENKE FINANCE PLC
131
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
45. RECONCILIATION OF LIABILITIES FROM FINANCING ACTIVITIES TO THE
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Debt securities in issue
Amount owed to Grenke Bank AG
Asset based financial liabilities
Syndicated loan facility
Lease liabilities
Year
2021
2021
2021
2021
2021
Accounting Note
33
34
36
38
39
€
€
€
€
€
Non-current
2,541,777,002
555,561,982
193,934,221
-
490,135
Current
433,438,596
316,974,615
157,196,771
-
263,019
Opening Balance
2,975,215,598
872,536,597
351,130,992
-
753,154
Cash outflows
(581,136,366)
(401,187,374)
(197,940,930)
-
(270,661)
Cash inflows
130,888,000
324,909,730
25,153,056
50,000,000
-
Non cash movements
Amortisation of discounts
1,093,976
-
-
-
-
Amortisation of deferred
professional fees
306,822
-
-
-
-
Rent review
-
-
-
-
221,612
Deferral of transaction costs
-
-
100,933
-
-
Fair value movements
-
-
-
-
-
Foreign exchange
2,816,358
-
-
-
-
Interest on lease
-
-
-
-
6,857
Closing Balance
2,529,184,388
796,258,953
178,444,051
50,000,000
710,962
GRENKE FINANCE PLC
132
NOTES TO THE FINANCIAL STATEMENTSAvailable interest rates at comparable conditions and residual terms using the own credit risk DVA
AT 31 December 2022
46. 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 comparable terms and residual maturities using own counterparty risk DVA or counterparty risk CVA used from available CDS quotations
Interest rate swaps
Market-to-market
discounted present value of estimated future cash flows
Available interest rates at comparable terms and residual maturities using own counterparty risk DVA or counterparty risk CVA used from available CDS quotations
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
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
133
NOTES TO THE46 FINANCIAL STATEMENTS 19,402,077
AT 31 December 2022
46. 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-22
31-Dec-21
€
€
Financial assets
Subordinated loans
35,021,684
27,223,118
Interest rate swaps
with hedging relationship
4,099,049
-
Cross currency swaps
with hedging relationship
8,402,358
851,537
Forward exchange contracts
with hedging relationship
7,989,713
467,709
Interest rate swaps
not designated as hedges
662,427
-
Forward exchange contracts
not designated as hedges
1,458,266
1,806,521
Total
57,633,497
30,348,885
Fair Value
Fair Value
and carrying
and carrying
amount
amount
31-Dec-22
31-Dec-21
€
€
Financial liabilities
Cross currency swaps
with hedging relationship
1,257,446
7,987,074
Forward exchange contracts
with hedging relationship
1,683,559
8,393,738
Forward exchange contracts
not designated as hedges
3,027,803
3,021,265
Total
5,968,808
GRENKE FINANCE PLC
134
NOTES TO THE FINANCIAL STATEMENTSIn order to obtain the fair value of interest rate swaps interest rates at comparable terms and residual maturities are used taking into account own counterparty risk DVA (debt value adjustment) or counterparty risk CVA (credit value adjustment) from available credit default swap (CDS) quotations .
AT 31 December 2022
46. 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 2022 and at 31 December 2021 on the basis of the following interest rates:
2022
2021
%
%
Interest rate for 3 months
2.146%
-0.568%
Interest rate for 6 months
2.804%
-0.500%
Interest rate for 9 months
3.250%
-0.380%
Interest rate for 1 year
3.750%
-0.205%
Interest rate for 2 years
4.746%
0.780%
Interest rate for 3 years
5.337%
1.614%
Interest rate for 4 years
5.820%
2.160%
Interest rate for 5 years
6.261%
2.558%
Interest rate for 6 years
6.227%
2.614%
Interest rate for 10 years
6.227%
2.840%
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, interest rate swaps 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.
GRENKE FINANCE PLC
135
NOTES TO THE FINANCIAL STATEMENTSof Financial Position: financial investments, leased assets held for sale, non performing lease 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 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 €2,151,962,018 (2021: €2,457,925,484) and their fair value amounted to €1,975,233,292 (2021: €2,427,015,462). 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.
AT 31 December 2022
46. FAIR VALUE OF FINANCIAL INSTRUMENTS CONSOLIDATED AND COMPANY (Continued)
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
Fair Value
Carrying Amount
Fair Value
Carrying Amount
31-Dec-22
31-Dec-22
31-Dec-21
31-Dec-21
€
€
€
€
Financial assets
Lease receivables (performing)
2,000,984,414
1,879,788,666
1,854,736,324
1,761,247,048
Amounts due from Grenke AG Group undertakings
1,629,178,242
1,634,428,822
1,709,050,784
1,620,675,381
Amounts due from Grenke AG Group franchisees
171,051,300
168,814,811
169,002,941
163,076,682
Subordinated loans
35,420,836
36,970,713
12,578,569
12,507,033
Financial liabilities
Debt securities in issue
2,058,084,255
2,230,538,866
2,497,600,419
2,529,184,388
Amounts owed to Grenke Bank AG
801,843,250
808,843,129
811,235,541
796,258,953
Asset based financial liabilities
433,293,049
430,810,709
181,256,462
178,444,051
Bank loans and cash held on trust
180,560,885
180,005,281
71,755,044
71,759,998
GRENKE FINANCE PLC
136
NOTES TO THE FINANCIAL STATEMENTSinformation about the Group and Company’s exposure to each of the risks identified by the board and the Company’s management of these risks .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 .
AT 31 December 2022
47. 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
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
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
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
GRENKE FINANCE PLC
137
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. 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:
2022
2021
€
€
Subordinated loans and reserve accounts
71,992,397
39,730,151
Finance lease receivables
1,933,642,955
1,812,557,296
Amounts due from Grenke AG
Group undertakings
1,634,428,822
1,620,675,381
Amount due from Grenke AG Group franchisees
168,814,811
163,076,682
Trade debtors
926,242
1,126,287
Credit support accounts
-
14,170,000
Cash and cash equivalents
38,969,272
139,524,351
Derivative financial instruments
22,611,813
3,125,767
Guarantees to Grenke AG and Grenke Limited
112,402
3,500,874
Gross Exposure
3,871,498,714
3,797,486,789
Guaranteed by GRENKE AG
1,234,325,564
1,254,197,459
Subordinated Loans (netting with asset based liabilities)
36,970,702
12,437,023
Credit support accounts (netting with liability derivative positions)
-
14,170,000
Residual maximum exposure
2,600,202,448
2,516,682,307
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
138
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (continued)
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
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, 2022, the average decision value on new business was 2.52 after 2.38 in the previous year.
New business according to risk category
2022
2021
Percent
%
%
Class 1
31.91%
35.47%
Class 2
25.62%
26.01%
Class 3
17.50%
16.94%
Class 4
12.82%
11.58%
Class 5
7.46%
6.43%
Class 6
4.70%
3.57%
GRENKE FINANCE PLC
139
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (continued)
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)
2022
2021
Percent
%
%
< €2.5k
30.02%
26.58%
€2.5k - €5k
29.19%
31.12%
€5k - €12.5k
26.00%
27.85%
€12.5k - €25k
9.04%
8.91%
€25k - €50k
3.81%
3.30%
€50k - €100k
1.40%
1.22%
€100k - €250k
0.48%
0.40%
> €250k
0.05%
0.62%
The average term of the new business contracted in the reporting period was 50 months (2021: 50 months).
New business by term category
2022
2021
Percent
%
%
< 36 Months
29.70%
29.64%
37 - 48 Months
16.39%
15.30%
49 - 60 Months
30.53%
32.67%
> 60 Months
23.39%
22.39%
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
GRENKE FINANCE PLC
140
NOTES TO THE FINANCIAL STATEMENTSThe 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 2022 was €8,212. 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 4.4 percent of the Group and Company’s equity. At the end of the 2022 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 1.31 per- cent of the total performing lease receivables. Commitments above a size of EUR 750k are
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (continued)
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 81,408 (2021: 66,968) different lessees of which the top 10 accounted for 1.55% (2021: 2.18%) of new business and the top 100 accounted for 5.76% (2021: 7.01%) of new business and the average value of new business contracted with each lessee was €10,501 (2021: €9,871).
•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
•Lease agreements: A large number of new contracts with an average contract term of roughly four years and a focus on small tickets below EUR 25k each (92 percent of all new lease contracts)
•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.
GRENKE FINANCE PLC
141
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (continued)
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, 2022, 89.83 percent of the net receivables of the Leasing
segment were allocated to Stage 1. The expected credit loss allowance charge to the statement of profit or loss on finance lease receivables was €39.8m (2021: €28.2m).
Country risk at the end of the 2022 fiscal year was concentrated in France which accounted for 60 percent of the total performing finance lease receivables volume of the leasing business. The respective Allianz Trade (formerly Euler Hermes) Country Risk Rating for France is “AA1 Low Risk”. Of the countries in which the Group and Company carries out leasing 88% of the performing lease receivables are located in countries with Allianz Trade risk rating of “A1 Low Risk” or a better risk rating. The Group and Company has performing finance lease receivables in Portugal €132m (6.86% of total performing finance lease receivables) which is given a BB1 low risk rating by Allianz Trade, in Slovenia of €26m (1.34% of total performing finance lease receivables) which is given a BB2 medium risk rating by Allianz Trade. There are performing finance lease receivables of €66m (3.45% of total performing finance lease receivables) from Hungary and Romania which have an Allianz trade risk rating of B3 sensitive risk.
The split of performing finance lease receivables by where the lease is located in the Allianz Trade risk ratings is set out below:
Allianz Trade Risk Rating
2022
2021
AA1 (Low)
76%
76%
A1 (Low)
12%
13%
BB1 (Low)
7%
7%
BB2 (Medium)
1%
1%
B3 (Sensitive)
3%
3%
GRENKE FINANCE PLC
142
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (Continued)
Sensitivity Analysis – Leasing
The calculation of impairment losses on financial assets is based on assumptions and estimates regarding the risk of default and the expected loss rates. The Group and Company exercises judgement in determining these assumptions and in selecting the input factors for the calculation of impairment. The most important assumptions and input factors used are set out in the accounting policies note 4.
To determine the risk provision in accordance with IFRS 9, expected credit defaults of various macroeconomic scenarios are weighted. GRENKE calculates a negative, a positive and a base scenario for this purpose.
The assumed development of gross domestic product for each scenario is shown in the following table:
Gross domestic product (in % compared to GDP at year end 31.12.2022
01.01.2023 – 31.12.2023
01.01.2024 – 31.12.2024
01.01.2025 – 31.12.2025
negative
Base
positive
negative
Base
positive
negative
Base
positive
Euro area
– 6,3%
0,1%
2,1%
0,1%
1,6%
2,1%
1,6%
1,6%
2,1%
France
– 7,9%
0,7%
2,3%
0,7%
1,6%
2,3%
1,6%
1,8%
2,3%
Spain
– 10,8%
1,2%
3,5%
1,2%
2,6%
3,5%
2,6%
2,7%
3,5%
The amount of risk provisioning of current lease receivables per scenario is shown in the following table:
In the base scenario, recurring but not permanent shortages of Russian gas supplies are assumed. The Russia-Ukraine war continues. Inflation remains unchanged at an elevated level (well above 2%). As a result of second- and third-round effects, increased credit losses occur globally. The increase in default rates is about a quarter of the increase at the beginning of the Covid 19 pandemic. The magnitude of the increase is derived from historical default rates in the wake of the recent financial and sovereign debt crisis.
Scenarios
negative
Base
positive
Risk provisioning
€47,296,066
€40,180,332
€33,944,019
GRENKE FINANCE PLC
143
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (Continued)
Sensitivity Analysis – Leasing
The negative scenario assumes further significant shortages in the economies heavily dependent on Russian gas and the continuation of the Russian war of aggression against
Ukraine. This leads to a further increase in the price of imported energy raw materials. At the same time, the central banks continue to tighten monetary policy in order to combat the still rising inflation rates. This leads to a strong cooling of the willingness to invest in industry as well as to a considerable loss of purchasing power among private households. Second- and third-round effects result in substantially increased credit losses globally. The increase in default rates roughly corresponds to that at the beginning of the Covid 19 pandemic.
In the positive scenario, the Russia-Ukraine war is assumed to continue. However, the lack of Russian gas supplies can be made up for by energy-saving measures and the import of liquefied gas. Inflation decreases moderately. Political measures support the loss of purchasing power in private households and prevent a strong cooling of the willingness to invest in industry. Accordingly, default rates return to pre-Corona levels.
Various minimum default rates (floors) are taken into account in all scenarios. Significantly declining default rates can currently be observed in the Group and Company leasing portfolio, especially compared to the pre-Corona level. Notwithstanding this, the increase in default rates in all scenarios is applied to the default rate level before the Covid19 pandemic. The effect of the current significant decline in default rates is therefore not taken into account.
The probabilities of occurrence of the macro scenarios are determined on a country-specific basis in order to take into account the different economic and political circumstances of the respective country. These scenario weights are derived from public data from the ECB. By means of a survey among various analysts, the ECB establishes a probability distribution for the GDP of the years 2022 to 2024. Probabilities of occurrence for individual scenarios can be calculated from these probability distributions. On the other hand, the publicly available GDP expectations as well as the historical GDP observations of the IMF are used for the country-specific determination of the probabilities of occurrence.
As at 31 December 2022, the scenarios in the core markets of the Group and Company are weighted as follows:
Scenario weighting
01.01.2023 – 31.12.2023
01.01.2024 – 31.12.2024
01.01.2025 – 31.12.2025
negative
Base
positive
negative
Base
positive
negative
Base
positive
France
37,0%
59,0%
4,0%
9,0%
76,0%
15,0%
7,0%
66,0%
27,0%
Spain
11,0%
87,0%
2,0%
2,0%
88,0%
10,0%
2,0%
84,0%
14,0%
Due to the increased economic uncertainty, various sensitivity analyses were also carried out. In these sensitivity analyses, the effects on risk provisioning are analysed by shifting various input parameters. Specifically, the probability of default (PD) was shifted up or down by 15 per
GRENKE FINANCE PLC
144
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk – Leasing (Continued)
Sensitivity Analysis – Leasing
cent, and the positive macro scenario was shifted up by 20 per cent and the negative macro scenario was shifted down by 20 per cent. An average reduction of the PD by 15 per cent and a shift of the positive scenario by 20 per cent would result in a € 5,811,710 lower risk provision
as at the reporting date. An increase in the average PD by 15 per cent and a shift in the negative scenario would result in a higher risk provision of EUR 5,834,473. The post-model adjustments made take into account the increased economic uncertainties on the basis of these sensitivity analyses.
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 (2021: €1.6bn) 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, €35m at 31 December 2022. 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.
GRENKE FINANCE PLC
145
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Credit Risk - Amounts due from Group Companies and Franchisees (Continued)
The main criteria for selection include creditworthiness, average annual revenues, industry affiliation, and the accounts receivables ledger of the factoring clients. The ongoing monitoring 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.
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
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
2022
2021
undertakings
€
€
Italy
623,801,679
745,300,807
Germany
502,026,177
436,695,770
Belgium
112,485,812
103,263,094
Sweden
98,194,133
96,002,865
Denmark
80,346,588
74,435,944
Spain
78,961,905
69,217,551
Dubai
34,939,935
32,120,095
United Kingdom
24,437,147
13,049,676
Singapore
23,633,347
-
Poland
12,818,322
908,237
Switzerland
12,051,373
6,612,594
Czech
10,203,486
11,770,322
Slovakia
9,224,695
8,364,692
Finland
7,752,467
7,278,642
Romania
6,577,064
5,293,048
USA
3,219,119
-
Malta
1,992,162
1,573,570
Luxembourg
1,000,429
1,025,699
Slovenia
197,062
-
Ireland
123,898
14,131,655
1,643,986,800
1,627,044,261
GRENKE FINANCE PLC
146
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. 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
2022
2021
franchisees
€
€
Australia
74,321,217
58,854,828
Canada
60,915,676
58,274,398
Poland
12,432,327
8,146,821
Chile
10,173,256
4,708,725
Ireland
6,070,450
6,587,878
United Kingdom
5,721,218
4,299,107
Singapore
-
22,034,881
USA
-
622,750
Latvia
-
271
169,634,144
163,529,659
The table below sets out how the amounts due from Group Companies and Franchisees are split in terms of the Allianz Trade risk rating of the country where the loan is located:
Allianz Trade Risk Rating
2022
2021
AA1 (Low)
54%
49%
AA2 (Medium)
2%
1%
A1 (Low)
5%
4%
A2 (Medium)
34%
42%
BB 2(Medium)
4%
3%
B3 (Sensitive)
0%
0%
GRENKE FINANCE PLC
147
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
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:
2022
2021
Bank
Credit Rating
€
€
Deutsche Bank
A-2 S&P
18,946,221
57,648,196
Grenke Bank
A-2 S&P
16,455,664
4,757,949
SEB
A-1 S&P
3,467,389
22,457,098
HSBC
A-2 S&P
51,673
10,072,380
DZ Bank
A-1 S&P
35,391
41,949,932
Nord LB
P-2 Moody's
8,652
9,998,790
Bayern LB
P-1 Moody's
4,278
304,956
Credit Lyonais
A-1S&P
4
69
Heleba
P-1 Moody's
-
6,504,981
38,969,272
153,694,351
Shown on the statement of financial positions as follows:
Credit support accounts
-
14,170,000
Cash and cash equivalents
38,969,272
139,524,351
38,969,272
153,694,351
The counterparty bank for the derivative financial instruments shown as assets in the Statement of Financial Position are as follows:
2022
2021
Bank
Credit Rating
€
€
HSBC
A-2 S&P
10,666,019
1,296,447
DZ Bank
A-1 S&P
3,842,238
161,541
Deutsche Bank
A-2 S&P
3,805,262
1,175,090
SEB
A-1 S&P
3,071,601
59,231
Heleba
P-1 Moody's
939,860
104,904
Bayern LB
P-1 Moody's
286,833
328,554
22,611,813
3,125,767
GRENKE FINANCE PLC
148
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
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 2022 inclusive of future income not credited to the statement of profit or loss at 31 December 2022. The overseas withholding tax of €5m (Note 27) and corporation tax receivable of €4m (Note 30) have not been included in the table below because of the difficulty of projecting the precise time that the 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 2022 inclusive of future financial expenses not charged to the statement of profit or loss at 31 December 2022.
GRENKE FINANCE PLC
149
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Liquidity and refinancing risk (Continued)
On Demand
Up to 3 Months
4 to 12 Months
1 to 5 Years
5 to 10 Years
Total
Carrying value
Expected cash from financial assets
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Subordinated loan and reserve accounts
-
6,906
18,659
49,068
114
74,747
71,992
Lease Receivables
-
242,408
639,373
1,380,728
19,230
2,281,739
1,933,643
Amounts due from Grenke AG Group Undertakings
516,283
211,945
304,465
679,200
44
1,711,937
1,634,429
Amount due from franchisees
1,819
26,526
145,738
-
-
174,083
168,815
Trade and other receivables
-
90,982
42,811
-
-
133,793
133,793
Leased assets held for sale
-
1,049
-
-
-
1,049
1,049
Cash and cash equivalents
38,969
-
-
-
-
38,969
38,969
Receivable on forward exchange contracts net of spot rate at 31 December 2022
-
1,172
4,433
2,385
-
7,990
9,448
Total expected cash inflows
557,071
580,988
1,155,479
2,111,381
19,388
4,424,307
3,992,138
GRENKE FINANCE PLC
150
NOTES TO THE FINANCIAL STATEMENTS 300,080
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Liquidity and refinancing risk (Continued)
Financial obligations
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Debt securities in issue
-
48,443
622,008
1,472,158
209,022
2,351,631
2,230,539
Amount owed to Grenke Bank AG
-
88,813
236,673
518,095
4,545
848,126
808,843
Asset Based
-
51,237
131,173
270,974
-
453,384
430,811
Bank loans and cash held in trust
5
140,498
40,691
-
-
181,194
190,005
Credit support accounts
-
16,290
-
-
-
16,290
16,290
Lease liabilities
153
-
194
-
-
347
340
Accruals
-
10,519
-
-
-
10,519
10,519
Payable on forward exchange contracts net of spot rate at 31 December 2022
-
830
2,964
4,038
-
7,832
4,711
Total financial obligations
158
356,630
1,033,703
2,265,265
213,567
3,869,323
3,692,058
Expected surplus cash inflows/(outflows) after meeting financial obligations
556,913
224,358
121,776
(153,884)
(194,179)
554,984
GRENKE FINANCE PLC
151
NOTES TO THE FINANCIAL STATEMENTSGrenke AG unconditionally and irrevocably guarantees all debt securities of the Group and Company .
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (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.
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
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.
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.
GRENKE FINANCE PLC
152
NOTES TO THE FINANCIAL STATEMENTSInterest 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. The Group and Company has very few financial instruments which are exposed to variable rates of interest. The Group and Company has due to the increasing interest rate environment put in place interest rate swaps which hedge €265m of its asset based liabilities which are exposed to variable rates of interest.
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
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 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.
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.
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.
GRENKE FINANCE PLC
153
NOTES TO THE FINANCIAL STATEMENTS 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
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
Most of the Group and Company’s financial instruments have fixed rates of interest. The following instruments that result to net exposure to interest rate risk are as follows:
2022
2021
€
€
Credit support accounts
(16,290,000)
14,170,000
Amount owed by Grenke AG
80,000,000
63,000,000
Cash pool balances
335,225,151
302,331,685
Subordinated loans and reserve accounts
111,353,301
105,750,536
Amount owed to special purpose vehicles
(478,149,465)
(244,754,162)
Interest rate swaps hedged amount
265,000,000
-
Net Exposure to interest rate risk
297,138,987
240,498,059
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
2022
2022
2021
2021
+100 bp
-100 bp
+100 bp
-100 bp
€
€
€
€
Potential (decrease)/increase in profit
2,971,390
(2,971,390)
2,404,981
(2,404,981)
The prior year comparative for cash pool balances and subordinated loan and reserve accounts have been restated from the previous years to properly state the correct carrying amounts to be considered in determining the net exposure to interest rate risk. In the prior year financial statements the net exposure to interest rate risk was incorrectly disclosed as €360m which resulted in the potential (decrease)/increase in interest income as a consequence of a 100 basis movement being overstated/(understated) by €1.2m (€1.2m).
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.
GRENKE FINANCE PLC
154
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
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.
GRENKE FINANCE PLC
155
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. 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 2022
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
137,020,276
145,002,566
(7,982,290)
(2,035,520)
AUD
116,556,886
119,773,000
(3,216,114)
(2,049,394)
CAD
87,963,286
91,450,000
(3,486,714)
(2,414,622)
CHF
11,690,666
11,600,000
90,666
92,075
CLP
9,251,151,794
9,728,818,000
(477,666,206)
(525,277)
CZK
253,544,888
266,822,000
(13,277,112)
(550,552)
DKK
597,236,229
628,975,000
(31,738,771)
(4,267,972)
GBP
27,001,149
27,084,000
(82,851)
(93,413)
HRK
-
-
-
-
HUF
4,657,735,019
2,833,434,400
1,824,300,619
4,550,853
PLN
116,481,296
129,704,000
(13,222,704)
(2,824,881)
RON
40,623,457
-
40,623,457
8,207,588
SEK
1,092,097,841
1,155,542,000
(63,444,159)
(5,704,487)
SGD
33,797,186
34,405,060
(607,874)
(425,087)
USD
2,783,938
2,750,000
33,938
31,819
JPY
33,250,000,000
33,250,000,000
-
-
TRY
1,592
-
1,592
80
NOK
1,364
-
1,364
130
Total exposure in €
(8,008,660)
GRENKE FINANCE PLC
156
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
47. RISK MANAGEMENT OBJECTIVES AND POLICIES OF THE GROUP AND
COMPANY (Continued)
Market Risk (Continued)
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
1,419,510
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
157
NOTES TO THE FINANCIAL STATEMENTS 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 .
AT 31 December 2022
47. 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 2022 and 31 December 2021 their impact on the profit before tax.
Foreign
2022
2022
2021
2021
currency
10%
-10%
10%
-10%
Depreciation
Appreciation
Depreciation
Appreciation
€
€
€
€
AED
(226,169)
185,047
(155,923)
127,574
AUD
(227,710)
186,309
(77,354)
63,290
CAD
(268,291)
219,511
(124,254)
101,663
CHF
10,231
(8,370)
752
(615)
CLP
(58,364)
47,752
7,637
(6,249)
CZK
(61,172)
50,050
(23,375)
19,125
DKK
(474,219)
387,997
(283,230)
231,734
GBP
(10,379)
8,492
187,703
(153,575)
HRK
-
-
7
(6)
HUF
505,650
(413,714)
428,708
(350,761)
PLN
(313,876)
256,807
5,972
(4,886)
RON
911,954
(746,144)
898,049
(734,767)
SEK
(633,832)
518,590
(301,023)
246,291
SGD
(47,232)
38,644
(4,241)
3,470
USD
3,535
(2,893)
626
(513)
TRY
9
(7)
12
(10)
NOK
14
(12)
15
(12)
Contractual Risk
48. 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 and also at www.GRENKE.de. GRENKE AG is the immediate and ultimate parent undertaking and controlling party.
GRENKE FINANCE PLC
158
NOTES TO THE FINANCIAL STATEMENTS 1,101,579
AT 31 December 2022
49. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY
2022
2021
€
€
GRENKE AG transactions
Management charges from Grenke AG
223,699
181,688
Licence fee charge from Grenke AG
8,042,657
7,813,614
Guarantee fee charge from Grenke AG
2,886,340
3,042,762
GRENKE Bank AG transactions
Interest paid to GRENKE Bank AG
12,472,251
13,843,976
Amounts due to GRENKE Bank AG
808,843,129
796,258,953
Risk premium fees paid to GRENKE Bank AG
26,718,960
16,521,222
Debt forgiven by GRENKE BANK AG under the
risk premium agreement
12,839,754
14,348,956
Payment to GRENKE BANK AG in respect of
leases guaranteed
123
186,545
Other transactions with GRENKE AG Group companies
Accountancy fees charged to GRENKE AG
group companies
1,454,827
1,459,086
Accountancy fees charged to GRENKE AG
group franchisees
224,835
188,009
Office rents paid by GRENKE AG Group companies
companies
110,405
84,214
Lease commissions paid to GRENKE AG Group
companies
57,370,769
48,255,658
Commissions for fees to protect lease equipment
paid to GRENKE AG Group companies
15,560,253
15,371,326
Interest received from GRENKE AG Group
companies
44,702,770
41,798,966
Interest received from GRENKE AG Group
franchisees
8,514,706
5,781,914
Interest paid to GRENKE AG Group companies
763,119
GRENKE FINANCE PLC
159
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
49. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
Other transactions with GRENKE AG Group companies (Continued)
2022
2021
€
€
Secured amounts owed by GRENKE AG Group
companies
52,117,262
49,716,296
Unsecured amounts owed by GRENKE AG Group
companies
1,591,869,538
1,577,327,965
Secured amounts owed by GRENKE AG Group
franchisees
74,321,217
58,854,828
Unsecured amounts owed by GRENKE AG Group
franchisees
95,312,927
104,674,831
Unsecured amounts owed to GRENKE AG Group
companies
82,582,895
19,088,538
Cash pool amounts owed to GRENKE AG Group
companies
76,116,080
73,061,117
Related party disclosures Company
Transactions with SPVs
Interest received from Kebnekaise Funding Limited
136,400
74,660
Interest received from Opusalpha Purchaser II
Limited
199,979
97,439
Interest received from Elektra Purchase No. 25
Limited
460,431
217,101
Interest received from Coral Purchasing (Ireland)
2 DAC
158,219
103,108
Amount due from Kebnekaise Funding Limited
10,142,304
8,400,000
Amount due from Coral Purchasing (Ireland)
2 DAC
32,583,948
9,659,997
Amount due from Opusalpha Purchaser II Limited
28,486,686
33,141,560
Amount due from FCT "GK" Compartment G3
-
41,586,993
Amount due from Elektra Purchase No. 25 Limited
27,964,797
10,241,463
Amount due from FCT "GK" Compartment G2
7,262,750
750,523
Amount due from FCT "GK4" Compartment GK4
6,465,000
1,970,000
Amount due from FCT "GK5" Compartment GK5
5,710,000
-
GRENKE FINANCE PLC
160
NOTES TO THE FINANCIAL STATEMENTS 359,280
AT 31 December 2022
49. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
Related party disclosures Company transactions with SPVs (Continued)
2022
2021
€
€
Interest and expenses paid to FCT "GK"
Compartment G2
1,807,242
541,096
Interest and expenses paid to FCT "GK"
Compartment G3
192,067
450,105
Interest and expenses paid to FCT "GK4"
Compartment GK4
1,546,028
665,187
Interest and expenses paid to FCT "GK5"
Compartment GK5
1,008,304
-
Amount owed to FCT "GK" Compartment G2
197,910,807
59,299,036
Amount owed to FCT "GK" Compartment G3
-
68,902,455
Amount owed to FCT "GK4" Compartment GK4
131,349,336
116,552,671
Amount owed to FCT "GK5" Compartment GK5
148,889,322
-
Amount owed to Coral Purchasing (Ireland)
2 DAC
-
11,759,998
Amount paid to directors
Amounts paid to Directors
415,275
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 34.
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 12 and note 34.
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 50.
GRENKE FINANCE PLC
161
NOTES TO THE FINANCIAL STATEMENTSGrenke 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 €118,293 p.a. 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 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.
AT 31 December 2022
49. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
The accountancy fees charged to GRENKE AG Group companies and Grenke AG Group franchisees are explained in note 15.
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 25.
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 26.
Interest paid to GRENKE AG Group companies and cash pool amounts owed to GRENKE AG Group companies is explained in note 12.
Unsecured amounts owed to Grenke AG Group companies and Cash pool amounts owed to Grenke AG companies is explained in note 35.
Interest income from SPV Investments and subordinated loans provided to group SPVs is explained in note 21.
Company interest and expenses paid to SPVs is explained in note 37.
Company amount owed to SPVs is explained in note 37.
Details of the directors remuneration is set out in note 17. 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 17.
All related party transactions were made at arm’s length.
GRENKE FINANCE PLC
162
NOTES TO THE FINANCIAL STATEMENTSIn 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 .
AT 31 December 2022
49. RELATED PARTY TRANSACTION CONSOLIDATED AND COMPANY (Continued)
50. 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
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 €112,402 (2021: €3,500,874) 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 €3k (2021: €87k) 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 40.
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 2022
Up to 3 months
4 to 12 months
1 to 5 years
Total
Type of liability
€
€
€
€
Net Present Value of Lease Receivables Guaranteed
72,743
37,556
2,103
112,402
GRENKE FINANCE PLC
163
NOTES TO THE FINANCIAL STATEMENTS 4,561,751
AT 31 December 2022
50. GUARANTEES (Continued)
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
€84k (2021: €374k) 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.
51. CHANGE IN 2021 COMPARATIVES IN THE CONSOLIDATES STATEMENT OF CASH FLOWS
In the prior year statement of cash flows there was the following lines with respect to adjustments for non-cash items to arrive at net cash inflows from operating activities to adjust for the non cash effect to profit of the change in the fair value of derivative financial instruments not designated as hedges:
2021
€
Fair value measurement gains on derivatives
6,013,981
Change in derivative financial instruments
(1,452,230)
4,561,751
The above two lines in the prior year consolidated statement of cash flows has been combined into one line because in the opinion of the Directors it provides the reader with more precise information of the non cash adjustment which is required to be made to profit for the period to arrive at the net cash inflows from operating activities in the consolidated statement of cash flows. The above two lines for adjustments for non cash items in the consolidated statement of cash flows for the prior year are included as a comparative in the line:
2021
€
Change in the fair value of derivative financial
instruments not designated as hedges
GRENKE FINANCE PLC
164
NOTES TO THE FINANCIAL STATEMENTS
AT 31 December 2022
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
No 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 14 March 2023.