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Q1 2008 Grenke Leasing AG Earnings Conference Call - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning ladies and gentlemen and welcome to the Grenke Leasing conference call concerning the three months report of 2008. At this time all participants have been placed on a listen-only mode. The floor will be open for questions following the introduction. Let me now turn the floor over to your hosts, Renate Hauss and Dr. Uwe Hack.

DR. UWE HACK, VICE CHAIRMAN OF THE EXECUTIVE BOARD, GRENKE LEASING AG: Yes, good morning everybody. Uwe Hack speaking. Thanks for joining the call. We as you know have published our Q3 numbers this morning and I would like to go through with you, give you first of all a summary of what's been going on in the first quarter then subsequently be happy to answer any questions that may be outstanding.

Overall I would say we had a good start to the new year. New business was volume-wise up by just over 7% at higher margins than before. That's DB1 and DB2 margins. Taking into consideration that we had the Easter holiday in the first quarter of this year rather than in the second as in the previous year, our new business were on track to achieving what we have set out to achieve and that's a volume increase of 10% or more. And more importantly growth in contribution margin one and two above the 10% mark as we see Q2 developing. By the end of Q2 we should be with new business close to the 10%, and DB1 and DB2 above the 10%. So from that point of view there's nothing special or odd. All the uncertainties that we're seeing around so far have had, if any, little impact on our business.

Activities beyond new business, we have been reasonably active there also in the first quarter. We started new businesses in our franchises in Portugal and Slovakia. We're working on a few other ones and we might end up with one or two additional new starts this year. So if everything goes according to plan we will have three to four new businesses during the course of this year which would be quite an active year even considering that the last two or three years we have already pushed quite hard to build our international presence.

In the existing markets also we're looking to open up new branches in a number of countries. Obviously Italy and France, the ones that are extremely strong at the moment, are on that last. But our new acquisitions, Poland and U.K. also have reached a size where we're looking into opening up new branches.

So overall beyond new business '08 is very likely to be quite an active year for us. The uncertainty that we're seeing around and in particular in the banking system but also beyond is something that we consider to be an opportunity rather than a threat. And therefore using that opportunity means moving quickly especially in establishing presence in countries and building presence in the countries that we are already in. And if you look at the international part of new business development and contribution margin development, you can see that the investment that we have taken over the last two or three years shows up in the new business numbers and in the contribution margin numbers.

If we now look at the P&L that we have published, what you can see very clearly there is the consolidation of the two first franchise partners that we acquired at the beginning of the year. That is U.K. and Poland. If we look at the impact, overall we have said that we acquired those businesses at close to breakeven. We have published the numbers for those businesses and you can see that the earnings contribution of those two businesses for Q1 was EUR150,000. So that's a normal situation for companies at that stage of development whether it's franchisee or alone.

What we also have to take into consideration on a consolidated basis is that we have had a net cash outflow of roughly EUR7.5m to buy the companies which means funding cost for that per quarter of about EUR100,000. And if you look to the notes of the quarterly report you also see that under IFRS there is a requirement to show intangible assets in our case, that's the value of the retail partners that have...

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