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Good day, and welcome to the GRENKE AG Third Quarter 2021 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Anke Linnartz. Please go ahead.
Good morning, ladies and gentlemen. Welcome to our today's earnings webcast and video conference call. My name is Anke Linnartz, and I'm Head of IR at GRENKE AG. With me today are Michael Bücker, our CEO; and Dr. Sebastian Hirsch, our CFO. Just before we lead into things, I would like to let you know that this call is being recorded and will be archived on our website. We will start off with the presentation by Michael Bücker and Dr. Sebastian Hirsch, and we are going to have a Q&A session right after the presentations. I stop here, and I pass the call on to Michael Bücker.
Yes. Good morning, ladies and gentlemen, and welcome to the presentation of GRENKE's third quarter business performance and our overall development so far this year. Our CFO, Dr. Sebastian Hirsch, will present the figures to you in detail in a moment. But first, I would like to give you a summary of this past quarter and our performance year-to-day. Today marks my -- the completion of my first 100 days at GRENKE, and I would like to share with you my insights and conclusions from this time. Our performance, in both the past few months and the year-to-date have been in line with the expectation recently expressed by our company. Currently, we expect the economic climate for our business to improve in the fourth quarter. The direct negative impact of the pandemic is unlikely to reach a decrease it did last year. And the global problems with logistics and the suppliers should slowly resolve themselves, and the investment backlog is expected to clear up. And these assumptions lead us to expect a solid fourth quarter. And the results should enable us to meet our new leasing business targets between EUR 1.5 billion and EUR 1.7 billion for 2021. Also on this basis, and taking into account the onetime gain in net profit of approximately EUR 20 million from the sale of our stake in viafintech, the Board of Directors has decided to raise the guidance corridor for net profit from the prior range of EUR 60 million to EUR 80 million to EUR 90 million to EUR 100 million. Ladies and gentlemen, when I took up my position, I said that I would use my first 100 days to gain deeper insight into the entire GRENKE Group and define those areas of action that need to be addressed. And in accomplishing this, I've engaged numerous discussions with our internal stakeholders as well as with external stakeholders such as investors, capital providers, partners and customers. But before I talk about those areas, I would like to highlight a very clear conclusion of my due diligence. First, our business model is robust and offers sustainable potential. And second, we have a strong team that can exploit the opportunities that arise from having a unique customer base and reseller portfolio. And in my opinion, the results achieved in the third quarter and my expectation for the first quarter confirm this assessment. Nevertheless, it's not enough to return GRENKE to its former position of strength. We must also align GRENKE with the challenges of the future. And to this end, we have set up a broad agenda, which includes intensively addressing all of the topics that are important for the future. Here, top priority will be to enhance our business model. In some areas, our intention will be to grow much more strongly, while in others, we would rather tend to consolidate. Above all, however, we must continue to develop the structure and operating model of our organization to master the digital age. We have to invest more into our future. Ladies and gentlemen, GRENKE stands for leading technology and the right solution for our customers. Speed and simplicity, combined with a competitive offering are our historical strength. Greater digitation throughout our entire organization will serve to make us even more competitive and even more effective for our customers. And in the weeks and months ahead, we will be setting the important and strategic course necessary to achieve this with our Board agenda. And we will present the results of these initiatives to you at the Capital Markets Day in the first half of 2022. Also, when taking this position, I told you that I would actively engage in dialogue with the supervisory authorities in part to regain their trust. And I have done this together with Sebastian Hirsch, our CFO; and together with Isabel Rösler, our CRO. And I'm convinced that we are on a solid path. Right now, we are taking every effort to implement the measures resulting from the auditor's findings. And we are doing so while providing maximum transparency to the supervisory authorities. The group of measures we are taking should be largely completed in the current fiscal year. Ladies and gentlemen, as you can see, GRENKE is well on its way. We have already overcome important hurdles. We are now embarking on our further development and adapt to this new age. And in conclusion, even with all the changes that now lie ahead, I can assure you, GRENKE is, and will remain the #1 in small ticket leasing. And this makes GRENKE one of the most important financial service providers of investments for small- and medium-sized enterprises. We finance the backbone of the European economy. So thank you for your attention. And now over to you, Sebastian.
Yes. Thank you, Michael, and a warm welcome also from my side to our Q3 presentation, let me first provide you a brief overview to our performance in Q3. The group's new business was down by 21.7% and come in to EUR 552 million, which was mainly due to the Leasing business, and I will go in more detail on the next slide. Mainly due to higher funding costs, but that higher funding costs were expected. The CM2 decreased slightly by 130 basis points and came in to 17.1%. On a 9M basis, the CM2 in '21 is at 18.2% compared to 18.1% in the same period of the last year and so far, quite stable. But again, the CM2 margin of 17.1% in comparison to the historical level is a quite good number and it shows us the profitability of our new business also in that challenging market environment. Our net profit came in at EUR 20.1 million for as a group under IFRS, down by 24% compared to Q3 in the last year. But when we take into account the EUR 14 million for Q1 '21 and the EUR 18.3 million net profit in Q2 '21, we are in a very positive and solid trend. And of course, the equity ratio was 18.1% to our satisfaction, well remained above our target of -- in minimum 16%. Let's now go a bit more detail in the new business, figures for Q3 '21. We see here the development, over quarters, the overall new business, including Leasing, Banking and Factoring business. And as communicated, the third quarter's Leasing new business was adversely affected by global supply chain disruptions, which have impacted manufacturers and the delivering of PC hardware, printers and office equipment. And these shortage and their impact was nothing we were expected back in May '21 when we've been estimating that the Leasing new business will increasingly gain momentum in the second half of that year. At that time, there was only low evidence that we could be confronted with a global supply chain bottleneck of this extent. As I said in Q3, the Leasing new business came in at EUR 372.2 million, 28.1% lower compared to Q3 in the last year. But I have to add a specific thing for Q3 and the last year on a year-on-year comparison that paints a bit of forward picture of reality. In the last year's third quarter, we have seen subsiding effects on the COVID-19 pandemic, which were also reflected rising Leasing new business. In a normal year, it means a year without pandemic, normal third quarter would correspond to roughly 23% of the annual new business in Leasing volume. So it means the third quarter is roughly a quarter, a bit less than quarter of the full year's Leasing new business. And in the last year, we had 31% of the whole year's Leasing new business in Q3. So that Q3 was a bit an outlier. Ladies and gentlemen, I would like to emphasize to you that our customers -- we are still asking for IT equipment for office equipment for their business. Orders which couldn't be fulfilled based on the supply chain shortages I mentioned. We believe that there is a bit of a pent-up demand, and that will materialize over the next months. Factoring show us a volume of EUR 178.5 million new receivables with an average term of 30 days, that's important, and that's why the Factoring volume is only 1.2% from a balance sheet perspective. And also, GRENKE Bank with less than EUR 1 million because the SME lending business was discontinued, but the positive trend for GRENKE Bank has also seen because GRENKE Bank again awarded the micro credit fund program from Germany, the program of the German federal government. Now we would like to go more in detail looking to our profitability of new business Leasing for the Q3 based on our contribution margin calculation. Both figures you see that here came down. The main driver for that came down in Euro is the development in volume we mentioned before. And also the CM margin came a bit down, mainly driven by higher funding costs. We see that in the contribution margin 1. I mentioned also the challenging environment we've seen and we would like to decrease our funding costs over the next quarters and also pricing, as always, as in the previous quarters, the funding costs into our leasing condition. But again, the market environment, because of the pandemic, because of the macroeconomic development, is not so easy. And the contribution margin is on a very good level compared to historical levels. Contribution margin 2 came also down because of volumes and margin, not that high, with 17.1% on a good level compared to Q3 in the last year 18.4%. On the next slide, we look to the P&L for the Q3 and the -- Q3 result and also the result for the first 9 months, shown us is a solid portfolio and the profitability of our business. We settled over the last years and the last quarters. Of course, the last new business volume brought us less net interest income of 8.8%, that's for sure. The service business, profit from new business -- service business is more or less stable. And the costs compared to the Q3 last year are rising, or were rising. But when we compare the cost level with Q1 '21 and Q3 '21, the costs came down as expected because of the extraordinary impact in the first half of that year because of the special audit we had to handle. Quite positive development in settlement of claims and risk provisioning because of the stable payment behavior of our clients. The main driver, also important, less new business volume brought us a bit less new expected credit loss for the new business under the IFRS 9 regime. Overall, the settlement of claims and risk provision came in at 37.3%. And we will see there -- a bit more detail later. Overall, the operating result in line with the net profit and the net profit came in as mentioned in EUR 20.1 million. compared to Q3 last year, 24% down, but compared to the first half of the year on a quarterly basis, very good development. Now you know that chart from the previous calls, a bit more detail now from a balance sheet perspective, not from a P&L perspective to our risk provisioning and settlement of claims. And overall if you hear from the Stage 1, Stage 2 and Stage 3 performances, deferral program developed very well. We see here, a bit risk provisioning for our deferrals means for the leasing receivables with a deferral, only 14% of the former deferrals, which amounted 57,000 leasing contracts, only 40% of that are in damage -- bad debt, the others are paid back or -- in a payback program. So the deferral program developed very well. And also, Italy, again, is the major driver asset vault in the previous quarters. The loss rate came in on a 9M basis with 1.9%. Now we jump to the cash flow statement. The cash flow statement show also how stable our business is. How stable the portfolio overall is, with roughly EUR 1.8 billion income from losses. We have a very strong cash inflow. We can work with the repayment for our refinancing are roughly EUR 900 million, and that brought us a very strong operating cash flow we can work with going for further investments in new leasing receivables, as you see here. Overall...
Maybe -- Thank you, Dr. Hirsch. Thank you very much. Maybe we stop this for 10 seconds so that you can take a deep breath. Sorry, sorry for that. Thank you. Thank you so much for your support.
Maybe we can go ahead. Sorry for this. And the operating cash flow, the overall cash flow is positive and especially when we take into account, also our cash position was roughly EUR 1 billion per end of September. So it -- are quite good figures and gives us security and sustainability from a liquidity and funding perspective for the next quarters. The funding mix on the next slide, we see, there are no real changes. The most important box is the unsecured box there also quite important in the last quarter, the increasing of an existing bond for further EUR 125 million, a successful capital market transaction after roughly a year and issue yield approximately 2.5%, you are aware of that. Also, GRENKE Bank with the deposit business, quite important for our funding as it was in the past. And it is today and for the future. And the ABS-based funding, especially in U.K. important for us.
Take your time.
Now we would like to talk about the sale of our viafintech and stake that was successfully completed in the last week. Important is to outline that is not included in today's figures we presented. So it's not part of the P&L of 9M and that will be realized in Q4 with roughly EUR 20 million in net profit [indiscernible] to take into account. So that's a EUR 20 million gross and that is nearly the same because selling that is not taxable so when you would like to calculate the tax rate for the full year, you have to take that in account that there is a gross amount is close to the net amount. So amount was EUR 20 million. That is a profit, and we will earn -- and as I mentioned, the closing both is beginning of November, and we would like to continue, and we will continue the cooperation with GRENKE Bank as main payment processor of fixed body collaboration and maybe one sentence to what's the reason or we had a stack of 25%. So we were not the main shareholder, and we were in very good discussions and dialogue with all the other parties would like to sell, especially the founders. And so we decided to take that opportunity for that good offer to earn the money on the one hand and also to make that possible, especially for the founders because paysafecard would like to achieve 100% of the shares. Now I would like to give a brief overview about our guidance, especially for the 3 boxes, new business Leasing, net profit and equity ratio. So Leasing new business guidance is down compared to the previous. And the initial guidance now EUR 1.5 million to EUR 1.7 million because of the supply chain we mentioned and we are on a good way to achieving that guidance for the full fiscal year. The net profit guidance, the last guidance was EUR 60 million to EUR 80 million, and we raised that guidance in July because of the good development and settlement of claims, the strong profitability in our existing portfolio, we can have -- now a lower range for to EUR 70 million to EUR 80 million. So it means only a range of EUR 10 million and the sale of viafintech, the extra ordinary impact of that sale brought us a new guidance from EUR 90 million to EUR 100 million. Important is to point out the extraordinary impact of the EUR 20 million sale from a viafintech. And the balance sheet equity ratio will be above the 16%. We announced reguide today, we see 18%. So we are quite comfortable to achieve that goal. And now the financial calendar, you will see that here, and also on our website, most importantly is that we are more back to normality. Also looking to that calendar, we will present our annual report on March 17 and also the annual meeting next year will be end of May. So quite earlier than it was in the last year and more normality. So thank you very much, and now we are ready for your questions.
Yes. Thank you very much for your presentations. We are now ready to enter our Q&A session. [Operator Instructions] So please start with Roland Pfänder from ODDO.
Two questions from my side, please. I would like to touch on the cost side of your business model. In your press release, you mentioned that costs went up by EUR 7.7 million in the third quarter. If you look at the 9 months, it's close to EUR 24 million. So the yearly run rate of cost increasing is in excess of EUR 30 million. Could you give us an underlying figure of cost increase, excluding, for example, project costs or other one-offs, which you believe is the more reasonable figure going forward? And secondly, you touched on the need for investments regarding digitalization, automatization and workflow efficiency. These topics are actually not new for GRENKE, so I would be interested in the budget you had in the previous year. I guess there was a yearly budget allocated to this. And maybe you could compare this whole budget to your investment needs or targets going forward?
Can you start?
So I would like to start. Thank you for your question. So the extraordinary and the one-off impact we can point out, I think overall, is roughly EUR 50 million, EUR 10 million are linked to the special audits we mentioned also in the first half of the year and the other EUR 5 million, let's say, more or less some project caused some extraordinary impacts in personnel cost, we will not see in the next years because of some changes also in the Board, you are aware of that. And then I think you will have a fair guidance to look forward with the cost development.
Okay, Sebastian. Then I'll take the second question. You are right, GRENKE is already quite advanced when it comes to digitation. However, we can further improve and to make GRENKE more competitive and more efficient for our customers. And the budgets we had in the past, there were more for run and more for improve, not so much for change and for innovate. But we are in the middle of the process in the moment, and please understand that we cannot provide any details on the amount needed for this at the moment. We are analyzing it right now. And coming back to you, at our Capital Market Day.
So now we'd like to move on to Tobias Lukesch from Kepler Cheuvreux, please.
3 questions from my side as well, please. Let me firstly also touch on the costs. Is it possible? I mean knowing -- I mean, what you just said, to give a kind of absolute ballpark number of all the costs in 2022, i.e., net of the potential additional investments that you saw. Just to get this kind of special effect of 21 out, and to understand where that might be heading on a normalized basis. And secondly, on the business development, the lease receivables, as you pointed out in the press release, were down 9.1% year-to-date, also more or less year-on-year. And if we look at the kind of peak volume, you're down 11%. Now the book is at EUR 5.1 billion. I was just wondering -- Can you take the level...
Sorry, Mr. Lukesch we couldn't really get your second question. Could you just repeat it once more or speak up a bit?
I'm sorry. Sure. Is that better? Okay. On the second question, it's the lease receivables, down 9% year-on-year and 11% down from the peak. I was just wondering, could you give us a level where you think this might bottom out and potentially also kind of time horizon? Looking at the new business volumes that you wrote 4 years ago, over the next quarters to come, you would basically have to bring EUR 573 million on average to be level. So I was just wondering where this is heading?And my last question is also attached to that one. On the capital management. The ratio looks very strong. I mean, you have a lot of cash also on balance sheet. I was just wondering if you could share some thoughts of this capital development over the next 12 to 24 months.
I would like to start -- like to answer your question. First, I think, the cost development and the outlook for next year. Michael mentioned that it's too early to give their flavor, and we will come back to you as soon as we are able to do that. But as I mentioned before, roughly EUR 50 million are extraordinary debt here to -- when you point out that, I think you have a fair level to run the business we are doing today. The business development, and you mentioned, the development of leasing receivables. Is that right, it came down because of the new business development? Looking to the new business figures, I mentioned that Q3 and over whole years development that it was more or less normal. And we expect for Q4, when you look to our guidance, a bit more new business than in Q3. So hopefully, we would like to came up with a new business and -- that means that the down in leasing receivables will stop, maybe per end of the year -- could be a bit less because of the strong growth in the last years. But then that level should be stable. And when we are going for more new Leasing business and we will see rising in leasing receivables. Again, that depends on the new business development. And you mentioned the capital management and the capital -- the equity ratio is quite good with 18%. And we are very comfortable with that ratio to doing the things we have to do. And so I can't see from today's perspective that we have to take any action over the next month or quarters, but we will look to that also after the years and more in detail. But from today's perspective, there will be no action.
Mr. Fuhrberg from Warburg Research, please.
3 from my side, if I may. The first one, what was your assumption on the volume of new business that you are missing due to supply chain issues in Q3. And the second one is the -- with regards to the number of resellers that are partners of GRENKE, was there any change during the partner -- during the past quarters? And the third one would be on the bond side. Your next large bond expires in February, if I'm correct. Do you already have a feeling whether or not you can achieve similar interest rates or conditions, when you have to replace this? Or would you rather go on a lower basis of free liquidity in terms of refinancing them?
Then I'll start perhaps with your second question, the question about the resellers and the customers. Yes, we are really focused through the year on our important customers, and resellers and yes -- and concentrate a little bit. We will decide now also in our agenda, how we go -- how we go forward. Also with our customer and reseller focus, and we started now sales offensive -- and that's offensive is targeted effort directly at resellers where we see, I would say, untapped potential and also taking into account, potential supply chain constraints at the moment. So there, we are on a good way in every country. And yes, we are at the moment in the middle of this sales offensive.
Yes. I'll take the other questions and especially depending new business development in terms of the short cell attack, it's not so easy to point out because during the pandemic, we were very selective in our new business and the new business came down because of the pandemic. So it's not that easy to point that out. And the first 1/3 of that year, the focus of the company was more to finish audits and winning back to normality -- that was important. Now we are on a good track, I think that's quite important to come back -- to hire new business volume to point out there. In detail figures, it's not that easy, the main impact for the down in Leasing new business is a macroeconomic development. And in terms of the bond, you mentioned the maturity in the first quarter and at first, with today's liquidity, and we will have a new cash inflow on first of January because of the quarterly payment, we are well prepared to managing all the maturities on our funding. So that's not the question of the existing business. It's a question of new business when we go for new funding. And we will decide that whenever the time is ready, but we have a good liquidity situation. And yes, we would like to come back to liquidity management, where we will have a bit less liquidity. So not EUR 1 billion maybe from a mid-term, around EUR 500 million, for example. At the end of the day, it's always a question of market environment, and how many safety you would like to have because of the good liquidity situation.
Perfect. Thank you. Then we'd like to move on to Mr. [indiscernible] from [indiscernible] Capital.
Yes. My question is also related to the new business -- Leasing new business. So compared to the peak year 2019, if we look at the levels, the new business has come down somewhere 40% or 45% due to the different effects that you already mentioned. Is there a possibility to give us a little bit of color as far as the factors that are contributing to that. So there's definitely the COVID to macro environment. There's the demand side of that and the supply side of that. And of course, due to last year's initiatives that you had to take, I'm sure there were also some distractions from growing the business, which is absolutely understandable. Is it possible for you to give us a ballpark number of the decline, how that is distributed? How much do you see actually being demand-driven because businesses are investing right now a little bit less? And how much of that is may be supply chain-driven?
Okay. Then I would like to answer the question. as I mentioned before, it's not that easy, it's only -- to describe and roughly figures, as I mentioned before, the main driver, main impact was the pandemic, and the pandemic, has on that point, of the 2 dimensions. The first one is the demand. And of course, during the pandemic, the investment behavior of small/medium enterprises was not the same as it was in 2019, and it is not the same to-day as it was in 2019, which is why the demand came down, and it's not easy to say. It's a 1/3, it's 50% or whatever of the new business and down. On the other hand, we decided quite fast in March, April last year to being more selective, to focusing on pretty small tickets, making more and more tickets looking to profitability of the new business. That's why CM2 the ratio went up. It was a very good development, focused on very strong industries and avoiding industries which were hard affected by the pandemic. That's also an important driver for the new business development. And as I mentioned before, could also be 50%, 30%, it's something easy to spit that out because when you're working with dealers, the relationship to dealers is important, as Michael mentioned. And the overall new business development was affected by the pandemic. That's the main driver. And we would like to come back to a higher volume. And I think that's the important message today, and we are on a good way to that.
Thank you, Dr. Hirsch. Now, we have a question from Gerhard Orgonas from Berenberg.
I have a question on the loan loss ratio, please. I think at the beginning of the year, you guided to 1.9% to 2.2% and it keeps on coming down. Is this -- what are you factoring? Are you factoring in a better macro environment? Or is this...
[indiscernible] Could you also speak up a bit?
I'm sorry. Can you hear me better now? Hello? Can you hear me now? Hello?
Yes, please go on.
All right. Okay. So again, a question on the loan loss ratio, please. I think you guided to 1.9% to 2.2% at the beginning of the year, it's coming down. I was just wondering what you're factoring in a better macro environment? Or do you see any improvements in particular payment behavior, any countries, et cetera? And how do you look at this loan loss ratio now for the full year? And also going into next year, do you think there will be further improvements in the loan loss ratio? Or is this kind of a new level that we should be looking at?
Yes. Thank you for the question. And first, right, the payment behavior is quite stable over quarters. The peak in our missed payment rate was in April last year. So that is quite stable and we are now on the pre-COVID level. On the one hand, in the existing portfolio, but also for the new business, because of the selective new business we did in during the pandemic. The expectation for that year is clear. Less than a 2% as mentioned and of course, we have to take in account the macroeconomic parameter because you have to pull in macroeconomic parameters in your risk model, that's for sure. And so that's -- at the end of the day, not that easy to say, especially today, what will be the macroeconomic impact from the macroeconomic parameters to the risk model at the end of the year. But I assume that the level we see today in the Q3 figures will be stable for Q4 from our today's knowledge. For the next year, we have to take in account 2 developments. On the one hand, the risk development, the payment behavior. So from today's perspective, we can't see any changes, and we don't expect any changes. So at the end of the day, that should be stable on the level of Q3 in minimum. On the other hand, we have to take into account new business development because new business volume came down, and that's also why new expected credit loss volume came down because for less new business, we have to take less new expected credit loss and one new business will rise, we have to take in account that impact that for the new business, a more new business, a growing new business, we have to take an account more expected credit loss. On the other hand, as before mentioned, the leasing receivables were rising. And so the book were rising and then at the end of the day, the loss rate should be more or less stable.
Thank you for your questions so far. [Operator Instructions] So we have another question from Tobias Lukesch from Kepler Cheuvreux.
Just to take the follow-up. On the conversion rate, I was wondering, you are, again, very close to the 50%, 48.5%. I was wondering, given the changes you applied in picking business, will the conversion rate -- earlier, you also reported acceptance rates. Will these change over time, be it from underwriting criteria that might change in the first instance, i.e., that a potential customer is not channeled through or that you, in a second instance, then decide not to go for that contract. Is there any change that we can expect going forward? You mentioned that you will look into the various regions differently, seeing growth here and potentially a contraction there. Some more details would be helpful.
I think the conversion rate overall will be also more or less stable. And what's the reason for that? The reason is, especially as a dealer, as a reseller business and because when you're working together with dealers -- with thousands of dealers worldwide, then especially that relationship is quite important. And when you go to a dealer and say, I would not like to do that business or that kind of business, then very often the case that you will lose the dealer for that time. You can come back. Michael mentioned that we would like to win back dealers because of that. But it's more a question, how sustainable is a partnership to the dealer, the dealers very often as a decision-maker. And when you are running with a dealer, then you have that relationship a more or less stable conversion rate. And that's why the fluctuation in that rate is not that high.
And we are assessing our Board agenda. This was also a question. along a number of dimensions, also the geographical footprint, yes, that's right. And we look to the countries, that's part of the Board agenda. And we have really, really strong countries like Germany, Italy, France, et cetera, and we like to get more economies of scaled areas.
Then we have a follow-up question from Roland Pfänder from ODDO, please.
Yes. Thank you. I would like to come back to this supply chain issue. Could you provide us a little bit color what you see there? Is it improving? What is the product availability? Maybe you spoke with the suppliers of these IT equipment or the resellers ordering those. So what is the expectation? What do you see in the pipeline? Maybe the same question regarding demand. You mentioned demand was coming down due to the pandemic. Is this already improving? What do you see in the fourth quarter?
Yes, thanks for the question. And further, easy to say, if we will see a better development in Q4, means if we are able to covering and selling all the, let's say, open request because of the supply chain because it will be more or less a question of months, maybe quarters. But we see that demand and to point out a clear figure is also not that easy. But when we look back to our previous guidance, we can say, okay, roughly EUR 50 million to maybe EUR 100 million new business in Q3 that could be an impact, but it's quite roughly. And the second thing, but it's also too early to point that out because we will see that in the quarter, maybe half of a year is that whenever a leasing contract is running, and there will be new investment because leasing contract is running for 3 years, for 4 years means the formal investment is 3 or 4 years ago, and you are not able to achieving a new equipment, then could be that we will see more retentions. So that more leasing contracts will go in retention to leave the existing equipment longer and also the valuation of our used object that could be better that is well performing. But it's too early to put out their clear figures for that, but that could be a trend we will see if that supply chain will be a longer issue.
Thank you, Dr. Hirsch. We have no further applicants for questions. [Operator Instructions] And we have a follow-up from Tobias Lukesch from Kepler Cheuvreux.
Yes. Very last one. On the pricing side, I think we haven't touched on that one. I think a year ago, we talked about the higher funding costs, and you were quite confident that you could offset that with higher pricing. So I was wondering like giving these demand issues, the supply issues, how is that pricing component developing and how was the situation basically over the past month? And how are you looking at it for the next 6 months maybe?
Yes. Thanks for the question. We look overall in pricing and leasing contract -- leasing pricing and the leasing condition is quite stable looking backward because of the higher funding cost. We have to price and we price fit in quite early whenever we can measure that. The CM1 and CM2 came down, as I mentioned before, and we would like to pass through that, the funding costs through the leasing conditions. But at the end of the day, as I mentioned, it's a question of the market. On the one hand, we would like to achieve more Leasing new business -- we'd like to go for more business. And as I also mentioned before, the investment behavior today is not on the same level as it was in 2019. And on the other hand, we would like to find the right pricing. So I think that the pricing will be, minimum, stable. Maybe we can achieve over the next quarters a bit better CM1 and CM2 level as in Q3. Overall, the figures are quite good.
There's another question from Mr. [indiscernible] from [indiscernible] Capital.
Yes. My final question with the both of you. So you alluded to the initiatives you're taking on the growth side to gain back new business development. Could you also maybe update us on the progress you're making as far as taking over the franchises are concerned, where you are with that? And maybe also new geographies you're looking at to grow the business going forward and how you would approach that?
Yes. The consolidation has already taken place of all the franchise companies in our 2020 annual report. And at the moment, we are in under negotiations for the acquisition of the individual franchises. It's an ongoing process at the moment. Yes, and we will provide you with this information as soon as possible, if we can speak about it.
Thank you. So I think -- if there are no further questions, this concludes our today's call. Thank you very much for joining us today. If questions bring to your mind after the session, please e-mail to us. And just to remind you, our annual report will be published on March 17, 2022. Have a great day, and best luck. You may disconnect now. Thank you, and goodbye.