Grenke AG
XETRA:GLJ
Earnings Call Analysis
Q3-2023 Analysis
Grenke AG
At Grenke AG's quarterly earnings call, CEO Dr. Sebastian Hirsch commenced his first year review with insights into the European Central Bank's (ECB) actions, noting interest rates hiked to 4.5%. Despite the tight economic situation, the company boasts passing the amplified refinancing costs to clients, achieving a contribution margin (CM2) of 16.5%. This ability to maneuver through financial headwinds resulted in an 18% growth in group earnings. Even with Germany stating a reduction in GDP, indicative of a recession, Grenke AG reported a quarter-over-quarter leasing new business growth of 4.5%, with its burgeoning e-bike sector as a significant contributor and keeping loss rates at 1.1%, below their 1.5% target.
A landmark event for Grenke AG was the issuance of its maiden benchmark bond, doubling as its first green bond, which was met with substantial investor enthusiasm. This venture emboldens Grenke to assist small and medium-sized enterprises (SMEs) toward sustainable futures, reflecting a commitment to impact investing. This strategic move not only establishes Grenke in the benchmark class raising around EUR 1.9 billion in leasing new business but signals its focus on the green economy, an area that has already seen approximately EUR 200 million in new volume, predominantly from the e-bike business.
Grenke AG's strategy of fostering a diverse leasing portfolio is proving fruitful, especially in the e-bike segment available in selected European markets. While IT equipment and telecommunications saw a slight dip this quarter, the majority of their leasing objects remained stable. This approach positions the company as an ally for SMEs investing in digitalization and green transformation without notable shifts in contract sizes or durations, laying a steady foundation for future prosperity.
The company's fiscal diligence is evident in its capacity to fully price in market interest rate increases, fostering consistent margin stability and a steady ascension of interest income, which climbed by 15.8% quarter-over-quarter. Looking ahead, Grenke AG anticipates new leasing business at the lower spectrum (EUR 2.6 billion to EUR 2.8 billion) and net earnings at the higher end (EUR 80 million to EUR 90 million) of their guidance. The third quarter alone presented a robust growth in net interest income, operating income, and new and service businesses, streamlining the company for the upper echelon of its profit forecast by the year's close.
Despite the specter of inflation, Grenke AG maintained stable costs across the first three quarters, an admirable feat while expanding its business and investing in digital excellence initiatives. The result of this prudent cost management culminated in a remarkably improved cost/income ratio dropping to a 57% low, exemplifying stringent cost control amidst growth.
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Ladies and gentlemen, welcome, and thank you for joining the publication of quarterly statement for the third quarter 2023 of Grenke AG. [Operator Instructions] I would like to turn the conference over to Anke Linnartz, Vice President of Investor Relations. Please go ahead, madam.
Yes. Ladies and gentlemen, welcome to our call, and thanks for joining us today. My name is Anke Linnartz, I'm Head of IR. And with me today is Dr. Sebastian Hirsch, our CEO. And we will start, as always, with the presentation, and we'll have time for Q&A right afterwards. So let's get started. Dr. Hirsch, the floor is yours.
A warm welcome, ladies and gentlemen, and thank you for joining us today. Before we jump in our Q3 results, I would like to invite you to another call on a day that is special to me. On a positive note, I would like to review my first 365 days as CEO of Grenke AG on November 21. In my update presentation, I am going to share my view of our current and future opportunities. I will follow up on this towards the end of our today's call.
Let me first touch on the overall macroeconomic environment. ECB interest rate -- ECB increased its interest rate again in August and later in September to 4.5%. For the moment, there are no further increases expected, but we are monitoring the developments very closely since they are very important for our business.
In Q3 2023, we continued to be successful to pass on our higher refinancing costs into our leasing contracts with a CM2 margin of 16.5%. This is a great achievement given the overall environment. But not only our top line show profitable growth, also our group earnings developed favorable and increased by 18%. And this result was achieved through our continuous growth of the past quarters since Q4 2021.
Despite the recessive trends indicated by a further decline in German GDP, we still achieved leasing new business growth of 4.5% quarter-over-quarter, especially our e-bike sector contributed to this development. We generated this growth at a solid loss rate, which came down again to 1.1% and is well below our target of 1.5%. Our customers' payment behavior remained stable.
This September was a special month for us. I'm very proud that we issued our first-ever benchmark bond which was also our first green bond. The investors' feedback was immense. This will enable us to support our SME customers to continue on their path to a more sustainable future. You could even see this as a form of impact investing. We are very happy with our results, achieving a leasing new business of almost EUR 1.9 billion and group earnings of EUR 64.4 million, which gives us confidence for the remainder of this year.
With our first green bond transaction, we have achieved 2 important milestones at once. This is Grenke have managed to rise to the benchmark class for the first time. This is [indiscernible] debt funding and important for our planned future growth and means that we have reached the next level. And at the same time, we are providing target support for the green transformation of SMEs in the more than 30 countries we operate in.
The number of green economy objects is constantly growing. We will use the proceeds for new business with objects such as solar systems, LED lights, e-bikes, recycling machines and further systems.
In the current business year, we realized a new business volume of about EUR 200 million in this particular object category, with the majority stemming from the e-bike business. As mentioned before, the growing demand for green economy objects is much more than just the trend. For our SME customers, it represents their way to a more sustainable future.
Now let us take a look at the development of our lease object portfolio by number of contracts settled. Also on the portfolio view, we can see a clear rise in the e-bike business, which we have an offer in Germany, Austria, Belgium and Finland. The IT equipment came in a bit softer this quarter as well as photocopy equipment and telecommunications. Most other leasing objects maintained a stable level.
Our diverse leasing portfolio and business approach is a base for future growth. And it is a sustainable way to prepare leasing as a solution for small medium enterprises to realize important investment for digitalization or green transformation.
Lastly, we did not see big changes regarding ticket size or average duration of leasing contract.
Our dedication and hard work in building up our leasing contract portfolio over the past 2 years is starting to pay off. What you can see on this slide is a gradual buildup of our lease receivables and interest income. Interest income increased by 15.8% quarter-over-quarter and by 5.5% compared to the second quarter this year. This is very important for the profitability of our P&L. These positions will continue to grow in line with our leasing new business ambitions we set for this year and for '24.
Ladies and gentlemen, we have now fully priced in the increased market interest rates. Even a permanently high interest rate level would, therefore, no longer be a drag on our profitability. Our margin is already stable, and our interest income continues to rise steadily. So for the running year, we currently expect a leasing new business in the lower half of the range of EUR 2.6 billion and EUR 2.8 billion, and our net earnings to come in at the upper half of our range of EUR 80 million to EUR 90 million.
So please move on with me to our financial performance. I would like to start with our top line and profitability. In Q3, which is because of the seasonal summer break, traditionally the slowest quarter of the year, we saw a steady increase of our leasing new business to EUR 591 million after EUR 566 million in the previous quarter.
Looking at the first 9 months, we continued on our double-digit growth path with over 12% more new leasing business in the first 3 quarters despite a tightening economic environment. At the same time, we keep on delivering on our promise for profitability by pausing on rising interest rates to our customers. With the CM2 margin of 16.5% in Q3 and 16.7% for the first 9 months, we are well on track to our target of around 17% CM2 margin for this year.
As I pointed out before, the higher interest rates led to higher refinancing costs for us. Here, we have highlighted the development of our additional interest expenses since the first interest rate increase by the ECB in July last year. As you know, we are pausing on higher interest rates with a time lag of about one quarter to our customers. And since the first interest rate increase by ECB last year, we have seen additional refinancing cost of EUR 17.5 million in Q3 2023. Consequently, we have continuously adjusted our conditions over the course of the past quarters. And this resulted so far in additional interest income of EUR 16.5 million. In light of that, we already compensated for 94% of the additional costs since Q2 2022.
And looking at the compensation rate from a year-on-year perspective, the success of our measures for higher profitability become even more visible. We reported a compensation rate of 75% in Q2 compared to the second quarter of last year. Comparing this year Q3 with last year's Q3, you can see that we have already fully compensated for additional refinancing expenses. I'm very pleased with this development as it underlines our ability to successfully pass on higher refinancing costs to our customers while growing our customer base. And we expect to continue on this trend given no further interest rate increases by ECB.
The third quarter was very profitable for us. Our net interest income increased by about 1% compared to Q3 2022 to EUR 86.5 million. We achieved an operating income of EUR 109.1 million. And firstly, this was driven by lower settlement of claims and risk provisions. That's based on our strong performing portfolio. Our current loss rate of 1.1% under lines this.
Secondly, profit from new and service business grew strongly by 18.9% to EUR 47.1 million, adding to our operating income. With cost 7.6% above the previous third quarter, mainly due to higher staff costs, we achieved an operating result of EUR 32.9 million. And this is an increase of 54.7%. Overall, we achieved group earnings of EUR 24 million in Q3, which marks a strong growth of 18%.
What we've seen here is that we operate very profitably despite vastly changed interest and macroeconomic environment. We are perfectly on track for our profit guidance and expect to reach the upper half of our guidance range that we provided with EUR 80 million to EUR 90 million in group earnings by the end of this year.
Let us now take a brief look at our cost side. What you see is that our costs are stable throughout the first 3 quarters of this year. This is remarkable as we achieved this while continuously growing our business and operating in a high inflation environment. Also the planned investment for our ongoing digital excellence program is already included in these costs. The positive effect of our strong portfolio and our cost discipline is visible in the development of our cost/income ratio.
Here, we see a significant improvement to 57% in Q3. This is the lowest ratio so far in the 9 months of this year. Let me show you in a bit more detail how our cost/income ratio has developed.
As you know, we set out in the beginning of the year with a target of slightly above 55%. In Q3, based on our cost discipline, costs remained widely stable, a bit below the level of the second quarter. At the same time, we were able to increase net interest income by EUR 2.5 million and our gains from disposals by EUR 0.8 million. The softer profit from new business was largely compensated by an increase in profit from service business. As a consequence, driven by cost discipline and a strong income situation, our cost income ratio improved significantly from 59.5% in the last quarter to 57% in Q3, and we will continue on this track.
In light of the strong payment behavior of our customers, overall risk provisions and impairment for nonperforming loans declined on a year-to-year basis. With a loss rate of 1.1% in the first 9 months, we remain well within our target range of below 1.5%. However, we remain cautious. You can see this in the shift of risk provisions for performing loans from level 2 to level 3 of around EUR 10 million.
Looking at our cash flow statement, we see that we increased our cash by some EUR 522 million compared to the end of September last year. The higher cash at the end of the reporting period was, of course, mainly based on inflows from our green bond and our deposit business at the end of the quarter. Over the last 9 months, however, the strong cash inflow from lessees was the main driver. With the current strong cash position, we are well equipped for a strong performance of our new leasing business in the fourth quarter.
Ladies and gentlemen, as you know, our funding mix relies on diversification along our 3 debt funding pillars as we rely on matched maturities of our funding and our leasing contracts to mitigate maturity transformation. By the end of September this year, our senior unsecured pillar increased by some EUR 400 million compared to end of June, mainly due to our green bond. Our deposit business, through GRENKE Bank as well as our ABCP program, remained widely stable in the past 3 months at EUR 1.6 billion and EUR 1.1 billion, respectively.
Ladies and gentlemen, we are on our way for 2023. We have managed to tackle the challenging interest rate environment with a continued strong CM2 margin which also shows positive effect on our profits. We focus on cost discipline. This is reflected in our improved cost income ratio, yet some investments have to be taken in order for us to maintain a leading position as a digital financial player.
We issued our first ever green and benchmark bond, which strengthened our position as a financing enabler for the green transformation of small medium enterprises worldwide. And we are not done yet. We will continue on our profitable growth path in 2024, marking it as a historic year in Grenke history, achieving leasing new business volume of more than EUR 3 billion.
Thank you very much for your attention. We will open the floor for questions in a few moments. I'm also looking forward to speaking to you at my 1-year update presentation on November 21 at 2 p.m. As always, the call will be broadcasted live. My Investor Relations team will send out the invitation as soon as we conclude today's call. Thank you. But now let's move to your question regarding the today's figures.
Thank you for your presentation. This was really interesting and a lot of news. So I'm sure there will be a lot of questions also. So the floor is open for questions. And wait with me a second. I'm just checking. [Operator Instructions] So the first question is from Marius Fuhrberg with Warburg Research.
The first one is on the net interest side. You told us that you're finally at the point where your high interest expenses are balanced by interest income. But we also saw that the portfolio volume increased. So basically, I would expect a higher speed of interest income to -- or the interest income to outpace the interest expenses going forward. Is that correct? So that the CM2 margin diverts more towards 70%.
And secondly, could you give us a quick update on your digitization program where you stand in terms of cost and operating progress?
And the last question is on the loss rate. So what is your assumption for 2024 on this one?
Yes. Thank you, Mr. Fuhrberg. The first question is absolutely right from the midterm run, you should expect a strong increase of interest income than interest expense because of the high margin on the one end and the assumption that we reach the top of interest rate development of ECB. So it depends a bit on the development of the ECB interest rates when there are no further increases, your expectation is absolutely right and is matching also my expectation.
So second question was linked to the digital excellence program. So we are in the middle of realizing our program after announcing that in the first quarter that year from the roughly EUR 50 million. We invested roughly EUR 8 million from today's perspective. So that's the point where we stand, and we are in the middle of implementation. On the one hand, the cloud transformation and also doing the other things. And as you know, the program is planned for 3 years. So it's a very early point, but we are very satisfied with the point where we are.
And the last question, the loss rate, we would stick to a guidance. It should be less than 1.5%. I think that's fair for the next year, but it depends also on the macroeconomic environment, depends a bit on the environment in terms of recession in several countries in Europe, especially for the bigger ones for us. But from today's perspective, I think to guide a loss rate for next year would be in the same level as we guided that year.
Okay. Maybe one follow-up, if I may. Given the high or the attractive share price at the current moment and your cash level, would you consider share buybacks to be a vehicle to -- or something you would consider at all?
Yes. That's one instrument we are able to do so. We are checking that part of the things we are doing in our financial department. We are now on the way to checking that there are some regulations we have to fulfil and to check equity shares means the share is linked to equity position and equity means also to checking all the regulation stuff. And we are in the process for that. And if we decide them, we will announce it for sure. But it's part of our checking at the moment.
So the next question is from Roland Pfänder with ODDO.
Two questions from my side. The first one, touching on your new leasing business. You guided for the lower end for this year. So how confident are you that you will reach, let's say, midpoint or something of your guidance next year? Do you see any problems on the demand side regarding volume growth? Or is it rather, let's say, risk-averse underwriting new execution here? Second question, you're adding more [Technical Difficulty] lease products. What are the costs attached here? And how [Technical Difficulty] I think these are different objects [Technical Difficulty] office equipment [Technical Difficulty] tools we are normally leasing in the past [Technical Difficulty] testing, how is the risk management and cost of risks with these products.
Yes. Thank you. Of course, as always, the guidance and new business development for next year depends on the last quarter of today's year, that's always the case in our business. Otherwise, when we look to next year on the guidance from EUR 3 billion to EUR 3.2 billion, the range from the mid EUR 3.1 billion to EUR 3.0 billion or EUR 3.2 billion, we're talking about EUR 100 million and EUR 100 million in relation to the EUR 3.2 billion, it's about 3%. So it's very precise to talk about if we will meet EUR 3.05 billion, EUR 3.1 billion. So I think the guidance is fair for today's perspective. And the level depends on Q4 that year, of course.
And the cost of risk is linked to the industries, to our customers. And so we are well prepared for that. We're knowing our customers, we're knowing small medium enterprises in Europe for a long time in several object categories. And of course, the object is part of the valuation for risk because you can sell an object at the end. So that's a bit the difference. But there, we are very cautious in our assumption is always, whenever we stepped into new object categories, it was the same, but the cost of risk level is comparable to others, we had in the past.
Maybe one follow-up. Could you please maybe touch on the demand side for your leasing products? Do you see there any weakness? Or how is the situation in the macro context today?
So demand is more or less stable from a demand perspective, what we see, so the number of requests we got is quite stable compared to the last weeks. So there we can't see really a change. The most important thing will be what will happen at the end of the year. So is there a year-end rally in terms of investments like in the normal year, and that's not that easy for that year to give a prognosis for that. But from today's perspective, the demand is quite stable.
So the next question is from the line of Tobias Lukesch with Kepler Cheuvreux.
Two questions from my side as well, please. The first one would be, again, touching on capital management and share buybacks were just mentioned. So I was wondering how the capital trajectory looks like in terms of share buyback versus given capital increase in the coming years? So what is the actual planning of growth financing for the future years? And how long would you feel comfortable rates to kind of decrease then the equity ratio to that 16%, i.e., when would that 16% be reached on your plans?
And the second question, sorry, if I didn't grab that on the NII trajectory. NII now with the [indiscernible] trend. Maybe you can give us a bit of an idea over the next quarters? How do you see NII to progress quarter-on-quarter, year-on-year?
Yes. Well, I'll just start with capital projection. As you know, from a 16% equity ratio, we are quite stable and well covered under the regime of Standard & Poor's and the rating agencies on the one hand and also under the regime of the regulatory to fulfill all the assumptions regime of Standard & Poor's is a bit stronger, so a bit harder. So 16%, we are well covered.
And in the past, so let's say, 5 years ago, we had to cover with a 16% equity ratio also the goodwill, and we have no further goodwill in that volume as we had in the past. So from a strong calculation perspective, 15% equity ratio is enough to fulfill S&P requirements and also from the base requirements.
And we released the 16% from our plan perspective going forward with the new business we plan for next year and for the years to come, per end of '25 and may '26. It depends a bit on the profit development on the one hand and the new business speed, you know that. And of course, when you look to the balance sheet, also from the cash position in times when you have a bit more cash, the 16% is also linked to that cash position under the regime of Standard & Poor's and the regulatory cash position is not that significant affected by equity. But -- end '25, may '26.
And I don't get the last question right. Hopefully, I think you mentioned NII and the development of -- over the next quarters. If I'm right, can you repeat that, please?
Correct. Yes.
Yes. Okay. So we see -- we saw -- I mean we look to our P&L and overall, the impact or the development was pretty stable. And we expect also in the direction we saw with the last 3 quarters a development over the next quarter, but also it depends on space in business. It depends a bit on space in new business as always in our P&L, but you can project development over the last quarters, more or less into the future.
If I may follow up on the capital. So on the regulatory side of assets, is there any change to expect in terms of leasing assets? Anything coming there? And also with regards to the separation which was increased in the past, is there a lowering in side? And any changes on that front?
No, I don't know that there are any changes. And again, there is a headroom between the regulator and the 16% was the S&P calculation, but I don't expect there are any changes. So on our balance sheet, there are no -- or not really leasing objects. We talk about leasing receivables. It's quite close to a loan receivable at the end of the day.
Very last one maybe, the 16% and reaching by end of '25 or May '26 or may be '26? So early '26 or the month, May '26? And lastly, that's potentially then based again on cash position of around EUR 400 million, EUR 500 million, correct?
Yes. End '25 or may be '26. So if not '25 then because we would like to continue our growth path in '26.
Okay. Then we move on to the next question, which is from Mengxian Sun from Deutsche Bank.
So the first question is on the loss ratio. So you still sound quite cautious on that side. Can you shortly comment on the recent customer payment behavior in the recent quarter, please? And do you expect an increase in the loss ratio in the Q4?
And second question is on the projection on the 2024. So you are guiding for EUR 95 million to EUR 150 million for 2024. It's still a wide gap in between. So can you talk through a little bit about moving parts in that? So what do you need to achieve? And what do you need to do in order to achieve the upper end of the guidance range?
Thanks for the question. And first, loss rate. As always, it's not that easy to project, especially not per end of the year because on the one hand, the payment behavior is quite stable. You're absolutely right. We also saw the last payment date or the last big payment date for that year. In Q4, this beginning of October, if everything is okay, and this payment rate is pretty stable and again so from the inside view, there's no indicator that we will see a loss rate of 1.5% in Q4.
But as always, per end of the year, you have to check your approach in measuring risk adjustment, in measuring risk provisioning and so on, and you have to deal with maybe a management adjustment linked to macroeconomic environment. And the macroeconomic environment is quite volatile at the moment. There are some things we have to keep in mind. It's a recession on the one hand, but also made the war in Ukraine, the conflict and unleased. And it's not that easy to project that in quite clear numbers, so 1.1, 1.2, that is outstanding. And the last date for that is, at the end of the day, the 31st of December. And then we will check that. And that's why we need maybe a bit wider range, from today's perspective, I guess it's 1.1, maybe 1.2, it's okay from our inside view. But again, we have to check all the macroeconomic environment, and that is very volatile at the moment.
And for next year, yes, to reach the upper guidance, at first, we have to stick on our margin level for that year and for the next year. That is pretty important. That's pretty more important than reaching maybe EUR 10 million or EUR 20 million more new business. So the margin has to be in the level of the 16.5%, depends a bit on the interest environment because we are calculating with current interest environment always.
That's important. Of course, the development of risk provisioning is important and also what I mentioned before, what is the way how to deal with the macroeconomic expectations over the next year, and that depends on the macroeconomic expectations over the year. And that could be also leveraged for the upper mid guidance or lower end of the guidance.
And of course, we would like and we have to deliver our new business in the range we guided. But again, more importantly, the margin, the risk provisioning and there the outlook from the macroeconomic and what we have to fulfill in our models and to deliver the new business and to be on the same track as at the moment in cost discipline, that's always the case. And then we are able to reach the guidance on the one hand. And if things are on our side, then we can reach the guidance on the upper end.
Okay. We have a new question, another question from Dr. Philipp Häßler from Pareto Securities.
Philipp Häßler from Pareto. Two questions. Firstly, on the costs, they were down quarter-on-quarter and you sounded quite optimistic. Maybe you can give an update for the -- an outlook into the next year? Am I right in assuming that the negative impact from higher -- the high inflation rates should not run out but should have less impact next year? And secondly, on the franchise operations. When do you expect to close the acquisition of those? Maybe you can give us an update there as well.
So maybe the last question first, we closed Australia as a final payment of the purchase price, that's finished now. And we are now on the way to close the outstanding 5, 3 companies in Canada, 1 in Chile and in Latvia. That's the next step. And I can't say in detail what will be the closing date. We are working on that, and it's important for us to do so, and we are moving forward.
In terms of cost/income ratio, you are right to comparing cost development inflation and the rising in staff cost of the last year -- for the next year will be much more easier because the last year was -- the first half was not impacted by that. The second half was impacted by that. And to compare the '23 figures with '22 is not that easy.
Now in Q3 and Q4, we had the first time a very good base to compare '23 with '22. And next year, that will be easier. Absolutely right. Linked to cost-income ratio, we have to take into account always both the cost and the income. And we would like to be on a disciplined way in managing our costs. We would like to go forward as our margin and new business. So also the income should be better and then there will be an impact on the cost income ratio. But both is important, income development on the one hand and also the cost development.
And we have a follow-up question from Marius Fuhrberg.
Yes. Just one follow-up on the financial result. Maybe I missed it in the Q&A, but you reported quite a balanced financial results with other interest income and interest expenses. Should we expect this to continue as long as the current interest environment persists? Or what are your thoughts on this?
Yes. I think that the best assumption in the past in the previous year was affected by negative interest rates on our cash. And it's not further the times. On the one hand, we have some interest costs on the one hand, but also some interest income for our cash position. And for the time being, and I think also for the next 2 years, it's a good assumption to see the more or less a 0 result in the other interest income and interest expense here. And again, in the past, it was because of the negative interest rate on the Bundesbank account. That was the main driver for the negative result.
As we have no questions on the line in our call for the moment, I check whether we have some on our webcast, and there's one which is maybe a bit of an overlap, but it's regarding share buybacks and whether we could expect share buybacks in the near future.
Yes. As I mentioned before, it's not that easy to -- we have to check a lot of things, a lot of legal stuff. And at the end of the day also to stay in conversation with the regulator, and we are doing so. We are checking that on the one hand for us, as Grenke AG, as Board, together with the Supervisory Board, it's one part. And on the other hand, also from a legal perspective, it's linked to equity ratios, it's linked to the conversation with [indiscernible]. And when we are ready checking that when we were making a decision or whatever way and direction the decision is then we can give there a clear communication.
And so there's one last question regarding increase in staff numbers and whether we could give an indication why there was an increase of around about 10% in staff numbers as Frank Burke from Finn Butler is questioning.
Yes, it was. The most important or the most important part of that was, let's say, a lag of the last years. And we have to fulfill some things and more regulations. On the other hand, for our Digital Excellence program, we also would like to deal with own employees and not only with third-party employees and advisers. And also in a rising business in managing new business, in some countries, we achieved a new business level, which is above the level of 2019. For example, in Finland, you will reach a number of new business close to EUR 100 million, and that's quite more than in 2019. And then for that growth, you also need some people. So new business development on the one hand, but also to fulfill our approach for digital excellence and regulation.
So we have another question from the chat from Andrea De Dono from the company 4H, and he is interested to know, what happens after equity ratio reaches 16%? Will Grenke slow growth or retain more earnings or raise equity?
It depends on the market, on the one hand, and it depends on our market and growth expectation. From today's knowledge, roughly 12% growth pace. That's a growth pace where we can deal with a 16% equity level with 75% in earnings or 25% payout ratio for dividend. And then we can go for a long run on that level.
If we expect a higher growth, if we see market opportunities for higher growth, then we have to check the capital market and may go in for a capital increase or slow down growth being more profit and margin, but it's too early to decide that today.
For the next year, we would like to break the EUR 3 billion range for Grenke. So we would like to reach the EUR 3 billion. That's very important for the next year. And after that, that's a question of growth pace at the end of the day and of opportunities.
And the last question from the chat is from Rolf Wuber, if I got that right here. And he is interested in the reason why we narrowed down our guidance and focus for new leasing business on the lower half of our guidance. So the guidance is 2.6 to 2.8, and why we're now focusing on the lower half.
It's not now. We are focusing on that. It's quite a question of clear and fair communication to the capital market. And that's our expectation. We see at the moment, after the third quarter, new business after the October and the first days of November, it's very important for us to stick to the level of the 16.5% CM2 margin.
And as I mentioned before, EUR 50 million more or less in new business is not that important for us. And we are talking also about 3% in that range. But to giving a clear and fair communication to provide you with the best expectation you can do for us, we decided to do so because it's our expectation at the moment for the numbers we see over the last weeks and months.
So thank you. So far, there are no further questions neither in the call nor in the webcast. And given that, I would say, ladies and gentlemen, the conference is now concluded, and you may disconnect now.
Thank you, first of all, for participating, and have a pleasant day. And please note that our Q4 new business figures will be released early next year and precisely on January 4. Thank you, and goodbye.