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LeasePlan reports first nine months results with underlying net result up 19.2%

Recent highlights

  • Underlying net result[3] is up 19.2% to EUR 430.5 million and underlying return on equity[4] is up 2.1% to 16.6% driven by an increase in services income and cost savings from efficiency gains as a result of the Power of One LeasePlan operational improvement programme.

  • Completed the new Management Board with the appointment of Gijsbert de Zoeten as Chief Financial Officer (CFO) and Franca Vossen as Chief Risk Officer (CRO).

Key numbers[1]

 

Q3 2017

Q3 2016

9M 2017

9M 2016

Profitability

 

 

 

 

Underlying net result (EUR million)3

138.8

114.2

430.5

361.1

LTM Underlying return on equity4

 

 

16.6%

14.5%

 

 

 

 

 

 

 

 

30 September 2017

30 September 2016

Volume

 

 

 

 

Number of vehicles (millions)

 

 

1.725

1.644


Tex Gunning, CEO of LeasePlan:

“LeasePlan delivered yet another strong set of results in the first nine months of 2017, highlighting the strong growth and resilient nature of our business. These excellent results further demonstrate the positive impact of our 'Power of One LeasePlan' operational excellence initiative.

During Q3, we were very proud to launch our first ever global marketing campaign, featuring Top Gear and The Grand Tour presenter Richard Hammond, highlighting LeasePlan's commitment to offering ‘What’s next’ in mobility to its customers via an ‘Any car, Anytime, Anywhere’ service.

We also made important steps in our ambition to achieve net zero emissions from our total fleet by 2030, including becoming a founding partner of the global EV100 initiative.”

Financial performance

LeasePlan recorded strong financial results in the third quarter and first 9 months of 2017 with underlying net income growing at 19.2% year-on-year driven by services income growth and significant cost savings, reflecting the strength and resilience of our business and diversified income streams.

Underlying income statement

in millions of euros

Q3 2017

Q3 2016

9M 2017

9M 2016

 

 

 

 

 

Lease revenues

1,620.4

1,556.1

4,828.7

4,574.3

Vehicles sales revenues

698.0

726.6

2,178.3

2,243.9

Total underlying revenues

2,318.4

2,282.7

7,007.0

6,818.2

% Y-o-Y growth

1.6%

 

2.8%

 

 

 

 

 

 

Total underlying cost of revenues

1,935.0

1,906.5

5,823.9

5,675.0

 

 

 

 

 

Fees and interest margin

160.9

156.2

488.7

472.8

Lease services

119.1

120.4

374.6

363.6

Insurance

60.4

53.7

180.3

148.6

Vehicle sales

43.0

45.9

139.5

158.2

Underlying gross profit

383.4

376.2

1,183.1

1,143.2

% Y-o-Y growth

1.9%

 

3.5%

 

 

 

 

 

 

Underlying overheads

207.4

221.9

626.5

665.8

 

 

 

 

 

Underlying operating profit

176.0

154.3

556.6

477.4

 

 

 

 

 

Share of profit of associates and JV’s

0.2

0.8

1.7

3.8

Underlying profit before tax

175.8

155.1

558.3

481.2

% Y-o-Y growth

13.4%

 

16.0%

 

 

 

 

 

 

Tax

37.0

40.9

127.8

120.1

Underlying net result

138.8

114.2

430.5

361.1

% Y-o-Y growth

21.5%

 

19.2%

 

 

 

 

 

 

Underlying adjustments

-9.7

42.0

-26.6

34.1

Reported net result

129.1

156.2

403.9

395.2

% Y-o-Y growth

-17.3%

 

2.2%

 

 

The increase in total underlying revenues in the first 9 months of 2017 was driven by the increase in lease revenues by 5.6% to EUR 4,828.7 million, which in turn was largely due to the 5.0% increase in the number of vehicles under management and increased service penetration.

Underlying gross profit in the first 9 months of 2017 grew by 3.5% or EUR 39.9 million to EUR 1,183.1 million with higher profit contributions from our Services income streams of Fees and Interest margin, Lease services and especially Insurance, which continued its strong trajectory of increasing penetration (insured fleet increased to 700,000 units, +8.4%). The Power of One LeasePlan contributed to an increase in gross margins from lease services due to a reduction in damage repair costs, shifts in procurement spend towards LeasePlan’s preferred dealer network and increased vehicle procurement discounts and bonuses.

This growth was partly offset by a lower contribution from Vehicle sales. The decline in the Vehicle sales result was driven by 1) the termination of a large contract with one specific customer which had an over indexation of smaller vehicles in their fleet, which inherently have lower list prices and therefore sales proceeds and 2) an anticipated gradual normalisation in our residual value income (see further below).

Underlying overheads decreased by 5.9% to EUR 626.5 million due to the implementation of Power of One LeasePlan initiatives. The number of employees at end-September 2017 is 9.2% lower than a year ago. In addition, the initiatives led to year-on-year reductions in IT costs and finance overheads.

The underlying net result grew strongly by 19.2% (or EUR 69.4 million) to EUR 430.5 million. The reported net result of EUR 403.9 million includes one-off items and normalisations amounting to EUR 26.6 million[5] after tax (EUR 36.7 million before tax). These items consist of restructuring and other one-time charges relating to the Power of One LeasePlan initiative of EUR 53.9 million[6] which were partially offset by a gain on the sale of our 24% stake in Terberg Leasing of EUR 5.1 million and unrealised gains of EUR 12.1 million on derivative financial instruments.

Underlying Return on Equity (LTM)[7]

Q3-2017

Q2-2017

Q1-2017

Q4-2016

16.6%

16.1%

15.7%

15.0%

 

As a result of the rapid success of the Power of One LeasePlan and the growth in the business, Underlying Return on Equity7 has improved significantly over the year to date period, increasing by 1.6 percentage points to 16.6%.

 

Business and operational highlights

Underlying Growth

LeasePlan’s fleet grew organically by 5.0% between end-September 2016 and end-September 2017 to 1.725 million vehicles under management. In line with our strategy, LeasePlan continues to prioritise disciplined profitable fleet growth ahead of more marginal growth opportunities that would dilute the company’s return on equity. In the third quarter, we rolled out a number of targeted initiatives seeking to improve and grow our commercial offering across our various customer segments. Growth continued to be driven by all regions and customer segments. Major contributors of the growth include Portugal, France, the Netherlands, Spain and Germany with a balanced contribution of large international customers, SME and private lease. The Eastern European region continued its strong growth path reporting double digit fleet growth versus the previous year. 

Residual Value and Diesel

LeasePlan has seen stable prices for its vehicles across Europe throughout the year, with no discernible impact from diesel regulations, which are very localised and focused on older models. Given LeasePlan’s fleet turns over every 3-4 years, the company retains exposure to only the latest and cleanest diesel models. More than 99% of LeasePlan’s diesel fleet is Euro 5/6. LeasePlan is therefore well positioned to adapt to any changes in regulation which can take significant time to be implemented. LeasePlan also benefits from a pan-European network and can mitigate localised declines in the pricing of 3-4 year old cars by leveraging cross-country pricing arbitrage opportunities. In addition to providing a source of risk mitigation, better exploitation of these cross-country arbitrage opportunities within Europe has the potential to drive meaningful profit enhancements across a significant portion of the vehicles sold by LeasePlan each year.

We expect these stable prices across our key markets to continue. This expectation is based on an extensive analysis of the supply/demand dynamics across our key used car markets, which indicates that prices should remain stable or grow across our markets generally.

The reduction in LeasePlan’s vehicle sales results highlighted above has therefore not been the result of a change in used car prices or market conditions of late. Rather, this represents a predictable normalisation of the exceptional levels of RV profitability generated on cars leased in the dislocated market that followed the financial crisis of 2008/09.

The financial crisis led to exceptional pressure on used car prices from 2009 to 2014. During this period, LeasePlan was able to write contracts based on unusually low residual value expectations. As used car prices have gradually returned to the more normal levels we see today, LeasePlan has (1) generated strong residual value profits on the sale of cars with contracts written during the financial crisis and (2) gradually adjusted the residual values within new contracts to reflect this market recovery and more normalised levels of RV profitability. The reduction we are currently seeing in our vehicle sales results is simply the result of this predictable, gradual normalisation in the book value of contracts written in the post crisis period and is more than offset by the strong underlying growth of our business and Power of One LeasePlan initiatives.

Completion of new Management Board

On 29 September, LeasePlan strengthened its Management Board with the appointment of Gijsbert de Zoeten as the company’s new Chief Financial Officer (CFO) and Franca Vossen as LeasePlan’s new Chief Risk Officer (CRO), responsible for Risk, Compliance, Privacy, Regulatory Affairs and Corporate Social Responsibility. Gijsbert de Zoeten was SVP Finance of LeasePlan’s European leasing business and Franca Vossen joined from DLL, the leasing division of the Rabobank Group, where she was CRO. The Management Board now consists of Tex Gunning Chief Executive Officer (CEO), Gijsbert de Zoeten (CFO), Marco van Kalleveen Chief Operating Officer Europe (COO), Yolanda Paulissen Chief Strategic Finance and Investor Relations Officer (CSFIRO) and Franca Vossen (CRO).


Funding and capital position

In the first nine months of 2017, LeasePlan continued to benefit from its diversified funding platform. The company successfully issued 2 public transactions of its Asset Backed Securities (ABS) programme, Bumper 8 in the UK for a total of GBP 425 million and Bumper 9 in the NL for EUR 574 million. Senior unsecured private placement volume amounted to EUR 1,034 million in the period with a further EUR 500 million placed in public benchmark format.  

In addition, LeasePlan saw an increase in LeasePlan Bank retail deposits of EUR 508 million to EUR 5.9 billion. LeasePlan’s capital position remains solid, with a CET 1 capital ratio of 18.4%, unchanged versus the end of September 2016.