Business and operational highlights
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).