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Financial and business review

LeasePlan reported another set of solid results for its Car-as-a Service and CarNext.com businesses in 2018.

We now have over 1.8 million cars on the road in more than 30 countries, our underlying net result continued to increase and our underlying return on equity is 17.3%.

These results underscore the strength of our strategy to lead the megatrend from ownership to subscription models for both new and high-quality used cars.

Financial highlights

  • Net result were down 9.2% to EUR 424 million which includes impairments in Turkey and Germany
  • Underlying⁷ net result up 8.4% to EUR 576 million after strong underlying performance in Car-as-a-Service (CaaS) and CarNext.com
  • Serviced fleet up 4.4% to 1.82 million vehicles driven by demand for CaaS from corporate and SME segment
  • Lease & Additional Services (CaaS) underlying gross profit up 6.6% to EUR 1,489 million
  • CarNext.com B2C volumes up 65% to approximately 50,000 vehicles and a 21% run-rate for B2C sales penetration⁸. Used Car-as-a-Service (UCaaS) contracts were up 150% for the full year to 8,000. B2B sales totalled approximately 200,000 vehicles
  • The ‘Power of One LeasePlan’ operational excellence programme delivered approximately EUR 55 million of benefits over 2018 bringing the total to EUR 185 million, a portion of which were passed on to customers in the form of efficiencies
Profitability 2018 2017 % YoY GROWTH
Underlying net result (EUR Million) 576.2 531.5 8.4%
Net result (EUR Million) 423.6 466.6 -9.2%
Underlying return on equity 17.3% 16.7%
 
Volume
Serviced fleet (thousands), as at 31 December 1,822.2 1,745.3 4.4%
# of vehicles sold (k) 260.2 259.6 0.2%

7. LeasePlan uses certain Alternative Performance Measures to present and discuss our underlying performance and value creation, in addition to the IFRS financial statements. For this purpose net result has been adjusted to arrive at underlying net result for impacts related to unrealised results on financial instruments, one-time items related to the acquisition or sale of subsidiaries, large restructuring and consultancy programmes (e.g. those related to the ’Power of One LeasePlan‘), transaction costs (e.g. the costs incurred in preparation for a potential IPO) and other items which are large and can vary significantly and for which such variability may not relate to LeasePlan’s ongoing net result or trends. For this reason, impairment charges for Turkey and Germany have been taken out retrospectively as from Q4 2018. Please see Note 2 in the Financial Statements release for a reconciliation to IFRS

8. Number of vehicles sold directly to consumers as a percentage of total vehicles sold in the period

Group performance

In millions of euros, unless otherwise stated 2018 2017 % YoY GROWTH
Lease & Additional Services income 6,528.1 6,497.8 0.5%
Vehicle Sales & End-of-contract fees 2,990.3 2,863.1 4.4%
Revenues 9,518.4 9,360.9 1.7%
Underlying cost of revenues 7,920.8 7,806.8 1.5%
Lease Services 617.0 575.6 7.2%
Fleet Management & other Services 280.2 276.6 1.3%
Repair & Maintenance Services 322.4 307.0 5.0%
Damage Services and Insurance 269.4 237.8 13.3%
Underlying lease and additional Services 1,489.0 1,397.0 6.6%
End of Contract fees 123.5 115.9 6.6%
Profit/Loss on disposal of vehicles -14.9 41.2 -136.2%
Profit/Loss on disposal of vehicles & End-of-contract fees 108.6 157.1 -30.8%
Underlying gross profit 1,597.6 1,554.1 2.8%
Underlying operating expenses 887.5 879.9 0.9%
Other income 0.1 -
Share of profit of investments accounted for using the equity method 3.3 2.3
Underlying profit before tax 713.5 676.6 5.5%
Underlying tax 137.5 145.0 -5.3%
Underlying net result 576.2 531.5 8.4%
Underlying adjustments -152.6 -64.9
Reported net result 423.6 466.6 -9.2%
Staff (FTE's at year end) 7,508 6,660 12.7%
 
Impairment pre-tax/net of tax (included in underlying adjustments) -132.0/-108.9

LeasePlan uses certain Alternative Performance Measures to present and discuss our underlying performance and value creation, in addition to the IFRS financial statements. (See Note 2 in the Financial Statements)

Financial performance 2018

Serviced fleet

Serviced fleet grew 4.4% in 2018 to 1.822 million vehicles with strong growth across most countries in Europe and particularly strong growth from the SME and corporate segments.

Revenues

Revenues overall were up 1.7% for the full year to EUR 9,518 million. Lease & Additional Services income was up 0.5% (up 1.6% on a constant currency basis) and Vehicles sales & End of contract fees were up 4.4% versus 2017.

Underlying gross profit

Underlying gross profit on Lease & Additional Services grew 6.6%, driven by excellent performance in Damage Services & Insurance and Lease Services, driven by Power of One initiatives such as higher insurance penetration. A decline in PLDV was partially offset by uplift from Carnext.com, as we saw a predictable normalisation in PLDV results.

Operating Expenses

Operating Expenses increased 0.9% for the year, reflecting the effectiveness of LeasePlan’s cost control programme while operating expenses related to key long-term initiatives including CarNext.com, the Core Leasing System (CLS) and Digital LeasePlan increased. The number of FTEs increased due to hiring for long term initiatives including CarNext.com and Digital LeasePlan as well as our shared service centre in Romania.

Underlying net result

Underlying Net Result increased 8.4% year-on-year driven by a combination of strong Lease & Additional Services gross profit, tight cost control and a favourable tax rate.

Underlying tax rate

Underlying tax rate improved by 2% to 19.2% driven by a favourable impact of the Italian Stability law and lower corporate income tax rates in France, the United States and Norway.

Net results

Net results for the full year were down 9.2% as growth in the underlying net results and reduced restructuring-related expenses were more than offset by the impairments in Turkey and Germany.

Impairment

For the full-year 2018, impairments were taken to recognise losses in Germany related to a number of loss-making contracts (EUR 29 million pre-tax, EUR 20 million net of taxes) and in Turkey related to the severe depreciation of the Turkish lira and local used-car prices stemming from the recent period of exceptional economic and political volatility as outlined in our Q3 report (EUR 103 million pre-tax, EUR 89 million net of taxes).

Underlying Return on Equity

Underlying Return on Equity (ROE) over the full year 2018 was up 60 bps to 17.3%.

Business and operational highlights

Car-as-a-Service

LeasePlan’s Car-as-a-Service business for new cars showed strong growth throughout the year, particularly in our SME and corporate segments in Europe. As part of the ’Power of One LeasePlan’ programme, steering of Repair & Maintenance Services towards Independent Service Providers (ISPs) continued to increase, as well as the purchase of new vehicles from our preferred dealer network. Insurance penetration continued to rise, and customer satisfaction programmes were rolled out throughout the organisation. Over the course of 2018, the ’Power of One LeasePlan’ generated EUR 55 million in benefits, which brings the total ’Power of One LeasePlan’ benefits to EUR 185 million since the inception of the program in early 2017. A portion of these benefits have been passed on to customers as efficiencies.

LeasePlan continued to innovate its service offering over 2018, particularly in the area of sustainable mobility solutions as LeasePlan works towards its ambition of achieving net zero emissions from its total fleet by 2030. Key actions included setting up strategic partnerships with SAIC (to bring the first large electric light commercial vehicles to Europe), the Land Life Company (to offer our customers carbon neutral contracts), and Lightyear (to deliver the world’s first electric solar car to LeasePlan customers). LeasePlan also concluded an operational lease partnership with Fiat Chrysler Automotive, making LeasePlan the preferred partner to FCA’s European dealer network. Unlike traditional white label agreements, the operational lease will be directly managed by LeasePlan. This is the first partnership of its kind for LeasePlan with a major European OEM.


CarNext.com

CarNext.com, LeasePlan’s pan-European used car digital marketplace, aims to become the most trusted pan-European marketplace for high-quality used cars, seamlessly delivering 'any car, anytime, anywhere'. CarNext.com continued its growth in both the B2B and B2C segments. B2C volumes grew by 65% to approximately 50,000 cars sold B2C in 2018. Over 2018, the CarNext.com marketplace expanded from 10 to 22 countries in Europe, with both a digital and physical presence. Increasingly, CarNext.com customers have started to buy or lease their cars online and are opting for at home delivery of their cars. For those customers preferring advice on their purchase or lease, the number of delivery stores has increased from 18 to 32 in 2018. B2C penetration increased to a run-rate of 21% of vehicles sold by the end of 2018 vs 15% in 2017. Our used Car-as-a-Service contracts have grown by 150% to 8,000 in the full year and is now available in 20 countries. CarNext.com also launched a marketplace app for professional buyers, which it rolled-out to 36 countries, allowing seamless bidding on 'any car, anytime, anywhere'.


Funding and Capital position

LeasePlan continued its diversified funding activities over 2018 raising a total of EUR 4.2 billion in retail deposits, secured and unsecured debt. LeasePlan concluded two public senior unsecured transactions totalling EUR 1.0 billion with a further EUR 0.9 billion placed in private placement format across six separate currencies. LeasePlan’s retail bank increased its retail deposits in the Netherlands and Germany by EUR 505 million to EUR 6.4 billion (2017: EUR 5.9 billion) while the company successfully raised EUR 1.8 billion from its Asset Backed Securities (Bumper) programme, including Bumper 10 in France for a total of EUR 524 million, Bumper 11 in Germany for a total of EUR 540 million, Bumper NL 2018 in The Netherlands for a total of EUR 400 million and Bumper AU in Australia for a total amount of AUD 600 million.

LeasePlan’s liquidity position remains strong with a liquidity buffer of EUR 4.96 billon as at 31 December 2018, consisting of cash balances as well as access to its EUR 1.5 billion committed revolving credit facility. In November 2018, S&P revised LeasePlan’s outlook to stable from positive. The BBB-/A-3 long and short term issuer credit ratings were affirmed. The ratings and outlook from Moody’s and Fitch have remained unchanged (Baa1/P-2/ Stable respectively BBB+/F2/Stable).

Following the Supervisory and Evaluation Process (SREP) by the Dutch Central Bank (DNB), LeasePlan’s minimum requirements for 2019 were set at 10.0% for the CET1 capital ratio and 13.5% for the total SREP Capital Ratio. The total SREP capital ratio excludes the combined buffer requirement (i.e., counter-cyclical buffer and capital conservation buffer). LeasePlan currently exceeds its regulatory capital requirements and its capital position remains solid, with a CET1 capital ratio and total capital ratio of 18.3% as at 31 December 2018. We are continuously monitoring and reviewing our regulatory capital position under the applicable regulatory framework in light of our strategic objectives. Options we are actively evaluating include the issuance of hybrid capital (for example additional tier 1 and/or tier 2 instruments) by LeasePlan Corporation N.V.

LeasePlan, supported by its shareholders, has decided that no final dividend will be paid for 2018 in order to further strengthen the company's capital position, to fund investments in initiatives such as digital and CarNext.com and to compensate for expenses related to 2018 strategic initiatives such as the IPO preparation.


Outlook

In the year ahead LeasePlan will focus on its strategic priorities to deliver on its long-term vision to provide customers with ‘any car, anytime, anywhere’ in a changing automotive landscape. We believe the megatrend from ownership to usership and subscription models will continue to accelerate, driven by digital disruption, market disintermediation and new business models.

In our core Car-as-a-Service business for new cars, we will target disciplined profitable growth in the most attractive and service-intensive segments of the market, and continue to explore partnerships among asset-light mobility providers. We will also look to strengthen our leadership role in the shift towards more sustainable powertrains. Although EVs are still a small part of the market, we believe adoption will rise as emission regulations increase and EV costs fall. We facilitate EV adoption by developing attractive customer propositions and by transitioning our own employee fleet to EVs. In addition, we will continue to implement our Digital LeasePlan programme so that our business continues to grow efficiently and offers a superior service to our customers.

In CarNext.com, we will continue to build out our pan-European digital marketplace.

We are currently reviewing various strategic alternatives with respect to CarNext.com. As part of this strategic review, we may decide to separate CarNext.com as an asset light, commission-based online sales platform, whereby LeasePlan and other third-party vendors would sell their used cars via the CarNext.com platform. The review is still in a preliminary stage and no decisions have yet been reached.

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End of Chapter 8

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Risk management