Chapter 13

Financial and business review

LeasePlan delivered a solid underlying net result of EUR 557 million, while making significant strategic investments in our operations, particularly in our fast growing CarNext.com platform and digital transformation.

  • Introduction
  • Our sustainability strategy
  • Materiality
  • CSR governance
  • Supply chain and clients
  • Highlights

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Our 2019 results are a proofpoint of the strength and resilience of our business, as well as LeasePlan’s strategy to capitalise on the megatrend from car ownership to subscription services.

Financial highlights 2019

  • Net result down 4.9% to EUR 403 million
  • Underlying net result down 3.4% to EUR 557 million characterised by solid CaaS performance and cost discipline and continued opex increases related to strategic investment in CarNext.com
  • New segment reporting implemented:
    • Car-as-a-Service: serviced fleet up 2.4% and underlying net result up 1.8% to EUR 605 million
    • CarNext.com: B2C retail sales up 50% to 39,600 vehicles, underlying net result full year EUR -49 million due to increased investments to accelerate future growth
  2019 2018 % YoY Growth
Volume      
Serviced fleet (thousands), as of 31 December 1,865.2 1,822.2 2.4%
Number of vehicles sold (thousands) 283.8 260.2 9.1%
 
Profitability      
Underlying new results (EUR million) 556.5 576.2 -3.4%
Car-as-a-Service 605.2 594.7 1.8%
CarNext.com -48.7 -18.5 -162.8%
Net result (EUR million) 403.0 432.6 -4.9%
Underlying return on equity 15.2% 17.3%  

LeasePlan Corporation Financial Performance 2019

In millions of euros, unless otherwise stated 2019 2018 % YoY Growth
Lease and Additional Services income 6,815.1 6,528.1 4.4%
Vehicle Sales and End of contract fees 3,303.2 2,990.3 10.5%
Revenues 10,118. 9,518.4 6.3%
Underlying cost of revenues 8,509.7 7,920.8 7.4%
Lease Services 622.5 617.0 0.9%
Fleet Management and other Services 288.6 280.2 3.0%
Repair and Maintenance Services 329.7 322.4 2.2%
Damage Services and Insurance 297.4 269.4 10.4%
Underlying lease and additional Services gross profit 1,538.2 1,489.0 3.3%
End of Contract fees 143.6 123.5 16.3%
Profit/Loss on disposal of vehicles −73.1 −14.9 390.6%
Profit/Loss on disposal of vehicles and End-of-contract fees 70.5 108.6 −35.1%
Underlying gross profit 1,608.7 1,597.6 0.7%
Underlying operating expenses 944.3 887.5 6.4%
Share of profit of investments accounted for using the equity method 4.5 3.3
Underlying profit before tax 668.8 713.5 −6.3%
Underlying tax 112.3 137.3 −18.2%
Underlying net result 556.5 576.2 −3.4%
Underlying adjustments −153.5 −152.6
Reported net result 403.0 423.6 −4.9%
Staff (FTE's at period end) 7,956 7,508 6.0%

Revenues increased by 6.3% to EUR 10,118 million. Lease & Additional Services income was up 4.4% to EUR 6,815 million, driven by solid fleet growth. Vehicle Sales & End-of contract fees were up 10.5% to EUR 3,303 million, driven by higher volumes and increased B2C retail sales penetration. 

Underlying gross profit rose 0.7% to EUR 1,609 million. Underlying Lease and Additional Services gross profit was up 3.3% to EUR 1,538 million, mainly driven by fleet growth and strong growth in Damages Services and Insurance. PLDV and EOCF gross profit was down 35.1% to EUR 71 million due in part to predictable normalisation of net sales results.

Underlying operating expenses were up 6.4% to EUR 944 million, due primarily to strategic investment in CarNext.com. In scaling-up CarNext.com, we increased our operating expenses over the year by EUR 45 million, mainly driven by marketing, our data-driven platform and our leading technology, for a total of EUR 103.4 million in CarNext.com-related operating expenses in 2019. 

The underlying tax rate was down 2.4 percentage points to 16.8% driven by lower headline tax rates in various countries and the continued favourable impact of the Italian super-depreciation facility. 

Underlying net result was down 3.4% to EUR 557 million and reported Net result was down 4.9% due to strategic investment in CarNext.com and lower PLDV.

Year-on-year Staff increases reflect hiring to support our long-term strategic initiatives CarNext.com and Digital LeasePlan. 

Segment reporting Car-as-a-Service and CarNext.com

In order to better reflect how LeasePlan manages these two businesses, we are reporting CaaS and CarNext.com separately commencing with this 2019 annual report. 

The segment reporting is based on a commission model, whereby CarNext.com acts as a sales agent for LeasePlan CaaS in 23 countries for the sales of used cars that are coming off lease contracts. CarNext.com generates revenues through commissions on cars-sold, used-car leasing (UCaaS), and ancillary services. For B2C, commissions are dependent upon the additional value realised versus B2B trader pricing. Commission rates are set at market rates on an arms-length basis. The vehicles CarNext.com sells on behalf of LeasePlan’s CaaS business remain the property of LeasePlan CaaS until sold by CarNext.com. 

Identified assets and directly attributable costs in cost of sales (e.g. defleeting cost and car preparation cost) and operating expenses (e.g. cost related to staff, facilities, digital/IT and marketing) are allocated to CarNext.com. Income tax is allocated based on a blend of statutory rates from the 23 countries in which CarNext.com has operations.

LeasePlan CaaS continues to report the full revenue of the used cars sold by CarNext.com. The commission paid to CarNext.com is reported in cost of sales. 

All intercompany transactions between LeasePlan CaaS and CarNext.com are eliminated for consolidated LeasePlan reporting. 

Car-as-a-Service financial performance

In thousands 2019 2018 % YoY Growth
Serviced fleet, as at 31 December 1,865.2 1,822.2 2.4%
Funded fleet, as at 31 December 1,367.4 1,317.6 3.8%
Number of vehicles sold 283.8 260.2 9.1%
of which through CarNext.com 254.2 232.5 9.3%
In millions of euros, unless otherwise stated 2019 2018 % YoY Growth
Lease and Additional Services income 6,815.2 6,528.1 4.4%
Vehicle Sales and End of contract fees 3,296.1 2,985.9 10.4%
Revenues 10,111.2 9,514.1 6.3%
Underlying cost of revenues 8,540.5 7,949.7 7.4%
Underlying lease and additional Services gross profit 1,534.3 1,486.0 3.2%
Profit/Loss on disposal of vehicles and End-of-contract fees gross profit 36.5 78.4 -53.5%
Underlying gross profit 1,570.7 1,564.4 0.4%
Underlying operating expenses 840.9 829.3 1.4%
Share of profit of investments accounted for using the equity method 4.5 3.3 36.0%
Underlying profit before tax 734.3 738.5 −0.6%
Underlying tax 129.2 143.8 −10.2%
Underlying net result 605.2 594.7 1.8%

Serviced fleet grew 2.4% to 1.9 million vehicles with continued growth in European core markets offset by RoW as result of service-only contract losses. Funded fleet grew 3.8% to 1.4 million vehicles, driven by growth in core European markets. 

Revenues increased by 6.3% to EUR 10,111 million driven by higher volumes and increased B2C retail sales penetration in Vehicle Sales and End of contract fees as well as solid growth in Lease and additional Services income.

Underlying gross profit was up 0.4% to EUR 1,571 million. Underlying Lease and Additional Services Gross Profit was up 3.2% to EUR 1,534 million driven by strong Damage Services and Insurance results where penetration as of percentage of serviced fleet increased by 1.3 percentage points to 47.5% by year-end 2019. A decline in PLDV and EOCF gross profit of 53.5% to EUR 37 million was driven by the predictable normalisation in PLDV results, partially offset by a higher uplift from CarNext.com. 

Underlying operating expenses were tightly controlled and increased by only 1.4% to EUR 841 million, below fleet growth. 

The underlying tax rate was down 2 percentage points to 17.5% driven by lower headline tax rates in various countries and the continued favourable impact of the Italian super depreciation facility. 

Underlying net result was up 1.8% to EUR 605 million driven by solid performance in the core business partially offset by lower PLDV. 

Operational Highlights Car-as-a-Service

In our Car-as-a-Service business, LeasePlan again delivered a solid performance across all customer segments as we focused on disciplined profitable growth. The SME segment performed particularly well, supported by the rollout of our fully online SME showroom in 8 countries. Damage and Insurance Services showed especially strong performance. As of year-end 2019, LeasePlan insured approximately 889,000 vehicles worldwide. This result has been achieved through the continued roll-out of LeasePlan’s insurance strategy, which focuses on providing a comprehensive and integrated insurance solution as part of our fleet management proposition, harmonising value propositions across countries (especially attractive to our international corporate customers), and increasing the proportion of risk and claims managed inhouse. In Repair & Maintenance Services (RMT), we continued to strengthen our partnerships with our network of official and independent service providers, and automate our processes and customer journeys through digital technology. For example, we were able to significantly lower costs on damage repair cases by using digitally enabled reverse auction, and began using smart data to enable predictive maintenance for drivers and fleet managers. 

LeasePlan also continued working towards its ambition to achieve net zero tailpipe emission from its funded fleet by 2030, with 10% of new orders being for EV powertrains over 2019. Within the corporate segment, take up of our full package EV solution, which is now available in 12 countries, increased as we continued to encourage our customers to make the switch to electric vehicles. The transition of our fleet in 2019 was also supported by the launch of our inaugural Green Bond, which is being used to help finance and refinance our growing portfolio of Battery Electric Vehicles (BEV). New orders for diesel passenger vehicles continued a sharp decline, representing less than 50% of new registrations for the fourth quarter, down from 59% in Q4 of 2018 (and 70% of Q4 in 2017). All new diesel passenger cars ordered are the latest and cleanest Euro 6 models. LeasePlan published its first Sustainability Report in 2019, providing detailed disclosure around our sustainability strategy and plans to support the transition to a low carbon economy. 

Looking ahead, LeasePlan’s ambition is to deliver best-in-class services to our customers through digital platforms at digital cost levels. In 2019, we continued to make progress in digitizing our daily fleet operations and customer journeys, with the rollout of our online customer onboarding tool, which offers fully digital car selection, to five countries; the launch of the MyFleet solution (which provides corporate fleet managers with real-time overviews of vehicles’ on-road status and predictive maintenance alerts) in a total of eight countries; and the introduction of the MyLeasePlan driver self-service app in three markets. Our digital priorities for the next 12 to 24 months will be our global infrastructure, the development of a governance and control framework, as well as on designing the future global processes to be supported by and implemented through our Next Generation Digital Architecture (NGDA).

Financial Performance CarNext.com

Sales volume
In thousands 2019 2018 % YoY Growth
B2B sales 214.6 206.0 4.2%
B2C  39.6 26.5 50.0%
Total 254.2 232.5 9.3%
In millions of euros, unless otherwise stated 2019 2018 % YoY Growth
Revenues 119.5 97.6 22.5%
Underlying cost of revenues 81.6 64.4 26.8%
Underlying gross profit 37.9 33.2 14.1%
Underlying operating expenses 103.4 58.2 77.6%
Underlying profit before tax −65.5 -25.0 -161.9%
Underlying tax −16.9 −6.5 159.4%
Underlying net result −48.7 −18.5 -162.8%
Total allocated assets 156.9 43.5 260.8%
Total allocated liabilities 116.6 14.8 687.1%

B2C retail volumes were up 50% to approximately 39,600 vehicles. B2B volumes in 2019 were up 4.2% to 214,600 vehicles.

Revenue was up 22.5% to EUR 120 million driven by higher B2C volumes and higher 3rd party revenues. Gross profit was up 14.1% to EUR 38 million due to higher B2C retail volumes. 

Underlying operating expenses in 2019 were EUR 103 million up 77.6% as CarNext.com continued to invest in opening new stores, marketing as well as strengthening the CarNext.com digital capabilities and tools. LeasePlan intends to continue investing in the growth of CarNext.com. 

Tax is allocated based on a blend of statutory rates from the 23 countries in which CarNext.com operates. The CarNext.com and CaaS segment are integral parts of the group’s legal entities and fiscal entities and as such the losses in CarNext.com segment can be compensated by the profits in the CaaS segment. 

Underlying net result in 2019 was down to EUR -49 million, driven by increased strategic investments. Please see Note 2, Segments in the Financial Statement for Reported net result and Underlying net result comparison. 

Allocated assets and liabilities of CarNext.com com includes directly attributable 3rd party assets and liabilities of CarNext.com B.V, IFRS 16 leases (buildings, compounds and equipment), IT equipment, intercompany tax receivable on operating loss, other fixed assets and allocated working capital items.

Operational highlights CarNext.com

CarNext.com continued to deliver on its mission to become the most trusted pan-European platform for high-quality used cars, showing strong customer satisfaction ending 2019 with an average NPS of 73. B2C volumes were up 50% to 39,600 vehicles driven by new store openings as well as the increased supply of vehicles from trusted third parties on the CarNext.com platform. This was supported by CarNext.com’s fully online car purchasing solution, which is now available in 21 countries, as well as its growing network of Delivery Stores and pick-up points (2019: 45 locations throughout Europe versus 32 locations at year-end 2018), with recent store openings in major cities including Stockholm, Verona, Bucharest and Valencia. CarNext.com also took action to increase its brand awareness by signing a partnership with Formula 1 driver Max Verstappen in November 2019. In B2B, CarNext.com continued to build on its leading position thanks to its pan-European B2B trader app and increased satisfaction across its international trader base. In 2019, CarNext.com saw a steep increase in trusted third-party suppliers, another step closer to delivering any car, anytime, anywhere. Both CarNext.com sales channels are supported by data driven pricing capabilities and algorithms to seamlessly connect demand and supply. 

Funding & Capital

LeasePlan had a successful year across its funding and capital activities, demonstrating its ability to access funding through a diverse range of programmes and raising a total of EUR 5.1 billion in retail deposits, secured and unsecured debt.  

LeasePlan concluded 4 public senior unsecured transactions totalling EUR 2.7 billion with a further EUR 174 million placed in private placement format across 5 separate currencies. LeasePlan also achieved further diversification of its investor base in 2019 through the issuance of an inaugural Green Bond and a successful return to the USD 144A market. LeasePlan’s Green Bond, which supports the group’s ambition to achieve net zero tailpipe emissions from the funded fleet by 2030, attracted an orderbook in excess of EUR 3.5 billion from over 250 investors. With 64% of the Green Bond allocated to Responsible Investment orientated investors.  

LeasePlan’s retail bank increased its deposits in the Netherlands and Germany by EUR 1.3 billion to EUR 7.7 billion (2018: EUR 6.4 billion) while the company successfully raised EUR 1.0 billion from its Asset Backed Securities (Bumper) programme, including Bumper UK-19 in the United Kingdom for a total of GBP 400 million and Bumper DE-19 in Germany for a total of EUR 544 million.  

LeasePlan’s liquidity position remains strong with a liquidity buffer of EUR 6.7 billion as at 31 December 2019, consisting of cash balances as well as access to its EUR 1.5 billion committed revolving credit facility. 

LeasePlan expects to continue to utilise its unique diversified funding platform to meet its future funding requirements.  

In July 2019, Fitch upgraded LeasePlan’s Short-Term Issuer Default Rating (IDR) and its short-term rating to 'F1' from 'F2’ while affirming the long term rating at BBB+, all Stable.  

The ratings and outlook from S&P and Moody’s have remained unchanged (BBB-/A-3/Stable and Baa1/P-2/ Stable, respectively). 

Capital

In 2019, LeasePlan issued an inaugural AT1 transaction, raising EUR 500 million in regulatory capital for the group. This further strengthened LeasePlan’s capital position and aids the transition towards an optimal CRR compliant capital structure. 

LeasePlan’s capital position remains strong, the CET1 capital ratio as of 31 December 2019 is 17.7%. This CET1 ratio is calculated at the regulatory sub-consolidated level (LeasePlan Corporation N.V. consolidated). At this sub-consolidated level, the Total Capital ratio is 20.4% which is equal to the Tier 1 capital ratio. 

Following the Supervisory Review and Evaluation Process (SREP) by the Dutch Central Bank (DNB), LeasePlan’s minimum capital requirements as of 24 February 2020 were set at 9.5% for the Common Equity Tier 1 (CET1) capital ratio (excluding any shortfalls in the AT1 and Tier 2 buckets under Pillar 1) and 13.0% for the total SREP Capital Requirement ratio.

The total SREP Capital Requirements excludes the combined buffer requirement (i.e., capital conservation buffer of 2.5% and counter-cyclical buffer of 0.3% as at 31 December 2019). These minimum capital requirements apply to both the regulatory Sub-Consolidated (LeasePlan Corporation N.V. consolidated) and Consolidated (LP Group B.V. consolidated) levels. 

Furthermore and also in light of the upcoming Basel III Reforms (commonly referred to as ‘Basel IV’), the DNB has given LeasePlan permission to discontinue the application of the Advanced Measurement Approach (AMA) and use The Standardized Approach (TSA) for calculating its minimum capital requirements for Operational Risk. Due to the change to TSA from AMA, the Risk Weighted Assets (RWA) for Operational Risk will increase. The TSA, including the increase in RWAs, was taken into account by the DNB when setting the new minimum capital requirements as of 24 February 2020.

During the year, LeasePlan paid interim dividends totalling EUR 165.2 million or 60% of net results for the first three quarters. As a result of the recent Covid-19 developments and related market uncertainties, the Board of Management has proposed to declare no final dividend on 2019 net results. This was approved by the general meeting of shareholders on 20 March 2020. The remainder of the 2019 net results, amounting to EUR 237.8 million, has been added to the general reserves (retained earnings). 

€ 23bn

Unique independent funding platform

Funding mix by December 2019

40%

Unsecured DCM

33%

Retail deposits

11%

Secured funding

16%

Bank lines / Other

Recent developments - Covid-19

Today, the Covid-19 health crisis is causing significant disruption in the global economy. Our high-quality customer base, the long-term nature of our contracts, recurring income, strong balance sheet and diversified funding platform will help us during this period of uncertainty. We have implemented our business continuity plan, and the vast majority of employees are working safely from home across all our markets, supported by our global digital infrastructure. Our customers and drivers are receiving the best service possible during this period.

In response to the economic uncertainty and global supply chain disruption among car manufacturers, we have shifted our focus away from new vehicle purchases towards contract extensions or other mobility solutions which use our existing fleet. We are minimising our working capital, deferring non-urgent investments and have elected to add to our general reserves rather than pay out additional 2019 dividends. Given the evolving uncertainty, it is too early at this stage to assess the financial effect of the Covid-19 crisis on LeasePlan. 

Case Study

Driving sustainability through our business

LeasePlan’s Green Bond

Launched in 2019, LeasePlan’s first ever Green Bond has opened a new front in the company’s strategy to speed up the transition to electric driving and help tackle climate change.

The Green Bond is a EUR 500 million five-year fixed rate note attracted EUR 3.5 billion of demand, with over 250 investors participating, including a significant number of responsible, investment-orientated investors. The proceeds will be used solely to finance or refinance the purchase of Battery Electric Vehicles (BEVs) – a first in our industry.

“Green bonds are growing in popularity, and enable investors to tap the market for sustainable investment opportunities,” explains LeasePlan Chief Financial Officer Jochen Sutor.

“The response by investors to our Green Bond shows the support of Europe’s institutional investor base for our sustainability strategy, and for our commitment to tackle climate change.”

By helping us grow our BEV fleet, the Green Bond enables us to contribute to several United Nations’ Sustainable Development Goals, including Good Health and Wellbeing; Industry, Innovation and Infrastructure; Sustainable Cities and Communities; and Climate Action. LeasePlan’s Green Bond framework aligns with the ICMA Green Bond Principles (under the Clean Transportation category).

“The response by investors to our Green Bond shows the support of Europe’s institutional investor base for our sustainability strategy, and for our commitment to tackle climate change.”

Jochen Sutor, LeasePlan Chief Financial Officer

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