Ayvens (AYV) Earnings Call Transcript & Summary

Hello, and welcome to the ALD Trading Update and Q1 Results Call. My name is Rosy, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to Tim Albertsen, Chief Executive Officer, to begin today's conference. Thank you.

Good morning, ladies and gentlemen, and welcome to this ALD Q1 2021 Result Call. Thank you for your attendance, and I hope you are all safe and well. We'll start by looking at Slide 3 of our presentation, which contains some of the highlights of our performance. But before this, let me give you a few inputs on the environment our industry have been navigating in here in the first quarter of 2021. The COVID pandemic is still causing disruption in most of our markets with lockdowns and confinements. And in Q1, another challenge for our industry appeared as the shortage of microchips has caused a delay in delivery of new cars in practically all our markets, a situation that probably will remain a challenge throughout 2021. But even under these market conditions, once again, our business model is showing strong results and resilience. Our organization, great people and our leadership teams are now showing high agility, motivation and entrepreneurship under this new normal way of working. Now let's get back to Slide 3, which is quite full of positive news. Based on the situation just described, strong organic growth could be a bit of a challenge in 2021. But as already anticipated during the beginning of this crisis, M&A opportunities would be coming in 2021. And this we can confirm today. We see many opportunities for the moment, and we are working on quite a number of files. For the same reasons, we were very happy to announce the Bansabadell deal in Spain, a nice portfolio with a promising strategic white-label partnership, distributing full-service leasing contracts and mobility products to Bansabadell clients. As in the past, such bolt-on acquisitions are very accretive to our earnings, typically to supporting our cost income positively. Another strong performance is our remarketing activities as the used car markets were particularly dynamic this quarter. Gill will cover the numbers in more details later, of course. While we sold 87,000 cars in Q1, which is a record for Q1 and with a very good result of EUR 439 per unit. These good results are driven by several factors: a very strong performance and activity on our digital car market platforms and the structural shortage of used cars due to the missing trade-ins and less returned rental cars in the market. We expect this situation to continue well into Q2, and we are very positive for the year in general. The total number of contracts stood at 1.76 million contracts, stable versus end of 2020, while our margins actually increased by 1.5%. We have continued to pay strong attention to our cost base while growing our margin and hence, our cost/income is developing positively and has decreased to just below 50%. All in all, we have been able to book a very strong net income at EUR 155.5 million for the quarter, increased by 20.7% versus Q1 last year. Let's move to Slide 4, and talk a bit about our progress on MOVE 2025 strategic plan. After the successful launch in November last year, the plan has been initiated with more than 15 major streams across the group to enable us to achieve the strategic objectives set for '21 within MOVE 2025. As you might recall, MOVE 2025 is built on 4 strategic pillars, and you see them in the bottom of this slide, MOVE for customers, growth, good and performance. And in Q1, we have done 5 first deliveries as you see here. We are very happy to announce that we have entered into a new partnership with Lynk & Co, which is an electro vehicle company of the Geely Group and they offer a completely new way of using cars typically through subscriptions. This offer will target essentially corporates as a first step, cover 7 European countries for now. And it matches 3 out of 4 pillars of MOVE 2025; customers, as it is a subscription model; growth, as it is a new partnership; and good, as it's about sharing and electric vehicles. In March '21, we joined the ChargeUp Europe. It is an association of players in the EV ecosystem. It is working to expand and improve the charging infrastructure across Europe, which is one of the current main challenges in terms of the fleet electrification. It covers the pillars; customers, as this is enhancing charging for them; and good, as it's part of electrification. We also did further expansion of our distribution partnership network with the 2 partnerships with Mazda, 1 in Belgium and 1 in Luxembourg and with Ford in Ireland. It supports mainly the growth pillar as these are new partnerships. And finally, we have launched ALD ProFleet in Spain. It is our own connected car platform in our strategic partnership with Vinli. It is to be rolled further out across Europe and LatAm shortly, mainly supports the pillars; customers, as it helps them to optimize their fleets; and performance, as we expect to drive better margins on our insurance and maintenance products. Let's move to Slide 5, and talk a bit about the portfolio development. As mentioned earlier, total contracts overall stable versus 2020 at EUR 1.76 million, but slightly down versus Q1 2020. This in the global context of continued lockdowns and microchip shortage at global level, which is resulting in issues with delivery of new cars. The delay of new car deliveries has a particular impact on getting newly acquired clients into an ALD contract as the customers typically stay with the previous car until the new car can be delivered. For existing clients, this is not really a problem as we proposed contract extensions to our clients until the new car is delivered. In terms of outlook for the year, our order bank of cars to be delivered is very strong. Hence, we are very confident that our funded fleet will grow in 2021 as announced in our '21 outlook. This will also be supported by the Bansabadell deal that comes into our fleet with around 20,000 vehicles during the year, probably in Q3. And we anticipate to have a few more M&A opportunities to come during the year. Our Flex Fleet product is also showing very good trends with the 2,000 to 3,000 new contracts every month, and the program is now live in 30 markets. Let me hand over to Gill, who will guide you through our financials.

Thanks, Tim, and good morning, ladies and gentlemen. So let me start with the used car sales activity results for the quarter on Slide 6. The dynamics we've seen on the used car markets in H2 2020 have continued. You can see on the slide, the quarterly results since June 2020, EUR 30 million in Q3, EUR 43 million in Q4. And overall, Q1 remained very strong despite the ongoing operational constraints to sale vehicles due to the limited opening hours and lockdowns in most countries. Q1 has been very strong, showing stronger results month after month during the quarter. We have reached record productivity levels, establishing a record in terms of volume for the first quarter at 80,000 units for the quarter. We observed a strong demand on our remarketing platforms everywhere, driven by a lack of supply, which is obviously sustaining our market as we have a very attractive vehicle offer with recent and well-maintained reliable used cars. So overall, an excellent used car profit at EUR 439 per vehicle, along with a normal stock level, obviously much lower than last year. Over Q1, the used car sales results reached this EUR 38.2 million. So let's move to our P&L on Slide 7. You have a full P&L here. The leasing contract and services margins taken together have increased by 1.5% compared to Q1 '20 and despite a slight decrease in fleet compared to last year. The comparison quarter-by-quarter to 2020 needs some element of context. So the leasing contract margin is increasing by a solid EUR 13.7 million compared to Q1 last year. Just to remember you, last year, we took a significant unrealized charge on our equity portfolio in our reinsurance company in Ireland. We also had taken a conservative approach to our supply volume rebates, which had weighed negatively on our leasing contract margin in Q1 last year. So overall, the contract -- the leasing contract margin remains very strong, but these exceptional items explains the reasons for such an increase. It's also worth commenting that Q1 results do not take into account any change in assumptions as regard to our fleet revaluation for the time being, and this exercise has been conducted in Q4 last year. On the services margin, on the country, we remain penalized by the ongoing pandemic situation, especially on the lower level of mileage driven which constitutes a lack of revenue opportunity on excess mileage billing for the customers. Our operating expense were under control despite some exceptional costs incurred in the context of the acquisition of Sabadell and some other finds that we are currently looking at. But our cost income ratio is now down at 49.9%. The cost of risk is particularly low this quarter as the support measures from the governments continue to avoid payment defaults. And this leaves us with an excellent net income group share at EUR 55.5 million. And as you remember, in Q1 last year, we recorded a EUR 10 million post-tax profit on the disposal of our stake in ALD Fortune in China. So if you exclude this effect, our net income group share increased by EUR 36.6 million versus Q1 last year, which is an outstanding performance given the context in which we are currently operating. So I'll now hand over to Tim to comment on the outlook.

Thank you, Gill. Let me finalize this presentation by taking you through our 2021 outlook on Slide 9. We believe the current global level of uncertainty is still too high to switch to our guidance rather than an outlook. And hence, we confirm the outlook we gave in February. We confirm that we anticipate a positive funded fleet growth in 2021 versus 2020. And we confirm that the used car sales results per unit is expected to be positive. And we confirm that our cost/income ratio, excluding used car sales should improve. This concludes our presentation. Thank you for listening, and we're now to take any of your questions.

[Operator Instructions] And the first question comes from the line of Enrico Bolzoni from Crédit Suisse.

Congratulation on the results. Just a couple of questions, actually 3 from my end. So the first one, on the leasing contract margin, you mentioned clearly, they were very strong, and there were some one-off events. Clearly, that make the numbers look even stronger on a year-on-year basis. However, it feels to me that -- I mean this is the second quarter in a row where you do report very strong numbers above consensus. I just wanted to understand if that is due to possibly a lower cost of funding you may have? Or if there is maybe a change in mix within the contracts or a bit more private that have slightly higher margins that can explain this number and whether we should expect it to remain at similar level going forward? So this is my first question. The second question on the used car sales. Clearly, the positive impact from the shortage of semiconductors but a few related questions to that. So first one, you clearly saw a record number of vehicle at 87,000. But on the other hand, the more vehicles you sell, the more you need to clearly buy in order to keep the fleet constant. So I just wanted to understand if we should expect a similar level in terms of numbers of vehicles sold on the coming quarters? Or actually it should normalize simply because you are not in a position to sell more or in other terms, you don't want to sell more because otherwise, you just have a lack of vehicles for basically new contracts? And then the final question for me is again on M&A. I mean, again, I'm not sure how much can be said here, but clearly, in the press, there is a -- the market seems to be very dynamic. There's been some speculation about very large transformation deals. I just wanted to ask your general opinion and if you can give us some color there, if possible.

Thank you, Enrico. Let me start perhaps we actually take it in the other direction as you actually asked them. So I think we start with the last question first. I say we have an established practice not to commenting on any kind of rumors on M&A. And unless there is something, let's say, really concrete to announce. So we don't actually comment on this. But as we have talked about many times, clearly, ALD is interested in consolidation in this business. So -- but on the particular rumors, we don't comment. Maybe the second question on the used cars, I'll take, and then I'll let Gill answer your question on the contract margins. So I think you're right, there could be a point where actually we will have less cars to sell because it's true that with the, let's say, the shortage of microchips, we anticipate that new car sales could be down between 5% and 10% this year. I will not -- potentially not be recovered in '21, even if production comes back in Q3 and Q4. So there could be a delay in getting some of the cars that we typically would sell back. Having said that, there's always -- I mean, we have customers who do not renew their contracts and some of them have left to our competitor or whatever it is. So there is a natural flow of cars always coming back, I would say. So it's not like we would not -- we would completely stop selling cars, but it's true that for some of the, let's say, in terms of key account where we might have to wait 6 or 9 months to deliver a new car, those cars that typically would be sold in '21 might be pushed into '22. But we don't anticipate that to become a specific big, let's say, problem or big line in our P&L. And again, the less used cars there is in the market, the better the prices will be on these cars anyway. So a potential shortfall in volumes we would anticipate be offset to some extent in the profit per unit. So I hope that answers that question. And Gill, on the gross margin?

Yes. So Enrico, specifically on the leasing contract margin, as I said during my presentation, it's more difficult these years because of the COVID situation last year to analyze quarter-by-quarter. Indeed, we have a strong leasing contract margin above consensus. I mean, the funding is real low, but I mean we are working on a spread basis. So -- and as I've already commented many times, I mean, the lower the interest rate, it's not always easy conversation with our customers on the spread. But overall, we have a sound fleet mix and also the leasing contract margin depends on the fleet mix. The fact that we have more higher-value cars, there are some inflation on the cars overall, it brings more leasing contract margin naturally. So the comparison to last year, the so big increase is mainly explained by the exceptionals we took earlier in Q1 '20. But overall, I confirm it's a very sound financial margin, driven by volume and price on the asset price -- on the asset value, sorry.

Our next question comes from the line of Sanjay Bhagwani from Bank of America.

Congratulations on the spectacular results attained. So I've got a few questions. Maybe to begin with, on the tax rate. So for this quarter, we have seen particularly low tax rate, that effective tax rate of around 19%. And I understand probably that's also because Italian stability tax credits being realized in this quarter as well. So could you please just guide us how should we think about these tax credits for the rest of the year and the effective tax rate for the rest of the year?

Gill?

Okay. Yes, Sanjay. Yes, good question. Last year, we were still benefiting for a good -- I don't know whether we disclosed the number, but for a good EUR 30 million on the Italian stability last year, which has driven a low tax rate in -- another low tax rate in 2020. In Q1, we are still benefiting from it, but the -- I would say that the impact will fade during the quarters of this year. So our tax rate is anyway slightly higher than last year, 1 point in Q1 and will probably trend up, I would say, during the year. Providing you a precise guidance is always difficult but I guess you can assume a 20%-ish tax rate for the year and maybe a bit 20%, 21% for the year as the Italian Stability Law impact is fading during the year. Am I clear, Sanjay?

That is actually very helpful. And my next question is on the used car sales, I'm sure, there are going to be many questions on that. So when I actually -- when we think about this, for example, semiconductor shortage, what we see is like it's like Q2 is likely to be even worse than Q1. So -- and if I look at, let's say, all in all, all the trends, which have supported the used car sales margins in the last 2 quarters, more or less, they are likely to be there. Or in fact, these tailwinds can even intensify because all the OEMs are now continuously focusing on better pricing in the new car market, the supply is even -- supply of the new cars is even likely to be constrained. So would you think this positive trend even can even become more stronger in quarter 2 and for the rest of the year?

Yes, Sanjay. I think we see the same trends at least for Q2. That's for sure then it's obvious that Q2 will be more difficult in terms of the semiconductors. We know that it was approximately 1.5 million cars not produced in Q1. And anticipation is that, that number could be double in Q2 and some kind of normalization is anticipated for Q3 and perhaps a full normalization in Q4, but it could even spill into 2022 as well to some extent. And clearly, that will maintain, I would say, the -- let's say, the good trends on the used car markets. There's also a big portion of this is actually based on the fact that the rental cars that typically is in the market have not shown because last year, of course, due to the pandemic, the car renting companies did never up fleet or down fleet. And so far, we have not really seen that, that is happening as well. So structurally, that's also a positive. So we anticipate that the used car markets, I mean, clearly for Q2 will be as good as now. And again, we anticipate a good year full year for used car sales. I think it's been coming back to the previous question about whether we actually will have cars to sell at some point. But again, here, we anticipate that the volumes will still remain quite good, and we anticipate that, let's say, deliveries will start coming back in Q3 and Q4 and that we can deliver new cars again. So -- but the Q2 definitely and overall, for '21, we anticipate quite a strong used car market.

Tim, so when we think about, let's say, the medium-term outlook for the used car, like just you said about 2022 and in fact, 2023. So the supply constraints are more or less likely to continue, right? I mean if I just take out that short-term rental part, but apart from that, the car sales in 2020 was down 20%. And this could even mean like 2 to 3 years down the line, there is going to be more supply constraints from the used cars coming in the market. So would you see that, that is also going to drive, let's say, the used car sales margins are strong even in the medium term?

Yes. I think it's true that when you anticipate or when you have seen a decrease of 20%, 25% of new car sales in 2020 and potentially a minus 5% to 10% in 2021. That could have an impact positively, I guess, on residuals in 2, 3, 4 years from now as well. Having said that, there's many -- obviously, there's different streams on the used car prices. You know that still, even if we are -- have been working very hard on driving down the percentage of diesel in our fleet and our deliveries is below 30% now of diesel cars. But of course, there is a point where diesel cars become less interesting because we see more and more cities closing off for diesel cars. So that's the negative impact that somehow could have a negative influence of that on the used cars. And I guess, as soon as the car manufacturers gets back to normal production. It's a highly competitive market, and they want to sell units. So we would anticipate that the competition comes back and that new car prices would actually be coming down to normal levels as well fairly quickly when production is back. So it's true that there is potentially a -- there is definitely a strong, let's say, trend in one area, but it probably will be offset by the fact that there's other negative factors that potentially have to be offset in terms of the transformation to electric vehicles and the reduction of CO2 emissions across the board.

Just one more question, if I may.

Yes, sure. Go ahead.

So just on the pricing side, let's say, what we are seeing is OEMs, they continue to prioritize the higher-margin products and also increase the prices on the new cars. So how is this impacting you overall? I mean, what I understand is you are able to pass it on to the end consumers. But at the same time, are you also benefiting from this by charging, let's say, higher leasing contract for, let's say, the installment rental rates to the consumer?

Yes. I mean it's exactly what I explained earlier to Enrico, Sanjay. It's the fact that indeed, we have to take into account the kind of inflation, which we used to anyway. And the more expensive that investment is, the higher the margin is. And then can also better absorb our fixed costs. So it's a positive news for the cost/income, obviously, yes.

The next question comes from the line of Sam Bland from JPMorgan.

The -- just a couple of questions on this semiconductor shortage issue. I just -- is the nature of it kind of a problem everywhere for all OEMs? Or is it particularly sort of region-specific or OEM-specific? And I guess if you sort of match your profile against that, does ALD look to be particularly better or worse versus, let's say, the kind of global average? I guess that's basically my question.

Yes, Sam, that's a good question actually. And clearly, the manufacturers are not hit the same way. Exactly what have caused that. Honestly, it's a bit difficult to judge from the outside. But if you take Toyota, BMW, Volvo, they seem to be very little impacted by this. And then you have, on the other end, you actually have companies like Ford and actually Volkswagen who seems to be quite badly hit by this. So it's quite different. And I guess the shortage looks to be a global, let's say, phenomenon. It's not like in one region of the world, it's happening pretty much everywhere. And of course, what is happening is that the manufacturers try to produce the cars where they have the best margins, which is good for us because typically, our cars are well equipped than the premium cars. And therefore, these cars are actually coming to the market more than the less equipped cars. So -- but it's different, I would say, in terms of our portfolio and we look at our partnerships, I think we are quite well balanced. We have some of them, like I said, Volvo is performing extremely well for the time being. It doesn't seem to be affected at all. Where, of course, Ford is one of our big partnerships, and we know that they are -- they have announced that they will have a few shutdowns, and they could be quite badly hit in Q2 on this. So -- but on the big picture, on the balance, I think we are fairly balanced with our portfolio.

Okay. And is that reflected? And I think you made some comments earlier about having quite a strong order bank for deliveries. Is that the point you're making there, which is there is this issue, but you do have some visibility on deliveries through the year?

Yes. I think the -- I mean the order bank, as we said, is -- I mean, it's probably a record high for the time being, partly because of the delays of new cars. But I think actually also because we have been very active in the first quarter, we've been very successful in actually getting quite a few new bigger corporate clients in. And of course, when you get a new client in, well, first of all, it can be a bit more difficult to get them into. If you can't deliver a new car, you actually don't get them into a portfolio. But secondly, there is particular lead time before you -- from you sign the contract until you actually get the cars on your balance sheet. So it's a combination of the 2, I would say. But clearly, the -- I mean, we know -- again, as I said, with Ford, where we have a big partnership. Ford is delaying a lot of deliveries right now, and that is definitely part of the problem. But it's actually a combination of us being, I think, quite active at the moment and having quite some successes on the commercial side as well.

The next question comes from the line of Kiri Vijayarajah from HSBC.

Yes. A couple of questions from my side. So firstly, when you do these bolt-on deals like Sabadell, for instance, I was just wondering, does the pandemic hinder your ability to rapidly migrate the customer base over on to your platform? And I wonder if you could just talk a bit about what pre the pandemic what sort of customer attrition you typically see when these type of businesses change ownership, given that you do, do a steady stream of these kind of bolt-on deals. So just your view on that. And then second question, on the forward-looking IFRS 9 provisions you took last year, it doesn't sound like you have needed to use them so far. So firstly, clarification on that. And then I'm just wondering how long you're allowed to sit on those provisions in the event you don't actually use them? So is that more a year-end discussion to have with the accounts? Or actually, could we see potential provision releases before that in 2Q or 3Q? Those are a couple of questions, please.

Thank you, Kiri. Yes. So on the M&A side, I think if you take a deal like Sabadell, it's -- we were actually quite close to close that deal just before the COVID crisis hit last year in March then, of course, at that point, it was impossible to actually price assets at that time. So we actually put the discussions to rest and then came back in the autumn here and finalized the deal. I think in overall terms, when you do this, the remote working and all there has not been an hindering for doing M&As and have not been an hindering of making, let's say, an approach on M&A. And we actually opened Malaysia, as you know, in October -- no, sorry, November last year without having anybody on ground because we could not get people in there. But basically, we prepared everything upfront on the distance. So there's lots of things you can do still due to the, let's say, pandemic situation. I think we have proven extremely resilient in terms of our way of working on that part. John Saffrett is on the line as well. And maybe, John, you want to give a few inputs on the specific customer attrition and what happens when we do a deal like this.

Yes. Thanks, Tim. Yes. As Tim said, when we do these transitions of clients, bear in mind, we always do it as part of an ongoing partnership arrangement with the company that we're acquiring. So we see very little attrition because the client remains a client of Bansabadell going forward. It's their client base that we're servicing. The transition on the technology side is very quick and efficient. We've got a lot of experience and a lot of standard processes for migrating fleet data onto our own books, migrating customer data into our own books, migrating accounting data into our own books. And then we simply provide a scale and a level of service that generally these companies are unable to produce themselves. But they continue to front the customer service to a certain extent through their branch network or through the advisers that are sitting in front of the clients as well. So the end client doesn't really feel the transition as such because they're still talking to the same individuals where they want to receive a car or receive a quote, we simply provide a much more efficient back office and a much more scalable back office to support the growth going forward. And what we always see post these types of transitions is you then see a ramp-up effect very quickly because the distribution network suddenly has a scale and a capability to deliver this product that it didn't have before.

That was -- sorry, forward-looking, yes.

Yes. And regarding the forward-looking, yes it's true that we have not released any of the provisions we booked last year. I mean, just to remind you that these provisions have been booked based on historical probability of default, which is, in general terms, always been rather low. And we've tried to assess as best as we could these forward-looking provisions. So as you say, we are sitting on those provisions for the time being. I mean, I guess, as you've seen all the release of banks, they all have a very low cost of risk as we do. We try to be as conservative as we can, as prudent as we can on the provisioning of customers. And I mean time will say as and when we'll be releasing these provisions when and if cost of risk will become to deteriorate in the coming quarters. I mean it's very difficult to say. I mean, you read the press and we anticipate a lot of customer defaults in the coming quarters. So I'd guess that we would use these provisions at some stage as the cost of risk materializes. But it's -- as we speak, there is, frankly speaking, nothing.

The next question comes from the line of Gabriel Adler from Citi.

Tim, Gill, John, it's Gabriel from Citi. A couple of higher-level questions from my side. We're seeing a number of examples of online players in both the leasing and the used car market coming to market at the moment with quite user-friendly platforms focused on servicing the B2C channel. How does ALD plan to compete with these digital platforms, both on the private lease side of the business and also in terms of remarketing? Although I accept that the latter is probably less of a focus for you. And that's my first question.

Thanks, Gabriel. Yes, I guess -- I mean, if you look at quite a few of the partnerships we have gotten in the last -- yes, the last year is pure digital players actually and if you take Tesla, Polestar, the one now with Lynk & Co is a pure digital play, basically in a partnership with and addresses typically SMEs and private lease through these channels. So I think we are fully equipped to compete on this area. And I mean, much better than actually the newcomers because, again, you need scale in this business to compete and you need a good balance sheet to fund the business. So I think we -- I mean, we are no way behind in terms of the digital capacity to acquire clients and serve our clients. I think if you look at some of the platforms that's out there that we have with some of the partners, they are actually very user-friendly as well. But maybe, John, you want to give a bit more color to this?

Yes. Yes. It's a very good question. I mean digital is exciting at the moment, particularly in our sector and everyone's getting excited by the pure digital players that are coming to the market. I think it's worth noting a couple of things. We've been doing this full digital journey now for more than 3 years. We started to invest in full digital journey 5 years ago. We are processing digital online business with all of our new partners today, and we're writing more business on that platform for a private lease than any of the pure-play digital players that are coming to market. And coming back to the point of having scale, we've been able to invest in that and remain profitable, which is something sometimes people forget that when you look at the market caps and the consideration of these companies, we've created a scale where we can invest in digital. We can compete directly. We can write more units and remain profitable through the cycle of investment and come out the other side with a very strong offer. I think a lot of those digital players are pure-play direct And as we know, they require significant investment in brands and digital marketing and sponsorship of football shirts and TV adverts. Our strategy to date has been to look at working with partners who have strong brands already and where we can leverage those brands to drive the volume, but provide a digital capability to let them personalize the digital experience. And there's really only so much variation you can make in terms of the digital online experience for a private lease because there's certain steps you have to go through. So I think we're very well placed. We're competing already. It's not about how do we compete. I think we're competing already, and we will probably first to market with some of our offers with some of our partners. And as you saw in the MOVE 2025 plan, we'll continue to invest in digital at scale and continue to grow our digital footprint and recognize that it's an important part of our future, but make sure that we also maintain a healthy level of profitability through that period as well.

Okay. Brilliant. My second question is on electric vehicles. And I think we touched on it earlier in the call, is that risk of what happens to residual values as we reach a tipping point in EV. And clearly, ALD is shifting its fleet mix, the 30% EV target in 2025 is obviously encouraging. But I'd love to hear your views on how the business plans to manage this risk of residual value pressure on petrol and diesel cars as the new car market reaches a tipping point towards EVs over the next decade? That would be great.

Yes, Gabriel, that's also a very good question. I think we -- I guess, we have proven actually through the last 4, 5 years throughout the diesel crisis that we pretty much know how to deal with this. I think one of the things that we somehow people underestimate is actually the dynamics of the market. There is quite a long tail on technologies in this case, and people have been investing into, let's say, quite expensive assets for private families. And therefore, there is a drag on the change. So we tend to have a bit more time to get organized than what one would think. And I think we showed that with the diesel where in 2017, when the diesel crisis had everybody thought that we would stop selling diesel practically overnight and it they never happened. And actually, what we are selling right now is diesel cars at very good profits. So we have to keep that in mind somehow in terms of looking at this. Now electric vehicles is, of course, a complete new play. And there's -- we have a task force. We have a specific task force working on pricing because in the past, you could say when we talk about diesel cars or petrol cars, at least we have 30 years of history, and we know the circles, and we know pretty much how that works. We have a lot of history and data. Whereas it comes to electric vehicles, you don't have any data, and you actually know that it's a technology that will evolve very quickly over the next 5 to 10 years. So there's many, many moving parts, I think, and we probably don't have time to go through all this in this call. But overall, I think, first of all, we are looking into this, and we are making sure that we are pitching the technology that we think is the best in 3 to 4 years' time. So we talk to customers, we talk to our manufacturers, and we talk to experts in this area to make sure that we don't pitch a car that has the wrong autonomy or the wrong charging capacity or whatever it is. And that's a bit like actually with the diesel crisis, the fact that we were constantly 2, 3 years ahead of the circle made it possible for us to actually sell these cars despite of maybe a bit more sluggish market. Then of course, there is a question about the supply and demand. And for some years, the supply and demand will be in favor of electric vehicle, used electric vehicles. There will be very few electric vehicles in 2 to 3 years from now, and the demand will definitely be there. So that's another part that's quite positive on that. Then, of course, there's a question about the price on batteries, the price on the cars, and it will eventually come down. And I guess you cannot have an average price of $35,000 to $40,000 for electric vehicle and become a mainstream asset. That's not really possible. And all the manufacturers is expecting to launch something at $20,000 to $25,000 I guess. But it will take time and again, over the next 4, 5 years. There's lots of subsidies in the market from the government. And as the manufacturers will start pushing prices down the -- I guess, the subsidies will disappear and also potentially the used car -- the new car prices will remain fairly stable over the next years as well even if the manufacturers are driving prices down. And then last but not least, and which is one of our way to mitigate this as well is we have talked a lot about multi-cycle leases. And that we expect, especially electric vehicles to get into our second lease, a third life lease, perhaps and even price these assets to have them with us for 6 or 7 years. And we are now building up nice, let's say, channels and segments to make sure we can actually push these cars into new segments when they come back and not being, let's say, forced to sell a car that potentially is not priced right. The thing is that you could think that we buy a car today that in 4 years would be a bit obsolete in terms of technology. And it means that perhaps people would not like to buy it, but they will be fine to lease it because so they never get the ownership because the car would still be able to drive into the cities and it's a zero-emission car, which gives all the benefits of a car like that, which means that there is potentially a very interesting market for second-life lease and third-life lease for these cars. So I think that's the short version, Gabriel, on residuals and EV is something that we work on very hard to enhance our capacity to follow this very closely. But at this point, we feel quite comfortable that we are on the right side of things there.

The next question comes from the line of Geoffroy Michalet from ODDO BHF.

Actually, I have 2. The first one is on M&A, since you did this small bolt-on deal, roughly 1% of your fleet. Could you just -- you touched a bit on it, but could you please remind us how much time do you need to bring those bolt-on acquisitions to the group level in terms of margin or in terms of operational integration? The second question has to do with what you call commercial dynamism. Could you maybe be a bit more specific on maybe the timing and the underlying reasons why is it now so dynamic? And also, could you give us a sense on how competition is evolving. You've seen that BNP has raised strong results and mentioning Arval in the call. How is it evolving so far?

All right. Yes, Geoffroy, let me take the first one, and then John, you can take the second one. So on the M&A files, I guess, they are very different in nature, actually. Some of them are very simple. Some of them comes, like John said, with a partnership. Some of them is completely new implementations in a new country. So it's difficult to give you a standard answer on all of those. But typically, I mean the, if we take Stern lease, which was quite complicated that we did in 2019 in Holland with about 16,000 cars and that came with a partnership for 80 dealers in the Netherlands. I would say, from we basically did the closing so they were on to our system, and it was about 9 months. And the first year of operation was actually positive. So I mean, we have, over the last 5, 10 years, I mean, really built up a super expertise in finding interesting bolt-on acquisitions and integrating them very fast. I mean, the biggest one we did in -- was in France with Parcours back in 2016, about 65,000 cars, a completely different business model to ours. And actually, in terms of integrating the business into the ALD business was just practically 1 year, but to adjust the business model to fit ALD was 3 years. But again, due to the fact that we actually were able to bring that business into -- onto our systems, we took all the cost/income benefits after 1 year basically. And then, of course, we have optimized the business model and actually used elements of Parcours in our footprint in France today. So I think that's -- I hope that answered that question. John, you want to give an input on the commercial dynamics?

Yes. Well, yes, thank you for the question. I think firstly, we should recognize there was a lot of suppressed demand in 2020 because of the severe impact of the COVID crisis everywhere. During this second wave, we should remember that a lot of car dealers have stayed open during this period, a lot of OEMs and suppliers have moved to being able to service clients online, and we've been able to leverage our online platforms to that extent as well. So previously, we had the online platforms, but our partners were shut. Now they're open and they can use our online platforms to arrange cars. So a lot of that pent-up demand is coming through, and that's why you see a very strong order bank because a lot of the contracts we extended in 2020, we're now picking up the replacement orders for those vehicles in the first quarter of '21. I think we've also got a number of new partners that we signed. We remind you, obviously, last year, we launched, again, in the middle of the COVID, the partnerships with Tesla and Polestar. And even though they were digital and online, there was a slow burner element to those because of just the general context and they're now beginning to feed into the volumes that we're seeing. And a lot of the corporate clients have taken the opportunity of COVID to review their corporate policies and in some cases, they're accelerating their transition towards electrification. And hence, that's why we're seeing an increase in orders on electric vehicles from our corporate clients. It's kind of been a tipping point in terms of CSR and social responsibility unlike these corporates that they now have to move faster in terms of their move towards electrification. And a couple of the big corporate wins that we've managed to secure recently have been with clients that are looking to move to 100% EV, and they're looking for a strong partner to accompany them on that journey globally. And we've sat in front of them and taken them through the ALD electric product we can offer, the consulting we can offer, the partners we can bring to the table around EV supply and the charging infrastructure. And that's been one of the key reasons why we've secured those deals. And the last point I'll add is, I think we said to you when we were going through the COVID period that, in effect, we had a 2-stream approach at the senior management level. One was focused on how we deal with the crisis, the here and now, and another was making sure that we were prepared for a strong rebound at the ending of the crisis or as the world emerged from the crisis. And hence, we launched our Flex product, which is now live in 30 countries. And we had a big focus on engaging with our commercial clients. So we were ready to service them as we came out of the crisis. So I think there's a lot of factors driving that strong commercial performance in Q1, and a lot of the foundations of that go back to the second half of 2020 and the decisions we made back then.

Yes. Maybe, Geoffroy, you had a question about, in particular, I guess, Arval and the dynamics. And then I have to say that Arval have done really well. They did really well in 2020, and they seem to do well as well. In '21, they have been very active. They have got a few partnerships, and we know they're selling well through the BNP network of banks in different countries as well. So Arval is doing really well. Having said that, the rest of the market are not very dynamic actually. We don't really see lease plan very active, and we don't really see them in the market as such. We have seen Alphabet and ADLAN rolling backwards, 5%, 6%, 7% in 2020. And again, we really don't see it in the market. So I guess for the time being, it looks to be Arval and ALD who is out there in the market quite bullish, I guess, both of us. But Arval have done a great job. We have to congratulate them with that in the past, let's say, 12, 18 months.

[Operator Instructions] And our next question is a follow-up from the line of Enrico Bolzoni from Crédit Suisse.

Sorry, very conscious of time. Just 2 very quick follow-ups. One, clearly, you have this order bank. Can you confirm, I think you cannot say that between the lines, but can you confirm that actually clients -- your existing clients might have been actually happy to switch and order a more expensive vehicle rather than wait for a less expensive one? So as you said, OEM are focusing on the higher-margin vehicles. So this arguably, you can get them sooner. So are your clients actually happy to pay a bit more and just get it sooner? So this is the first one. And the second follow-up, instead for the contracts that you're actually extending before, of course, you need to wait for the delivery of the new vehicle. Do you think this will have a material impact on service margin? I just think the older the vehicle, maybe the more it needs to be serviced and that could impact your margins there?

Yes. I think on the first question, I think let John take that. He's a bit closer to that. I don't think we see that people are changing their orders. But John, do you have anything there?

Yes. I think, Enrico, it comes back to our position to service the client and to a certain extent, we're OEM agnostic. So what we're able to work with our corporate clients on is obviously where they're trying to place an order for a vehicle, and we know that supply is challenging. We can use our relationships with all of the OEM partners to try to recommend other vehicles to them and see if they work within the frame of the corporate car policy as well. And if that means there's a higher margin opportunity that obviously we'll take it, but we're not going to do anything to harm the overall relationship with the client when we do that.

And regarding the contract extension, Enrico, you have to distinguish 2 types of contract extension last year at the time of the COVID, we are doing formal contract extension trying to help to sustain our customers, so renegotiating the terms potentially of these contracts. But nowadays, we are more in an informal contract extension period where the delivery time of cars is longer. So you don't really change the -- you don't really change the monthly lease installment, which is overall rather positive. You can be right. It can be negative on the service margin, but very positive on the finance margin and the potential profit on the used car because you keep the same depreciation curve. So overall, informal contract extensions are generally beneficial. We also have cases where we provide our customers who are waiting for their new cars with our -- a contract from our flexible fleet, flexible contracts, which we are also using quite a lot these days. I mean, the fact that, yes, contract, the delivery time is extending, yes, it helps us in extending and having more contract extensions from an informal basis. Yes.

We have no further questions coming through. So I will now hand back to Tim for any closing remarks.

Yes. Thank you for listening and your attention. And as always, our team stand ready to answer any further questions you might have. So don't hesitate to contact them. Thanks a lot and catch up in August.

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