Ayvens (AYV) Earnings Call Transcript & Summary

Good morning. This is the conference operator. Welcome, and thank you for joining the ALD LeasePlan Half Year 2023 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tim Albertsen, CEO. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to this ALD LeasePlan H1 2023 Results Call. First of all, thank you all for joining us today. I'm hosting this call with Gill Momper and Patrick Sommelet. Patrick will join ALD LeasePlan as Deputy CEO and Chief Financial Officer from the first of September. He'll replace Gill, who is leaving the company. I would like to express my gratitude to Gill. He has been an excellent teammate over the past 16 years. He has played a key role in our company's expansion and we will miss him. We wish him the best with these new challenges. Patrick is [ purely ] Deputy CFO of Societe Generale and -- therefore, will bring considerable expertise as we are entering into a new phase of our development. Patrick has been involved in the LeasePlan acquisition process, so he knows our company very well. Patrick, welcome on board. Let's start the presentation. First, I will present our highlights for H1. Then Gill will comment on our strong financial results, which are impacted by the consolidation of LeasePlan and which clearly serves some detailed explanations. Finally, I'll say a few words on our outlook for the full year of 2023. And then, as always, we'll take your questions. Let's go to Slide 3 on the key takeaways. The main event of this first half year was, of course, the closing of the acquisition of LeasePlan on May 22. Thanks to this acquisition, we achieved an undisputed leadership position. We started the execution of our integration plan immediately after closing. And I can say that we are off to a very good start. Used car markets are normalizing gradually as supply and logistics chains continued to ease during H1. While new car deliveries in Europe recovered strongly from last year's low levels, the production of new cars remained well below the pre-covid levels. For this reason, we believe that the normalization of the used car markets will continue to be gradual with prices at high level. We now expect the normalization to continue until mid-2024 instead of end 2023, i.e., for the longer than we actually initially anticipated. This would continue to support used car prices globally. Our first financial results with LeasePlan, which is consolidated for only slightly more than a month in H1 2023 are strong and promising EUR 565 million. They are underpinned by the favorable situation in the used car market, which I just described and while taking into account the ramp-up of LeasePlan integration cost and a loss of the disposal of ALD Russia. And we have a very solid capital position with a Core Tier 1 ratio of 12.5% end of June. Let's move on to Page 5 on our leadership position. The acquisition of LeasePlan represents a step-up change, which propels our company to a clear #1 position in the operational leasing industry, where we, as stated many times, size matters. ALD LeasePlan ranks #1 multi-brand leasing player in 29 markets -- countries, including in the top European markets. We operate a fleet of 3.4 million cars twice the size of our nearest competitor. We have a direct presence in 44 countries. It is the largest geographical coverage in the industry. We have a strong foothold in Western Europe, and we are well positioned in promising emerging markets all over the world. We own the largest multi-brand EV fleet worldwide at 428,000 vehicles, growing on the broadest range of partnerships in the EV ecosystem and our unique capacity to address customers' needs, we are committed to continuing driving the transition to sustainable mobility. We also rank #1 in the multinational segment. Our client franchise in this category has increased from 320 clients from ALD alone to 550 clients for the combined entity, with associated fleet under management increased from 378,000 to 610,000 vehicles. Our credit ratings were upgraded to the single A category just after closing of the acquisition, and we are the best ratings amongst leasing players, A1 with Moody's, A- with both Standard & Poor's and Fitch. This is a key in the industry because it means more competitive funding cost and a greater access to funding providers. Let's now go to Slide 6, where I'll comment on the execution of our integration plan. We swiftly implemented our integration plan and 2 months into the integration, I'm glad that we have achieved our first objectives. The execution of the plan will continue on the same steady pace so that our first synergies can be secured by the end of the year. As the LeasePlan acquisition was finalized a few months later than originally planned, we now expect that our annual run rate synergies will be achieved fully by 2026 instead of 2025. Let me comment on some of the actions we have taken and which have already started to bear some fruits. We are committed to offer a seamless service and to ensure the highest level of customer satisfaction. We've, therefore, arranged for a single team to face those clients who were previously served by both companies. It's important to note that we have received a very positive feedback, and we expect a low attrition from these clients. Our sales teams are already trained on the full range of products, such as light commercial vehicles, flexible leases, multimodality to capitalize on the strength and the complementarities and take the advantage of the multiple cross-selling opportunities offered by the combination of ALD and LeasePlan. Procurement is one of the main sources of synergies. We promptly started renegotiating the terms and conditions with our suppliers. This proves successfully so far with bonus improvements already agreed by several OEMs. More recently, the first global tender was launched on tires. With 4 million units purchased per annum, we're in a strong position to improve our purchasing conditions also on this part. Based on this, I can say that we are on track, secure at least EUR 30 million of annual procurement savings by the end of 2023. These savings will progressively materialize through the income statement in '24. Regarding overheads, we already launched the convergence of our IT tools and the streamlining of processes, and we will launch a local integration of IT by the end of the year, which will enable us to start materializing OpEx synergies from the end of next year. Let's move to Page 7, where we'll comment on our robust commercial performance. The positive trends of the previous quarters continued. Our total fleet stood at 3.4 million vehicles, up by 4.3% compared to a year ago, reflecting our dynamic commercial activity. LeasePlan's contribution amounted to 1.6 million vehicles as end of June 2023. Our funded fleet reached 2.7 million units, up 3% year-on-year, and our order book is continuous at a very high level. Fleet and management increased by 9.1% versus June 2022, primarily driven by a new banking partnership. We achieved an outstanding performance in electrification with EV penetration at 32% of new passenger cars registered in H1 2023. This is a massive 7-point increase compared to the same period last year. I'm proud that the combined entity is much ahead of the European market, which is only at 21%. We had an outstanding performance in battery EV and plug-in hybrids with 19% and 13% penetration, respectively. Again, we'll have -- we're ahead of the market, and we definitely lead the shift towards BEVs and battery electric vehicles. Our robust commercial performance was achieved from a more balanced geographical portfolio. Thanks to the acquisition of LeasePlan, our exposure to France, our largest market was reduced from 28% to 20% of our total fleet. Our top 10 largest countries, including France, now account for 83% of our total fleet versus 87% for an ALD stand-alone perspective. Let me now hand over to Gill, who will comment on our financial results in more details on Page 9.

Yes. Thank you, and good morning, everybody. So as mentioned by Tim earlier, this semester is obviously more complex than usual, the H1 results and then not only the acquisition of LeasePlan, but also the materialization of the sale of ALD Russia and a specific reporting for the 6 entities that we have sold on the 1st of August. I will start the presentation with a general overview of these impacts on our financial statements, and then we'll go into the detailed figures, and I'm sure you will have questions afterwards. So the first impact is obviously related to the perimeter. So LeasePlan, as we've already said, has been consolidated from its acquisition date. So just slightly 1 month and a bit into the H1 income statement. We had also agreed with antitrust authorities that we would sell 6 entities. So at the end of June, the ALD's entities in Portugal, Ireland and Norway and the LeasePlan's entity in Czech Republic, Finland and Luxembourg are classified as assets held for sale under IFRS 5, and you will see that in the balance sheet. So regarding the ALD entities, as these 3 entities do not represent a major line of business, they are reported in the continuing activities, whereas the LeasePlan entities, they do not contribute in the group H1 income statements, because these entities, the assets and liabilities have been recognized at fair value in the purchase price allocation exercise on which I will come back. So the second change is related to the new regulatory status. So up in closing, as you know, of the acquisition of LeasePlan, ALD S.A., which is the holding of ALD LeasePlan Group has become a financial holding company, and we are now subject to new regulatory requirements. And thanks to the status, we have been able to optimize our capital structure with new layers of hybrid capital. And you will note that additional Tier 1 is accounted for as shareholders' equity in the balance sheet, while the Tier 2 debt, which is subscribed by Societe Generale is accounted for as borrowings from financial institutions in our financial statements. So the third impact, which you see on the slide is of an accounting nature. So the group will apply the IFRS 3, the business combination standard whereby a purchase price allocation exercise will be conducted in the coming semester. So all acquired assets and liabilities will be recognized at fair value and we expect this exercise to be finalized by the end of the year. And for instance, and as a result of this PPA exercise, no profit on LeasePlan's used car sales was recognized since the acquisition in May. And the last element, which is worth commenting relates to the harmonization of accounting policies and estimates across the group, which is underway and which may also have a limited impact on the goodwill. So the current provisional goodwill at the end of June, amounts EUR 1.7 billion and is expected to be then further amended based on what I've just been saying. So let's go now on Page 10 to look at the margins. the total margins, meaning the sum of our leasing contract and services margin reached EUR 1.255 billion in H1 increase of 55% compared to last year. And out of this amount, the contribution of LeasePlan, excluding nonoperating items, was EUR 170 million. Our -- globally, our margins were stable compared to the same period last year, when we adjust for depreciation costs and nonoperating items. But on a like-for-like basis, and excluding the cost of the Tier 2 debt, which was not there last year, our margins were up by 4.5%. So again, in H1 2023, our leasing contract margin was boosted by the reduction in depreciation costs for EUR 315 million in the semester compared to EUR 63 million for the same period last year. And depreciation has been adjusted or stopped for those vehicles whose sales proceeds are forecast to be in excess of their net book value. So in H1 '23, as Tim alluded earlier, we changed our depreciation curve to take into account the most recent fleet revaluation exercise, which we performed earlier last year -- this year, sorry, and we are -- in this exercise, we are assuming continued elevated used car sales prices well into 2024 and despite the start of the gradual normalization, which we'll see on the next slide. So as we -- another comment, as we anticipate a fair value of LeasePlan fleet in the frame of this PPA exercise, I would like to highlight that no reduction in depreciation cost was assumed on LeasePlan's portfolio. So the EUR 315 million only relates to ALD vehicles. We also had some nonoperating items this semester, which are detailed in the appendix, which is impacting positively the leasing contract margin by EUR 70 million compared to EUR 48 million last year. So let's go to Slide 11 and have a look at the used car sales results. So the contribution from used car sales results was a strong EUR 285 million in H1 compared to EUR 433 million last year, and last year was exceptionally high, and last year was also not impacted by the reduction in depreciation, as you can see on the slide. The H1 '23 amount remains very high, and despite this EUR 132 million negative impact related to the depreciation adjustments booked during the previous quarters. The strong used cars margins still benefit from contract duration extensions due to the late -- to the continued late delivery of new cars to customers despite we see some improvement. So as I commented during previous call, the amortization of the vehicle carries on. When a customer keeps its vehicle for a longer period than anticipating and hence, shifting the used car sales results. As already said, but I repeat it here, so -- there has been no profit recorded on Leaseplan's used car sales since the acquisition due to fair value recognition. So the average margin on the sale of used car vehicles, the reported average margin came in at EUR 1,974 per unit in H1. But without the impact of the reduction in depreciation costs the -- our used car sales results per unit would have reached EUR 2,887 per unit, which is a very high level. We -- ALD has sold 140,000 cars in H1 '23 compared to 135,000 in H1 last year. And as you can see in the footnote, this volume does not include the volume sold by LeasePlan on which again -- we've not recorded any used car sales profit. So now let's have a look at the rest of the P&L on Slide 12. Our operating expenses came in at EUR 632 million in H1. This amount includes a scope effect of EUR 166 million (sic) [ EUR 116 million ] due to the consolidation of LeasePlan but also Fleetpool, which we consolidated for the first time in the second semester last year. The integration costs of LeasePlan for EUR 85 million compared to EUR 41 million last year, and also transaction costs in relation to the acquisition of LeasePlan, which you may remember, we already had in Q1 and the disposal of remedy entities for EUR 26 million altogether, LeasePlan and remedies entities for EUR 26 (sic) [ million ]. Our operating expense base is also impacted by the costs in relation to our new regulatory status as we have now completed the project to become a financial holding company, and we have to put in place new teams to manage the new requirements. The cost of risk remained at a very low level, 13 bps as a percentage of our average earning assets. In discontinued operation, we have the impact of the disposal of ALD Russia on April -- on the 20th of April. The net losses was EUR 91 million, which includes a negative EUR 72 million reclassification of accumulated translation reserves into the income statement at the closing of the sale. You remember, this was booked in the OCI last year. So it has no impact on the shareholders' equity. An impairment of the net book value for a negative EUR 29 million after-tax, and the Q1 net income was reclassified from continued operations. So it's a positive EUR 10 million. Our net income group share reached this semester EUR 565 million. It's down 8% compared to the same period last year, but I remind that H1 was off an exceptionally high base and our performance this semester is strong because it was achieving, taking into account the ramp-up of LeasePlan integration costs and the loss related to the disposal of ALD Russia. Our diluted earnings per share came in at EUR 0.91 in H1 compared to EUR 1.38 last year. The change is distorted by the fact that the rights issue, which financed the cash component of LeasePlan acquisition price was settled in December 2022, while LeasePlan was only consolidated from the 22nd of May. So let's have a look at the balance sheet on Page 13. So as indicated earlier during this call many times, we expect to finalize our PPA by the end of the year, and so the related impact on the goodwill will be accounted for in our full year '23 financial statements. So as a result, the provisional goodwill is expected to be amended. The earning assets are at close to EUR 49 billion, more than doubled versus last year, underpinned by the consolidation of LeasePlan, along with the rising share of electric vehicles in the funding fleet. Our risk-weighted assets amount EUR 54 billion at the end of June with a credit risk rating -- credit risk-weighted assets accounted for 85% of the total RWA. Just to say that ALD is in a standard approach for RWA calculation. LeasePlan is on the internal ratings-based approach. And these calculations are currently under review, which could result in higher risk-weighted assets in the coming semester. So our common equity Tier 1 ratio was 12.5% and our total capital ratio was 16.6% at the end of June. The total debt funding stood at EUR 47 billion, of which 33% consisted of loans from Societe Generale and 24% from deposits. And part of our active liquidity management strategy, we continue to diversify further our funding by issuing EUR 1.1 billion -- EUR 1.85 billion bonds in H1, which is a very high volume and the successful bond issues confirm the market's solid appetite for our debt instruments. And our outstanding senior unsecured bonds now rank as senior preferred obligations of the combined entity. And in the future, we only intend to issue senior preferred bonds on the market through ALD S.A., which will be the sole rate issuer. Other new elements on the balance sheet, the fact that the combined entity benefits from ample available liquidity, which with cash at the Central Bank for EUR 4 billion and an undrawn committed revolving credit facility of close to EUR 1.4 billion. So I'll now hand over to Tim and I will say a few words afterwards, to comment on the outlook.

Thank you, Gill. Yes, let's move to Page 15, our guidance for the full year. The macroeconomic environment has dramatically changed over the past few months. However, our business remains as in the past, strong and resilient. Leveraging on the acquisition of LeasePlan, we expect now for the full year funded fleet growth between 2% and 4% versus the end of 2022 on a like-for-like basis on the back of continued dynamic commercial activity and a higher order book. Used car sales results per unit between 1,200 and 1,600 on average on ALD's reported used car sales. The estimate includes the negative impact of reduction in the depreciation cost in previous quarters. It is based on the assumption that normalization will be progressive and that the used car markets will remain favorable. No used cars results, as Gill mentioned, a few times, is assumed on the LeasePlan used car sales due to the fair value recognition. Cost to achieve integration and synergies between EUR 150 million and EUR 180 million, unchanged from our estimate earlier this year. That's it for the full year guidance 2023. But I'm also pleased to announce that we'll be publishing our strategic and financial roadmap on September 18. We look forward to presenting our midterm objectives and the new management team. We hope to meet you in person or online on September 21. This concludes our presentation. Thank you for listening, and we are now ready to take any questions you may have.

And maybe before the questions, I would like to thank you and to take the opportunity of this last analyst call for me within ALD, to thank you all. It has been a real pleasure to interact with you during the calls, but notably during physical meetings and roadshows and dinners that we may have had together. So -- and I would like to introduce and warmly welcome Patrick, who has been working along with me from Societe Generale on the LeasePlan transaction over the last 6 months. And -- so Patrick is well aware of the transaction and all the -- all what we have been discussing today, Patrick is well aware of. So welcome, Patrick. But the questions will be for me this semester again and for Tim.

Thank you, Gill. So yes, we are ready to take your questions.

[Operator Instructions] First question is from Delphine Lee with JPMorgan.

My first question is on the used car sales results guidance that you have given. I mean given that you're closer to EUR 2,000 in the first half, I'm just wondering, I mean -- and you seem to say that the normalization will not happen until like well into 2024. So I'm just trying to reconcile your guidance of to 1.2 -- I mean, sorry, EUR 1,200 to EUR 1,600. Is that -- are you expecting a bit lower resulting units in the second half? And then my second question is on the comment you said on the risk-weighted assets that we could see some increase. Does that mean that you could see -- we could see more issuances in terms of Tier 1 or Tier 2? Or has the bulk already been done as part of the transaction? Just wondering because -- clearly, what we have seen is that the cost of the Tier 2 is having an impact on your margins. And then the last question is on PPA, just around that process, just to understand a little bit. I mean given the depreciation cost that we have seen for ALD and the used car sales results. I mean, is it fair to say that the PPA gains that you're going to book in the second half are actually quite material?

So let me just start. I think I'll give you a quick input on the used car sales globally in terms of what we see going forward. And then I think Gill should give a bit more details on -- because it's, of course, impacted also by the prospective depreciation as has been mentioned a few times. And I think Gill can also answer on the capital structures and the PPA. So I think on -- as we have said, the used car sales markets remain strong. So I said the trading was close to EUR 2,900. It's a slight drop from Q1, around EUR 300 or EUR 400 per car, which is quite normal to coming from a very high level. Now what we see overall is that there is still used car sale situation where there is less supply than demand, and that keeps the -- let's say, the market is quite buoyant. And we anticipate that to remain for quite some while because we have seen since 2020 that new car sales have been down close to 20%. And even '23 we're going to see that we will not recover from where we were at the 2019 levels, actually still 20% below 2019 and '23. We still see inflation on new cars, which is also positive for used car sales. And obviously, what is also happening to some extent in the market is that a lot of the manufacturers are no longer producing A and B segment cars, which means that, to a large extent, if you cannot afford a new car in a segment C or D, you will actually be buying a used car. And that actually, again, gives us good comfort in terms of the used car markets going forward. But clearly, we anticipate a normalization as we have said, it is coming gradually and slow -- and as we said, we now anticipate that not to happen in '23, but remain quite strong, and it will normalize at a higher level that we have seen in the past. There's no doubt about that. So I think that's the global outlook on the used car markets, Delphine, then maybe...

And then to precisely answer your question on this, Delphine, you have also to take into account, and it's what it is in the guidance, the EUR 1,200 and EUR 1,600 include the negative impact of the prospective depreciation, which will kick in, in the second semester. You have seen in H1, we had EUR 132 million, which has weighed negatively on the used car sales results leading to an H1 reported figure of EUR 1,974 -- so just to give to the market a clear guidance what we have given to the -- what we are giving to you, is a reported figure. So Tim has just commented on the underlying trend of the used cars, but it's worth taking into account this negative impact. And it is -- this is what -- this is the EUR 1,200, EUR 1,600 is the reported. So you have to multiply that by the number of cars, which will be sold at ALD. So regarding your question on FWA. I mean, we -- it's really too early to say and to quantify the magnitude of it. And -- and also you -- I don't know, you also to keep in mind the impact of Basel IV which will start in 2025. So far, I mean, we have been -- during the Capital Market Day, we have been commenting on the CET1 above 12% and this is still our compass for the years to come. So it's just that it will -- we are in the process of reviewing this. We are in discussion with the ECB regarding this topic, but it's too early to comment. But still keep in mind the CET1 target. And here, again, on the PPA, so we are now 2 months post closing. So it's a heavy exercise to conduct the fair value because it's on a car-by-car basis. You have to take into account all countries of LeasePlan, and net book value by country, the prospective depreciations, which has been accounted for. And from there, we derive the potential impact on the goodwill calculation, quite material -- could be, but it's too early to say at this stage because there will be -- I mean we are going to fair value all the assets so there will be plus and minuses potentially.

Just to clarify, so the other inflation we're seeing in the second half that's separate from Basel IV. So Basel IV comes on top. Do you have like a an estimate of Basel IV impact?

But the Basel IV will in a way lower some of the benefits of the IRB models. So what I mean by -- when I comment on Basel IV is just to say that it will -- all the benefits of the IRB model are somehow fading and so going more towards the standard approach.

The next question is from Sanjay Bhagwani with Citi.

I've got a few questions. But before that, I would like to express a big thank you to Gill. It's really been a pleasure working with you, and all those thorough and comprehensive discussions we have had over the past few years. I would also like to welcome Patrick. Looking forward to working with you Patrick. Yes, I'll just begin with the questions now. My first question is a very big -- I mean, just a very bigger picture question. When we think of the fleet revaluation exercise. So if I understand it correctly, your outlook for the residual values has improved significantly versus the time that you have agreed to pay the price for -- to buy this LeasePlan like, for example, for the LeasePlan fleet also around 1.6 million fleet. I believe you agreed to acquire this like 1.5 years ago when the outlook on the used cars and the residual value was not as exciting as it is now. So when you try to do this revaluation and suppose if the revaluations lead to a fair value, which is materially better than what the book value is. Then my question is how does this help the shareholders? Will it just be like reducing the goodwill and hence in the form of, let's say, the lower risk on the capital ratios? Or can there be some allocation, direct allocation to the shareholders? The reason why I'm asking you is because, let's say, if the same revaluation is done at the leasing contract margin level, then that directly flows to the shareholders in terms of the dividend. But if it is just done on the level of the goodwill, then how does this translate into the shareholder returns? That's my first question.

Maybe I can start, Sanjay, and thanks for the question. So it's true, of course, that the value of the LeasePlan fleet is substantially better than anticipated. I guess when we started negotiations way back in '21. So you're right that obviously, the fair value means that we are not seeing an impact on the P&L like you would see on the ALD fleet. And it then goes to goodwill, which, of course, improves our capital structures. And it's too early to give you a clear guidance of what we are looking as well, which we will then disclose when we get to our Capital Market Day, our policy of dividend payout. But of course, this could potentially be an opportunity to look positively on that particular part. I don't know if that answers your question, Sanjay.

Again, Sanjay, we have to take into account the net book value of LeasePlan, including what they have reported as a reduction in depreciation. So that's why I said earlier, it's a heavy exercise, just to be precise that. It's something we have study, of course, but no other conclusion at this stage.

I see. I see. But they may have like some reduced the depreciation only on the cars they were anticipating to be sold in the near future, right? So more like maybe 300,000 cars. Whereas now when you do the revaluation, you use this new depreciation curve for the whole 1.6 million cars. Is that right?

Yes. So the full fleet of LeasePlan will be fair value, you're right.

Yes. And as I commented in the call, what we have done in the fleet revaluation of the first semester is that we see still very elevated used car sales prices. And in fact, we are just shifting as every quarter, I would say, or every semester since 1 or 2 years, shifting the outlook, the positive outlook we have on the used car sales by 1 -- by another year, so to speak. If you would have asked us the question 1 year ago, maybe our answer would have been, of course, different.

That sounds very encouraging. So we get a color on that, how basically the value shift happens to the equity shareholders more in September [ CMB ]. Is that right?

Yes, exactly.

And my second question is, I think you already mentioned about the orders -- like the order backlog is very strong. So can you maybe comment on how is the delivery times looking for or now versus, let's say, on average. I think it used to be somewhere around 2 to 3 months in a normal scenario? And so if you can please comment on that.

Yes. So I think we have -- it depends a bit on manufacture and OEMs that we talk to. But overall, our average delivery times went above 10 months. And you're right, in a normal scenario, it's typically between 2.5 and 3 months. So it has been substantial. I would say the production of new cars have definitely come back online to last year -- since the end of last year. There is now a problem overall, which has also seemed to be solved, but logistics have been very difficult in Europe -- which, first of all, have an impact of the manufacturers getting the cars to the dealerships. It also have an impact on our used car sales because we also transport a lot of cars actually at the end of the day. And obviously, there has not been capacity enough in Europe. We anticipate that as well to normalize over the coming months, but that has actually slowed down the delivery time. So we are not seeing a massive shift from the above 12 months. And I think we are maybe seeing a month or so, 1.5 months of improvement on delivery times, but that's practically for the time being. So you're right, the order bank remains high and actually only slightly decreasing from Q1.

That's very helpful. And just one last follow-up on the interest rate risk. Maybe just again on the bigger picture, I think you mentioned that the combined group borrowing is somewhere around EUR 47 billion. So how should we think of overall interest rate risk profile changing after the acquisition of LeasePlan? So basically, let's say, keeping in mind that the rates are rising, I think for ALD, most of these was directly asset liability management was very linear. And at the same time, I think LeasePlan may have a little bit different policies. And again, when do we expect the benefit of this potential increase in credit rating to flow into the funding cost?

Yes. So I guess there is no more beside the LeasePlan on interest rate risk than ALD to be fair, Sanjay. And anyway, LeasePlan will be fully embedded in the ALM policy of ALD, which itself is well embedded in the SocGen ALM policy. So it's a matter for us of framing LeasePlan, reviewing their -- we are giving our entities some thresholds and limits, it's monitored on a monthly basis. We have a quarterly ALM committee, which the CFO is sharing. So on that front, I'm not expecting a much bigger appetite on interest rates, that's sure, and there was none at LeasePlan. Of course, as I commented, I want to still make the comments that I did in previous calls that because of the contract extension, I commented in my -- in the speech this morning, the positive impact on the used car sales, but it has a negative impact on the leasing margin because of the sudden and strong interest rise that we have seen during the last years because as the customers are keeping their car longer, there is a bit of a mismatch. You remember, I assume. So this is where we are in a transition towards normalization here again. It may last still a bit. And it's a bit unfortunate because we don't see the benefit in the cost income because on 1 side, you get the benefit in the used car sales, which is not accounted for in the cost income, but you get the hit in the interest margin. So yes, worth reminding that also.

The next question is from Kiri Vijayarajah with HSBC.

Yes. Firstly, best of luck to Gill for the future. And yes, welcome, Patrick, I think we crossed path [indiscernible] in the past from your SocGen IR days. So yes, welcome back, I guess. In terms of questions, coming back to that fair value exercise, I'm afraid. So look, once you revalue the LeasePlan fleet upwards, that process happened through the second half of this year. I guess, what are the risks that, that used car result could turn negative in 2024, just that stand-alone LeasePlan fleet if the used car market continues to soften? And then I guess how much room for maneuver do you have within the constraints of IFRS 3 to ensure that doesn't happen in, i.e., how forward-looking can you be in your approach to that fair value exercise? And then just turning to the capital and as a consequence of the revaluation [ expires ]. I guess, theoretically, you could well end up with the year-end CET1 ratio being above 13%. So I know it's a hypothetical scenario, a lots of moving parts at the moment. But how do you think about that kind of excess capital. Are you -- would you keep that more as a buster because you've got things like model RWA inflation in Basel IV and you want to -- you've got some funding requirements, want to maintain a stronger product rating, but is actually trying to think about deploying, returning some of that excess? I think in the previous question, Tim alluded to maybe a more aggressive generous dividend payout ratio. So just your thoughts around potential excess capital and what you would do with that?

Do you want to start?

Maybe, Kiri, thanks for the questions. Let me start maybe with the last point you raised. And I think we will be quite specific, I guess, on this question when we meet in September. And clearly, we have said we want to be above 12% CET1. That's typically still the policy, and that's what has been agreed with the ECB as well. And obviously, excess capital can be used either as a further dividend payout, could also be for share buyback at some point if that would make sense. So clearly, we are looking at that, Kiri, and we don't want to be overcapitalized. In the past, we already said that we wanted to have a bit of firepower for bolt-on acquisitions and business development. Where we are right now, I think with the size we have now, obviously, that is not necessarily on our radar right now, could come back in 2 or 3 years. And hence, the way we would think about capital is to be having a good strong position but not be overcapitalized in anyway.

So on the fair value, Kiri, so we will be using further the -- of course, if you put yourself in the shoes of the auditors, they want to have the same value for the same car in both ALD and LeasePlan books. So we will be using the fleet valuation of ALD. I mean -- and this fair value has to be done at the -- yes, at the time of the acquisition. So it's not -- it's being -- it's currently being done. It will not be done, it's not the view that we'll have at the end of the year. It's the view that we have now that will take into account. So just to echo your question on what is the used car sales. And again, we are obviously not forecasting a cliff in terms of use car sales. As you can see, the underlying results is very strong. And despite if our guidance is a bit -- shows a bit of a lower result for the second half. We just want to remain prudent, and this is reflecting that.

The next question is from Geoffroy Michalet with ODDO BHF.

Thank you, Gilles, for all your support in the year. My question was obviously on dividend, but you already answered it. Another one is on the non-operating items that we have to think about for H2. Also the transaction costs that we had of EUR 26 million in H1. How do we have to view that in H2 since now the merger is -- at least the deal is realized?

I guess, yes, on the non-operating items, and there has been a lot of [ done ] during last year when you think about it. But on the transaction costs, I guess, these costs are now behind us. I mean -- the sale of ALD Russia has been concluded. The sale of the 6 entities has been done 2 days ago and the LeasePlan transaction is behind us. So no banks, no lawyers, of course, now the main cost will be around the integration costs. So -- that's will be the main costs. And in the non-operating items, you know that you have a slide in the appendix, summarizing what we call nonoperating items and -- we have had quite some numerous ones. You have the Turkey hyperinflation, the provisions we booked last year on Ukraine. But I guess on this also, you can expect them to face somehow.

Maybe one additional on this front. Could you maybe elaborate a bit on what is -- what are the derivative of LeasePlan because it was, let's say, quite an amount. And if this also should fail or will you change the policy of the combined entity?

Yes. So it was a positive EUR 24 million for the -- for this reporting. It's true that LeasePlan has a much lower base of [ notional ] of IRS -- swap. But as I said earlier, it's just an accounting effect because -- and if you take -- if you read these plans accounts from prior year, they never include the mark-to-market of these swaps because anyway, they are reversing out. So it's a bit -- we are in the process also to work on the transformation of the treasury -- and we -- it's difficult for me, of course, to predict the mark-to-market for the swaps, which have been also -- which widely depend on the variation of the interest costs. And of course, interest costs have still further increased during the reporting period, hence, the positive mark-to-market and it's -- yes, I don't know what to comment or to give -- I can't give a guidance on mark-to-market to...

No, that's true. But since they are on the P&L, I just wanted to know if at least the policy will evolve in post merger?

I mean, we are systemically hedging against interest rates and liquidity risks. And it's what also LeasePlan is doing -- so that's the -- there's no change, but it's too early for me to comment on the full policy going forward.

The next question is from Horst Schneider with Bank of America.

I just have got 2 small follow-ups left. The first one, again, on residual values. You have explained basically the trend of the A and B segment. I'm just wondering if you can give a bit more detail on what trends you see by subsegments as well, so for example, ICE versus BEV, premium versus mass, large versus small cars, I think you mentioned the A and B segment, but nevertheless, with premium versus mass and ICE versus BEV would be interesting. And then the other question is related to your purchasing cost savings that you plan. Can you maybe provide some color how quickly that can be realized? I mean, you are now 1 company with LeasePlan who has got a higher purchasing volume. Does that feed through immediately or it takes a while that you [ agree with ] the carmakers. And how is this process working? You can basically influence the mix of the brands in your portfolio or basically decided by the customer, which brand, which vehicle they want to buy?

Thank you, Horst. Yes. So we don't give a lot of details on the segments of the used car sales force, and we will not start doing that here now. But I was alluding to the A and B segment in terms of new car production -- where, as you probably know, a lot of the manufacturers now have not seen those models being particularly profitable, and they are basically abandoning the smaller models, which means if you want to go and you are entering the market, typically, you enter to segment A car, if you're a young family, and that is not possible anymore. So I would say the interest price now with the market is EUR 20,000 or above to get in, which a lot of families cannot afford, which means they are obviously force to typically buy a used car. And typically, they buy a newer used cars, which is what we got and we see that as a real strength for the used car sales. For us, it's another area that will support used car sales going forward. So that was more what I alluded to in terms of...

Tim, the sales share of this A & B segment, it should be quite small for you, right? I mean normally, these cars are not leased. So it's cash purchase for most customers or not?

Yes. So no, no. So you're right. I mean we don't have a big portion of A&B cars in our fleet, you're right. It's mainly, typically what we have would be in our Flex fleet and all that. So you're right, that's not really one. But it's more actually to say that when you -- when we have a used car 3 years old with 40,000 kilometers, that will be purchased instead of buying a new segment C car because people cannot afford the new segment C car. So that's a bit, again, to say that the demand for used cars and in particular, our used cars, will remain strong. So that was actually what I meant about that. What we are seeing, as we said, we have seen that there is a slight decrease of the market globally on used car sales coming down from 3,300 to just below 3,000 from Q1 to Q2. And again, it's a very high level at the end of the day. And we anticipate a slight deterioration going forward, but clearly remaining very strong for the end of '23. And on electric vehicles, I think you had a specific mentioning of electric vehicles. It's true that we have seen probably a faster decrease of used EVs than on the ICE cars. And again, our part of used EVs is very, very small for the time being. And we think it's mainly related to the fact that the pricing has been quite volatile on EVs lately. But again, sitting on a very big part of the EV market going forward. We will be the market for used EVs to a large extent. And we believe we, to some extent, can control the prices on these cars. So we feel very comfortable on that part as well. On the procurement synergies, obviously, times are a bit more favorable. If you talk to us a year or 1.5 years ago, where the manufacturers obviously had less cars that they could sell. They would not be, let's say, as cooperative as they are now. But first of all, the demand have decreased quite substantially in most markets and most of the manufacturers are back on full production. So we see that they are very interested in having discussions with us. And as I said in the introduction, obviously, we have basically renewed all our OEM agreements with better conditions than we had before. And of course, that will come in now. We -- as we said, on the procurement synergies, we have guided on the EUR 440 million when it's fully phased now in '26. Approximately half of that is coming from procurement. We have no reason to doubt on that number. And obviously, as we said as well that the procurement synergies are the ones that comes first. The OpEx synergies, we need to make sure we have integrated the countries, 1 legal structure in the country, 1 legal structure at the center. But the procurement synergies will come in actually -- as I said, we anticipate around EUR 30 million of procurement savings this year. That's not necessarily run through the P&L for '23, but we'll start kicking in. And by end of next year, our anticipation is that we have taken the full synergies from procurement. And so far, I have to say the manufacturers are coming to us actually and not the other way around. But actually at day 1, we have set up meetings with all the manufacturers with all the suppliers. And we prepare that particular well, I would say, in the last 2, 3 months that we got delayed. So we have come off to a very good start, and we have some really good discussions with our partners and suppliers. And they can also see a very interesting relationship with us in this part.

The next question is from Julien Onillon with Stifel.

I just would like to come back on the remedies because I understand that's been closed in the 1st of August. Could you remind us the number of vehicles with your concerns, both from ALD and LeasePlan, but also any price you could communicate now as it's been closed and eventually a capital gain?

Yes, Julien. So I will not comment on the last part we -- well, we will show that a bit later, I guess. But -- so first of all, it has been a very fast process. As you recall, we got, let's say, the clearance from the European antitrust authorities back late November last year. So finding a buyer of 6 entities and closing the deal in 7 months, I think, is really, really a strong achievement. And we have done a great work there. It's around 100,000 vehicles that's concerned in those 6 countries. So just to remind, we are selling ALD in Portugal, Ireland and Norway. And LeasePlan is selling LeasePlan in Luxembourg, Czech Republic and Finland. So -- and it's around 120,000 units, I think that goes to Crédit Agricole and Stellantis. And the deal was basically closed yesterday, 1st of August.

Yes. But from a -- I mean, the LeasePlan entities, as I said in the speech, have been fair valued, so there's no expected P&L gain to be recognized in the income statement. But at the end of the day, this will reduce the goodwill somehow. But we are not disclosing the price. So just to be precise on that.

We may have the price during the Capital Days and -- so it means possible that for ALD, there will be some capital gain eventually?

Yes, some more limited capital gains than on the 6 entities. Yes.

The next question is from Reg Watson with ING.

So coming back to the PPA, sorry to mention it again, but I think Tim and Gill, you both mentioned it several times. So I think there's probably an intent there. You have provisional goodwill of EUR 1.7 billion. How should we think about the changes to that going forward in the revaluation exercise because I could easily take 1.9 -- 1.9 million vehicles from LeasePlan, plus EUR 1,000 uplift on the value of those because that's what we're getting in used car sales value than effectively wipe out the goodwill. So clearly, that's not the answer. But before we all go off and come up with our own independent calculations, it would be quite helpful, I think, Gill, if you could at least give us some parameters on how the provision of EUR 1.7 billion was calculated? And what the variance might be from there?

So yes, no, yes, it's a good question. And just to remind you how it will -- the theory, I mean, around it. once you have to take into account is also the fact -- you have to take into account what is the net book value of the cars in LeasePlan books. And what is the net book value of LeasePlan vehicles in their books is -- depends on their residual value and what they have already accounted for as a prospective depreciation because as -- likewise for ALD, they have been since last year, recognized respective depreciation. So it's not because -- it's not because you anticipated EUR 1,000, EUR 2,000, EUR 3,000 of used car sales profit that you can deduce your PPA impact. It may be more limited to what you just earlier mentioned, it's more complex than that. So that's why it's one -- difficult at this stage for me to give a precise answer on the impact. Because you have to take into account these 2 elements because the -- what we book, for instance, as a prospective depreciation in H1, you will not see it in the used car sales in H2. And so -- and you have to think about that when you think PPA also. Am I clear?

Yes. So then I guess what's important then is the date at which that provisional goodwill, EUR 1.7 billion was struck. So anything that is from the final...

Yes. Yes, exactly. It's the -- what will be -- it will be the difference between the net book value at LeasePlan which includes what they already had booked in terms of reduction of depreciation and the fair value that we see of these same vehicles. So it's more subtile than what you said earlier.

Yes. And will it be the LeasePlan book value at end '22 or actually at the closing?

At closing. At closing.

And am I rightly thinking -- we as external observers, we don't have any indication of that? Or is there a published set of closing accounts?

No. I mean the best proxy you may have is Q1 -- they have published Q1 results and from there. And it's not last comment -- the last comment, you were commenting on 1.9 million cars not have a 1.9 funded fleet because they also have like some fleet management contracts. So I don't know whether we disclose or they disclosed the funded fleet, I think, yes, all now, but maybe, we at least can come back to you on that point, but it's much less than that in terms of funded fleet.

Mr. Albertsen, there are no more questions registered at this time. I will turn the conference back to you for the closing remarks.

Thank you so much. So yes, I think -- thank you all for your attention today. We know it was a bit of a complicated call and complicated announcement. So hopefully, we have given a bit of clarity to that. And of course, our IR department is ready to assist you as well if there should be any more questions. And then thanks for that, and we look forward, hopefully, to see you, as we said, either in person or online when we have our Capital Market Day September. Thank you.

Thank you very much. Thank you. Have a good break.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.