Ayvens (AYV) Earnings Call Transcript & Summary

Good morning. This is the conference operator. Welcome, and thank you for joining the presentation of the fourth quarter and full year 2023 Results of Ayvens. [Operator Instructions] Today's speakers will be Tim Albertsen, CEO; John Saffrett, Deputy CEO; Patrick Sommelet, Deputy CEO and CFO. At this time, I would like to turn the conference over to Mr. Albertsen. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to this Ayvens Full Year 2023 Results Conference Call. And first of all, thank you for joining us today. I'm hosting this call with John Saffrett and Patrick Sommelet. First, John and I will present the highlights of 2023. Then Patrick will comment on our financial results, which include LeasePlan since late May 2023. As it did last quarter, Patrick will provide some additional explanations to help you understand our underlying performance. After that, I'll present our outlook for the full year 2024, and then we'll take your questions. But let's now go directly to Slide 5 on the key takeaways. 2023 was marked by the acquisition of LeasePlan, which positions Ayvens as the leading global sustainable mobility player. We started the integration of LeasePlan right after the closing, and I'm happy that thanks to our team's efforts, we fully reached all our 2023 milestones. 2024 is another important year and key for our transformation. At this point, we are well on track to achieve the strong synergies which we have announced. Today, we published mixed financial results for a transition year marked by the normalization of the used car market, the impact of interest rate movements and our hedging derivative portfolio and significant cost to achieve the integration of LeasePlan. Our net results for 2023 reached EUR 816 million and earnings per share of EUR 1.07. Our return on tangible equity is at 12.4%, and we have a good and strong capital position with a core Tier 1 ratio of 12.5%. We will propose to the next shareholder meeting on May 14, the distribution of a EUR 0.47 dividend, which represents a payout of 50%, in line with our policy. As the market environment is changing, we are adjusting promptly in accordance with our strategic plan. We are tackling these challenges head on and have undertaken decisive steps to restore our margins, reduce the volatility of our revenues and protect the value of our assets. We should be able to see the benefits of all these efforts in the second half of this year. Let's move to Page 6, where we'll see the integration of LeasePlan, which is well on track. Last September, we published our PowerUP 26 plan, in which we draw up our industry leadership to shape the future of mobility. In our strategic plan, we have a clear, ambitious, while realistic objectives around our 4 priorities: clients, operational efficiency, responsibility and profitability. This plan is supported by our new global mobility brand, Ayvens, which was launched last autumn. From the beginning, we have taken steps to ensure a seamless and rapid commercial transition, which one team facing all our shared clients. Last quarter, I mentioned a number of procurement initiatives which we successfully implemented and we have already secured EUR 38 million of cash synergies slightly higher than the EUR 30 million of expected. These cash synergies will materialize in our P&L from 2024. We have also already finalized a number of initiatives in insurance and remarketing, which also will have a positive impact as soon as this year. 2024 is a key year for our transformation. We will continue the alignment on pricing and products, and we have started global and local tenders for OEMs, tire fitters, roadside assistance and end-of-life inspection, just to name a few procurement initiatives. On the restructuring front, we plan to merge our local entities starting Q2 and deploy our new central and local organization structure in parallel. As our integration progresses according to plan, we are confirming the phasing of our cost to achieve and synergies. Cost to achieve will peak at EUR 190 million this year. Meanwhile, we will capture the first benefits of the acquisition with EUR 120 million P&L synergies this year, the majority being procurement synergies. This amount will increase to EUR 350 million in 2025 and to the run rate of EUR 440 million in 2026. Let's now move to Page 7 on our actions to restore our margins. As discussed at our Capital Market Day and in Q3, in the context of high inflation and interest rates our margins has eroded. The pressure on our margins continued in Q4 2023. Our strategic plan includes actions to restore our profitability and we are implementing them. We believe it's possible to restore margins because our industry is structurally growing and because we attract clients, thanks to our unique product range and service quality, expertise and scale efficiencies and not least our geographical coverage. Our plan to improve our profitability covers mainly 4 types of actions. First, increased pricing discipline through the timely update of our pricing parameters. There was actually no inflation in most of our markets previously, and therefore, we usually did not have an inflation clause in. Now we activate or include indexation clauses in our new contracts. We're also repricing contract extensions and modifications in the context of higher interest rates. Second, we are allocating our capital according to our profitability targets. This means that we are conducting a full portfolio review and are selectively allocating our resources to countries, client segments, distribution channels and products. Thirdly, we want to achieve better service penetration and upselling by expanding value-added services to our clients, in particular, Ayvens Flex, like commercial vehicles and insurance. Last but not least, we aim at excellence in operational efficiency by improving our asset utilization. This concerns mainly our flexible fleet and our terminate vehicles. These actions were launched last October already, but due to the length of the order bank we expect that the positive impact will start materializing in our P&L from the second half of this year. Let's now go to Page 8 and talk a bit about the used car markets. I'll now give an update on the trends which we expect for the used car markets in Europe. You can see that out of our 2.7 million funded fleet, 11% were fully leased, 9% plug-in hybrids and the rest, ICE cars being petrol and diesel and other powertrains at the end of 2023. The combination of stricter European regulations, clients' interest in environmental matters and rising energy costs confirms the transition to electric vehicle, which is structural, we believe. However, the path of this transition may not be as linear as initially expected. Our clients are primarily corporate and SME clients, which are highly committed to reach their ESG targets through long-term leasing contracts for an average of 4 years. And as there has been quite some press coverage around daily rental companies and electric vehicles lately, it is important for me to stress that our business is much more stable than that of a rental car companies, which are exposed to short-term leases and ride-hail companies. Full EVs have lower carbon emission, and they have a competitive total cost of ownership in most advanced countries depending, of course, of the subsidies from the government. However, the increase in new car deliveries and the better affordability are expected to have an impact on full EV used car prices. Meanwhile, there has been a sustained shortage of new ICE cars and plug-in hybrid vehicles over the recent years, which translates into a shortest of used cars and in particular, there's absence of new smaller, cheaper cars, which also supports used car prices. And moreover drivers are interested in flexibility until stricter regulation comes into force and access to charging infrastructure and technology improve. For all these reasons, we expect a gradual normalization of the ICE cars and the plug-in hybrid used car markets. Against this backdrop, the current full EV used car sales losses are actually in line with our valuation absorption. However, we have launched a number of actions to proactively manage our risk going forward in a changing environment. We do anticipate that manufacturing cost of full EVs will reduce over the next 4 to 5 years, Hence, we are adjusting our pricing on new contracts mainly through reductions of residual values. We are lengthening the duration of our contracts and promoting multi-cycle leases to reduce as well our residual value risk. Now we're also seizing opportunities to actively reprice during the life of the contract. Regarding the existing portfolio, we have a prudent historical residual values on our ICE cars and the plug-in hybrids. And in case of a severe stress, which is not the case today, will be expected to offset any future potential deteriorations of the full EVs. Let me now hand over to John who will update you on our NGDA-IT program.

Thank you, Tim. Good morning, everyone. At the Capital Markets Day in September, we updated you on the challenge of assessing the global NGDA program, which have been constructed by the previous LeasePlan executive to address the future challenges of the industry. This program had fallen behind schedule compared to our assumptions in January 2022. And this had led to a significant cost overrun, which led to a deterioration in our cost income trajectory out to 2026. In September, we already begun a study into this program and the future direction of our digital strategy. And having completed this review, we now have a clear strategy for delivering our strategic ambitions underpinned by a modern, efficient global digital architecture. We have made the decision to stop any new development on the NGDA program and will reuse the assets that have already been developed. We will leverage on the ALD legacy back-office systems in the majority of the large countries for our integration, and we believe these platforms are fit for purpose for our future ambitions. And we will refocus our development efforts on leveraging our global integration technology layer, which has already been well proven in securing and winning a number of digital partnerships over the years. We've already begun the process of rightsizing the development teams with a reduction of circa 600 external contractors by the end of 2024 versus May 2023. And this will result in a reduction in CapEx of around EUR 100 million over the next 3 years. We also believe that further significant value creation will crystallize beyond 2026 as we move out of the integration phase and our operating efficiency and customer experience is continually enhanced by these digital platforms. These actions will ensure we deliver the state-of-the-art digital architecture that our company needs to lead the mobility industry, and we are confident in delivering the integration and growing the business beyond 2026 with the platform we are creating. It should also be noted that as previously informed, the PPA process created a markdown on the NGDA assets of EUR 203 million, leading to a reduction in annual operating expenses of EUR 25 million. Let me now hand over to Patrick, who will comment on our financial results.

Thank you, John, and good morning, everyone. Let's go directly to Page 11 on our earning assets and fleet. As you can see, our earning assets have increased by 14.2% year-on-year on a like-for-like basis to EUR 52 billion. This is a strong pace, which is quite similar to the one we were experiencing in Q3, and this strong pace have been taken into account the financial trajectory to '26, which we presented at our Capital Markets Day at September. Out of this 14.2% growth, the volume trend is positive but only for 3% and 3.2% for the funded fleet, which reached 2.7 million at the end of '23. In the total passenger car deliveries by powertrain, EV penetration reached 35% for the full year ahead of the market which was 23%. Our EV penetration, both BEV and PHEV were 38% in Q4 alone. Let's now move to the next page on purchase price allocation. As announced early January, we have finalized the PPA of LeasePlan at the date of closing May '23. This means that we now recognize LeasePlan's assets and liabilities that serve value in our balance sheet. The outcome of the PPA was positive, leading us to revise upwards LeasePlan's net assets by around EUR 230 million, of which these assets for EUR 380 million, customer relationship upwards by EUR 150 million. And conversely, we marked down the IT assets at least on by around EUR 200 million and others for the amount indicated in the slide. In total, it is important to have in mind that the impact is positive by EUR 230 million and as such, we have adjusted slightly the acquisition price and the goodwill lease expect is decreased by EUR 220 million with an enhancement of capital -- of CET1 capital by the same amount. Also, we amortized the positive impact of the PPA in our P&L. For 2023, the impact for May 22 to December end of year was accounted for in our Q4 income statement. The aggregated amount is minus EUR 57 million. It can be broken down between the minus 2.5% that you see of PPA amortization and the recognition of the actual UCS profit of LeasePlan post-PPA that had not been recognized before during '23 in the absence of finalization of the valuation in the size. Let us now move to Page 14 for the fiscal year '23 reported performance. Again, we acknowledge that given the trends which are taking place in our industry, the PPA and the transaction for part of the year, our financial statements and results are very complex to read. This is why we give you a picture of reported results and like-for-like in the next section to really understand the business trends at play in our industry and in our company. If I start with reported results, gross operating income was up by 12% from EUR 2.6 billion to around EUR 3 billion in '23. The rise is mostly due, obviously, to the consolidation of LeasePlan from May '23. LeasePlan is not in the '22 numbers. The leasing margin leading in service margin revenues have increased by 38% to EUR 2.6 billion. It is again driven by the consolidation effect, which was, however, partly offset by pressure on margin as well as the negative impact of the mark-to-market of derivatives we communicated earlier in this year and which is due to the decrease of interest rate throughout '23 and pull to par of these instruments. Our UCS results were cut by half to around EUR 350 million, and this is mainly due to the normalization of the used car market and the fact that we had already anticipated some of some used car profit for the reduction in our depreciated cost during previous quarters. However, our UCS results per car remains at a high level, on average, EUR 2,400 in 2023. This is excluding the impact of reduction in depreciation costs and PPA and it compares to EUR 3,269 per car in '22. Our operating expenses were lifted by the integration of LeasePlan over 7 months as well as by the cost to achieve, which increased to EUR 170 million from EUR 128 million in the previous year, as announced in September '23. Cost of risk remains low at 18 basis points of our average earning assets, and as a result of all this, our net income group share is down 43% to EUR 816 million. I will now comment on the next slide. On the fourth quarter number, which are strongly impacted by the mark-to-market of derivatives, the purchase price allocation amortization, UCS prices evolution and pressure on margin. Again, LeasePlan is not in the Q4 '22 numbers. Our Q4 '23 were strongly impacted, as I said, by those nonrecurring items. Gross operating income was down EUR 18.6 million to EUR 610 million in Q4 '23, despite the LeasePlan perimeter effect. Leasing & Services margin were basically stable versus Q4 last year. The entry of LeasePlan in the consolidation scope was offset by lower reduction in depreciation cost in a normalizing used car sales market. The negative impact of the mark-to-market of derivatives for LeasePlan, minus EUR 150 million, which is related to the fact that in Q4 alone, we have experienced a sharp drop in interest rates by almost 1 full percentage point and also pressure on margins due to, as mentioned by Tim, higher inflation and higher interest rates, driven by contract -- driven among other things by contract extension. In Q4 '23, all in all, Ayvens recorded EUR 10 million compared to EUR 124 million gain in the same period last year in terms of used car sales results. The drop is driven by the normalization of the used car sales market and the fact that we had anticipated some results when we reduced our depreciation cost in previous quarters. The impact of the purchase price allocation amortization on this item is minus EUR 193 million. And also we need to mention that in Q4, we have experienced industry destocking of terminated vehicles, including at Ayvens. As you can see, UCS profit per unit was EUR 1,706 per car in Q4 '23, which is still a high level compared to the exceptionally high EUR 3,054 that we have experienced in Q4 '22. We believe, however, that the Q4 '23 number was driven downward by the industry destocking I mentioned, which was there to optimize the stock of terminated cars at year-end. Operating expenses rose to EUR 511 million due to the consolidation of LeasePlan, the cost to income ratio, excluding UCS result, deteriorated to around 69%, excluding the reduction in depreciation costs, nonrecurring items and PPA. This is basically due to mostly to lower margin. We will start recording synergies in our P&L from '24 -- from 2024, and we will therefore expect this cost to income to improve this year. Cost of risk, as I said, remained low and finally, we posted a low EUR 29 million net income impacted by the mark-to-market of derivatives, the amortization of PPA, lower used car price sales and the pressure on our margin. If we turn to Page 16. As you can see on the graph, the used car sales market is normalizing and we are giving this information for ALD stand-alone as we have been guiding the market during '23 on the numbers for ALD stand-alone. So UCS profits are decreasing and it's clear that we had already anticipated some profit in the previous quarter, thanks to reduction in depreciation expenses. UCS profit per unit was EUR 444 per car in Q4 '23 versus EUR 1,919 last year. Including the impact of previous reduction in depreciation cost, this number would have been EUR 1,453 per unit in Q4 compared to EUR 354 million the prior year. Over the full year, UCS profit per unit, excluding the impact of reduction costs was EUR 2,344 per unit versus EUR 3,269 per unit in '23. This obviously reflects the normalization of the used car market. And you can see that the number of cost reduction in depreciation expense, the bottom line UCS stands at EUR 1,312 for the full year '23, which is within our guidance. As you can see, ALD sold in Q4 '23, about 20% more cars than during the previous quarters. The reason for that is that we optimize our stocks of terminated cars at the end of the year, we understand that other large players did the same and it weighed on prices. Therefore, the decline in prices per unit goes beyond the usual seasonal effect, where Q4 is slightly weaker than the other quarters. I will now comment on the Ayvens aggregated data on Slide 17. So the Ayvens used car sales results is also impacted by PPA and industry destocking of terminated vehicles. On this page, we have restated the previous quarters of Ayvens to dispatch the PPA impact to each quarter instead of allocating into Q4 '23 only as it is the case in our reported numbers. In total, Ayvens recorded a slight loss for Q4 '23, which is explained by the impact of previous reduction in depreciation costs and the impact of PPA over the quarter. Excluding this impact, Ayvens would have registered a UCS profit per car of EUR 1,706, reflecting lag for ALD, the normalization of the used car test market and the seasonality in Q4, plus the industry destocking. We are now going to get to the next section, which is the like-for-like performance analysis. So before I comment the figures, I'd like to spend some time on how we analyze the information which follows. It is an illustration of what would be a like-for-like performance, meaning stripping out the consolidation scope effect on the nonrecurring item. So we did full year '23. We build full year '23, the same scope as the one we have at the end of December, meaning including LeasePlan but excluding LeasePlan USA, which was sold in December '22 and excluding the [indiscernible] entity, which were also sold mid-year August '23. So let's move to the next page to see the like-for-like margin. You see on this slide the development of the margin on a like-for-like basis. Overall, and before exceptional item, total margin revenues are stable at minus 0.7%. This comes on the back of earning assets increasing by 14%, which means that our margin in percentage are currently under pressure. Again, we attribute this impact to higher inflation, higher interest rates and a long order book. You see in the exceptionals, you have a list of items including reduction in depreciation costs, fleet revaluation, hyperinflation in Turkey, the Ukraine provision, the mark-to-market of derivatives of which the reversal is very significant on the variation and also the PPA impact, which is a slight positive impact. Again, I am coming back to the mark-to-market of derivatives that we have commented mostly in Q3. LeasePlan was relying on a very diversified source of financing and to adjust for interest rates and to remain hedged on an economical standpoint, it had a book of swap as operating leases are not qualified under IFRS accounting as financial assets, we could not do hedge accounting on these swaps. So we have absorbed the mark-to-market volatility, which is creating accounting noise. In appendices, we give more details on the swap book as well. Its current mark-to-market at the end of '23 is positive EUR 78 million. And also, it is important to have in mind that its point-in-time sensitivity to interest rate has been reduced to EUR 10 million for each 10 basis points of variation, which is lower than the Q3 amount, which was 17. It is important to have in mind that should interest rates remain unchanged from today in the book and change as well, the pull to par would imply a EUR 78 million downward loss, which we have taken into account in our budget. In Q4, we have designated some of the micro-fair value hedging relation of derivatives and bonds, which has enabled to reduce the sensitivity. We will continue to proactively manage this book of swaps to have a lower impact going forward on our income statement. If we now turn to the next page, the like-for-like gross operating income, total revenue. So you find again the evolution of the total margin which is down minus 0.7%. And you have the results of used car sales before the impact of reduction in the operation cost and the impact on PPA. Before those impacts, it is a downward trend of 11.4% under the strict effect here of lower UCS prices. Overall, like-for-like, excluding all the nonrecurring, the PD, the PPA impact, gross operating income underlying would be down 4.4% between '22 and '23. Next page, 21, there is the like-for-like operating expense, so you see that on the full year, it is a relatively dynamic 10.5% increase. But you would see in the appendices Page 42, I remember, I think I remember that this increase is only 0.17% -- plus 1.7% in Q4 '23 compared to Q4 '22, meaning that we are more in control of our expenses towards the end of the year than the beginning in the midst of the integration of LeasePlan. Let us now turn to Slide 23. You see that the risk-weighted assets are going from EUR 56 billion in Q3 -- at the end of Q3 to EUR 57.4 billion at the end of Q4 '23. So there is an impact of EUR 1 billion of organic growth, which is representing earning asset growth and also a slight reduction in the order book in terms of impact of RWA. So the reduction in order book is EUR 300 million of RWA and there is the annual update of the computation of operational risk. As you can see, under the effect of results, but also of PPA, the CET1 is increasing from 12.3% to 12.5% at the end of December '23. I will now hand over to Tim, who will comment on our full year 2024 outlook. Thank you.

Thank you, Patrick. Let's move to Page 25 on our guidance for the full year. In a slow growth European economy, where inflation converges towards more normal levels and interest rates begin to decline, we expect new car registration to continue progressing compared to 2023. As a result, the used car market was further normalized. 2024 is another transition year for Ayvens. It's when our restructuring cost peaks and is also when we start catching the benefits from the LeasePlan acquisition. High inflation and interest rates will probably continue to weigh on our margins in H1 until our repricing materializes in the P&L by the end of the year. In this context, we expect earning asset growth between 7% and 9% versus December '23. This means a significant slowdown compared to '23, mainly the result of a slower transition to EV and more modest price effects. Our pretax P&L synergies of EUR 120 million confirmed, our cost to income ratio, excluding used car sales results, nonrecurring items and PPA, 65% to 67%. Used car sales results per unit between EUR 1,100 and EUR 1,600 on average, excluding the negative impact of reduction in depreciation costs and PPA, cost to achieve the integration of EUR 190 million confirmed a dividend payout at 50% in line with our policy and a core Tier 1 ratio of circa 12%. This concludes our presentation. Thank you for listening, and we are now ready to take any questions you may have.

[Operator Instructions] The first question is from Kiri Vijayarajah from HSBC.

Yes. A couple of questions, if I may. Firstly, on the digital platform, kind of interest in Slide 9. So you're showing EUR 262 million left on the balance sheet for the digital project, right? So should we think about that EUR 262 million as fairly locked down? Or is that going to be subject to periodic reviews as the implementation takes shape? And then that comment on the right about the -- reducing the CapEx by EUR 100 million. So does that mean you're still adding to the capitalized amount to the project? It just wasn't very clear from the side. So just trying to understand the mechanics of the capitalized amount going forward for the digital platform. And then linked to that look, I guess, more a question around capital is when you were thinking about the EUR 203 million write-down to that, how did you triangulate on that EUR 203 million as being the correct number in terms of trying to value the future -- ascertain the future value of the digital asset? And was your capital ratio are constrained at any point in terms of being more aggressive with the write-down because you've written down less than half of the amount. So I just wondered if the capital ratio was something you were concerned about at the back of your mind. And then turning to the used car sales result guidance, Slide 31. And there, you've got the EUR 331 million there on the bottom right, the negative impact that's expected to flow through in 2024. So just trying to understand, so does that mean there's no more extra reduction in depreciation going forward that's going to expand that stock of EUR 622 million and the P&L impact of EUR 331 million. So that's a fairly locked in number that we have to sort of factor in for 2024. And presumably, is that going to be front-end loaded in the first second quarter of 2024. So just trying to understand the mechanics around the EUR 331 million on Slide 31.

Well, thanks, Kiri. I think I'll hand over to Patrick for those questions and perhaps a quick update more on the program on NGDA from John a bit later, if necessary.

Yes. Thank you, Tim. So for the digital platform, we are still building some assets. So there are still some CapEx, albeit they have been reduced significantly and will be reduced significantly. So we will increase this amount as we go progressively, probably much -- at a much lower pace than before and these assets are subject to periodic revaluation. But now that we are in full control of the IT assets, we do not expect to do again some write-downs of IT assets. The EUR 203 million is a mix of market benchmark on this year valuation of the value of what we have on our books. So we are -- it has been a very detailed exercise and we are comfortable with the level we have decreased. So it's a relatively significant amount because at closing it was representing around 50% of the total value of the assets, which were on balance sheet. Capital ratio was not really a constraint there because most -- some of the assets were still under development and being deducted from CET1 ratio, so it's not something that we have looked at. I think overall, we have looked at the PPA exercise is something which is a very controlled exercise. It has been reviewed thoroughly by the auditors and is still being audited. And also overall, it's mostly related to the assessment of the market prices or the value that we can extract from the balance sheet. So I would not qualify the capital as a main constraint for this exercise. And in terms of your last question on Page 31, you see indeed the start of PDs EUR 622 million at the end of '23 and the one which will reverse in '24, meaning that the remaining part will reverse later. So your question, if I understood well, is do we expect today to take additional prospective depreciation in '24, in all frankness that will depend on market prices. So we need to see the first month of '24 develop to really see whether or not we anticipate such prospective depreciation or the other name we use this reduction in depreciation expenses, but it is the same thing. It's a bit early to tell at present because we don't have a lot of months in '24. You see what we can say is that UCS prices are behaving according to plan in Jan '24. We have not put any prospective depreciation in our budget because that should come as exceptional. And we'll keep you updated as we go into '24 on the level of the used car sales market, which is, as you have understood, a mix of several powertrain types, ICE, which is still a quite dynamic and well-supported market. PHEV, which is also a market which is behaving well in the second end market and BEV on which currently, there have been some price decreases in the market.

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

Yes. Tim, just a few ones. On this UCS result, I mean, you provided a pretty big range. You have stated already -- or you made already some remarks on that and that you think the assumptions are fair. But at the moment, is it right to assume that we should rather expect the lower end and what is the risk? So this could be even under shot in the course of '24. And then what I'm also struggling with is when we look at the declining new car prices, I mean they also come down a lot and you should benefit from that and you have got now the high purchase volume. When do we see an impact of these lower purchasing costs and in your results. So that means that when can we expect then that the lease contract margin is again turning around? I know leasing it takes time, it's not an issue that can change from one quarter to the next, but what's your feeling when the lease contract margin? So even on an adjusted basis, take all the one-offs out, can recover again? And the last one that I have is more on this hyperinflation in Turkey because you reported this negative item in Q4. Looking at the situation of the Turkish car market, is it a burden that we should also extrapolate into 2024? So that we -- I don't know, any guidance on the negative impact would be helpful.

Yes. Thank you, Horst. So to your first question about the -- I mean, it's true, it's quite a big range in terms of the used car sales results and it's reflecting a bit the volatility that we have seen in Q4. But as Patrick mentioned, actually, when we see January, it's coming in pretty much as expected and actually at the level of October and early November. I think the reason for quite a big drop in the last part of November and December was actually that several actors, including ourselves, were actually bringing down our stocks, so I think we're actually overflooded the market with used cars. We know that others did the same and some of the captives of the manufacturers have the same exercise. So it was a badly time at the end of the day. But we have seen that the dynamics of the used car markets are actually very strong in January, stronger than normal because January is normally not a particularly great month. And again, I think we -- the structural things that determines the used car prices is still very much in our favor. I think the question mark is really around the full EVs, because as Patrick said, the plug-in hybrids is actually trending quite nicely. So the question is a bit where they are. But obviously, we -- I mean, I would say if you should take a number, we are probably in between the range where we said EUR 1,100 to EUR 1,600 where we are today, and that's probably a good number to have in mind.

Just -- if I can step in here just quickly, when I look, for example, used car prices U.K. out to trigger reports and they have said that used car prices are down 6% to 8% on gasoline and diesel cars, 20% on BEVS. If I see these year-on-year changes, that should not alarm me about used car prices, that's not relevant for you. The prices that you see there are better than the numbers that get reported there.

Well, I think U.K. is a particular market, as you know, first of all, you cannot actually export the cars [indiscernible]. It's also true that if you look at the used car markets in the U.K., they went very, very high, I mean, so it's actually a natural correction of that as well. So U.K. is not representing what we see in Europe actually. That's quite clear, actually. So no, I would not be alarmed for the rest of Europe. As you know, we are selling more than 25% cross-border. So we are constantly moving cars from, let's say, the less-performing markets to the more performing markets and that we have a very strong capacity doing that. So no, I think actually, what we see in -- I mean, even in a country like Norway, which is today a real EV market, diesel cars are actually performing extremely well. So we don't see that pressure on those cars. I hope that helps you, Horst, on that.

Well, what's the average used car price declines that you expect for 2024, not speaking about your gain but just talking about market level used car pricing?

Well, we don't have that number. We don't give you that number. But obviously, what we are doing, as we have said actually already in Q3, we anticipate a normalization of the used car sales from now up till '26, ending, let's say, landing higher than in the past, again, because of supply and demand and other factors. So I think that's -- you can take that linear line basically and try to [indiscernible] where we would be there.

And if I may add, and the reason why we don't give specific indication on car prices in '24 is that it's a very diverse situation from a country to another. There still are domestic trends which impact mostly the prices. And add to your part of your question, we believe that in terms of margin it is mostly the level to which of interest rates and inflation, which is taken into account which will enable us to recover our margin, and we anticipate that this should start materializing in H2 '24.

Yes. Okay, okay. And the stuff on the purchasing costs, I mean when is this benefit coming through, you should see already a lot of benefit from that, right? So is it something that we see then immediately in the lease margin or it takes also some time before that feeds through? Or how long would that take until that feeds through?

Yes. So I think we have a big order book and actually, we are delivering the order book now, which obviously is priced typically 12 or 8 months ago, and that has an impact, which means it's washing out a lot of the new contracts. So as we said, it's going to be in second half of the year that we anticipate to start seeing the impacts of that. And I think, of course, when you look at all the procurement synergies, as we have said, it's around EUR 120 million for '24, which is part of that and a big part is coming from the negotiations we have with the manufacturers now. And clearly, the situation is in our favor for the time being and the manufacturers actually now have more costs than they can sell. So we are in a very good business in there. That was a quick question on Turkey, do you want to say on?

Yes. So on Turkey, there is some volatility in this market. So we expect that to continue going forward. We have valued the car stock. Actually, there is a decoupling between general inflation in the car market. So we have valued -- so we are valuing the car market with DCF for each car being prudent on that. We do not anticipate some -- the activities healthy there, but there can be some volatility related to hyperinflation accounting in '24. We will come back to you on that on a regular basis.

So -- but just that I get you right, it does not mean that you have got now every quarter, a negative burden. The negative burden just comes up in the case you need to do additional revaluation. Is that correct?

Yes.

Okay. All right. Got it. All the best for 2024.

The next question is from Geoffroy Michalet of ODDO.

A few questions from me. The first one on the new indexation clauses that you mentioned. Have you already passed those clauses to clients? And how can you really explain it? And I mean what kind of index do you use to link the price of the -- let's say, to link the billing because without the client being able to deduct what is the financing cost and what is the, let's say, the service cost? Also, you mentioned a more stringent capital allocation, does that mean that we could expect some divestments of countries or channels? Maybe could you also elaborate on which channels are a bit more suffering at the moment? Another question was on the, let's say, additional destocking effect that you mentioned in Q4 by you and the competition and also the captive. Should we expect further destocking in the coming quarters according to you? And also last question on your outlook 2024. You mentioned the growth of planning assets, could you provide us with a bit of volume and mix price assumptions?

Right. So Geoffroy, let me start, perhaps. So in terms of -- I mean, first of all, we have started putting inflation into our service and maintenance contracts as soon as we saw basically inflation. The fact is that we lock in the prices for the clients and in Western Europe, we have not really seen inflation for the last 10, 15 years. And hence, we have not had inflation factored in, in those contracts. But already, I would say, from mid last year we have been factoring in inflation covering what we have seen in the market at that point. And then it's true in some countries, we actually do have contracts in place where we can actually impose inflation during the contract -- life of the contract. We have 2 countries where we have done it already and a few others are in process, for example, Belgium, where you actually have a 4% legal requirement to increase salaries, you actually also have a position for also a potential opportunity for us to push that and we have done it and the customers understand and don't object to it. And in the other countries, we have done it. Obviously, the effects have been fairly smooth, I think we are not the only one basically who is doing that. And of course, going forward, we are now looking into some other countries where we have not had that opportunity to ensure that going forward, that's in there, basically. I think in terms of the destocking, clearly, our stocks are at the right level. We constantly monitor the stock and it's true that at the end of the year, we came up a bit too high and decided to push that. Now where we are today, we are fine. It's an ongoing -- so we don't anticipate a larger operation again. So that's it. On the 2024 guidance, Patrick, do you want to?

So yes, it's mostly driven by price still [indiscernible] increase, so the price increase will be lower than in '23. And for the time being, we anticipate volume growth of around 1%.

Capital allocation. Yes. The capital allocation, yes. So as we said, we are looking into, I mean, country segments, clients. We're actually identifying to some extent, where we should put our efforts. I mean would that mean we would divest, could do. At this point, there's no conclusions on that. Obviously, our countries today are profitable but again, we are looking at it in a bit of a different light, so we would not exclude anything from that.

The next question is from Matthew Clark of Mediobanca.

So a question on 2024 profitability, please. I'm struggling to kind of reconcile how all your individual guidance elements interact with each other for 2024. Consensus has a very wide range for net profit, I think, from EUR 700 million to EUR 1.2 billion. So can you help us understand what your earnings power should be reported basis in 2024, whether that's the EUR 100 million or an ROTE range, just something so that we can understand what your profit should be this year.

Hello, Matthew.

Yes, go ahead, Patrick.

And it's true that with the PPA, and everything that's going on in our industry, the disclosure is fairly complex. So let us please help you to find yourself in those numbers. So I think for '24, I would look probably on Slide 42, which gives you a view of the underlying leasing contract and service margin for Ayvens as a group, so it's around EUR 650 million per quarter. We say that on the full year '24, we anticipate margins to stabilize. So that's probably a good snapshot of what would be the average quarter in '24. So that gives you a view for the leasing margin. In terms of UCS profit, we have given a range pre-PD and PPA, which is EUR 1,100 to EUR 1,600. Post-PD -- post -- reversal of prospective depreciation and post-PPA, this turns into EUR 100 to EUR 600 level per vehicle. This is a wide range but again, we have had volatility in those levels. We will monitor that throughout the year. We do not take as a given that it should be on the bottom of the range, we more or less believe that thanks to the normalizing market condition in '24, we would be in the upper range of the -- upper side of the range, but we would see. We have also given you the synergies, which come on top of those numbers that you can here. I think you have a cost income ratio, which is clearly outlined from 65% to 67% excluding -- excluding UCS and excluding also cost to achieve, which should amount to around EUR 190 million. So all in all, I think we didn't disclose specific EPS, it would be a bit too specific but I think with that, you have a good idea of our income statement in '24, according to what we think today, and we will revisit that according to market evolution during the year. I hope it is helpful.

Okay. So just to be clear, the EUR 650 million kind of proforma like-for-like margin for the fourth quarter you think is going to be indicative of the reported figure for quarterly for 2024?

We think it will be indicative of the underlying number, and we do not expect, unless we have a very sharp decrease in derivatives for which we manage the book and but they are still a dual sensitivity, it might impact. But at current, this is the best we can expect for '24, yes.

Okay. So we still have to adjust that EUR 650 million number for depreciation effects and all the rest.

We don't know, but we don't expect to take new prospective depreciation, as I said, in '24. And the amortization of payday come in the UCS results, not in this line. And I gave you the UCS price per unit, post-PD. We might have to take positive prospective depreciation in '24, but it will depend on market prices. And we do not account for it in our budget, nor in the indication I give you now.

The next question is from Julien Onillon from Stifel.

2 questions. I just wanted to come back on the EV market and secondary markets. Currently, when you take in account the used car market, losses you are making on those markets, it's not profitable contract. And my question is, it means that somehow is your contract or the depreciation you are taking on those cars are not strong enough because when you resell it, it's making a lot at the end. And the contract in line on that is not good. So what your intention to do, how you can try to be again profitable on those markets, you're growing. There is strong demand for your clients, do you have to basically increase your price more significantly to make it profitable to shorten or to increase the depreciations? And the question behind that, you have take -- you mentioned you take some proactive profits when you were talking about the ICEs when the market was very strong. Would -- why not, you have not taken any losses in anticipation of the future used car market sales on EVs? That's the question and to understand really what you can do. Second question, more simple. On your [indiscernible] costs EUR 190 million you are planning to pass this year, how will sequence? Are you expecting to put those EUR 190 million [ anyone bullet ] in the end of the year or everything in the first quarter or you will be split over the different quarters? Because, of course, you can have a difference -- things can influence your profit on a quarterly profit.

Thanks, Julien. Maybe for the last question on the phasing of the cost to achieve, I mean, it comes throughout the year, basically, it's not a one-shot, the quarter, it's a big operation and it comes basically pretty passed all over the year as such. So on the EVs, it's true that Q4, obviously, we made losses on the full EVs, not the plug-in hybrids, which are actually performing very differently. And it's important to understand that only half of our EVs is full EVs. Now to be very honest, we have actually since -- for 2 years ago, we have been stressing those cars pretty much with the amount we have been losing in Q4 for 2 years, also on the plug-in hybrids, which is actually not seeing those losses. So in terms of the prospective depreciation has been reduced basically by losses, anticipated losses on the EVs or the full EVs as such. So that's one thing. And of course, in terms of the contract overall, so I would say even in some markets where we have seen some really heavy losses on some particular cars that was, well, completely out of range in terms of technology, the overall contracts have actually been profitable because we're -- contrary to what we have heard in the market that people are losing money on service and maintenance on EVs. For us, it's not the case, they are actually much cheaper than ICE cars. And overall, with the interest rates because it's also more expensive cars, so interest income we have had on these cars is fully covering the losses and more than that actually. So that's where it is. Now what do we do going forward? Clearly, there is a price decrease. First of all, a global price decrease anticipated over the next 4 to 5 years because the cost of producing EVs will come down. That's pretty much confirmed that we have to, of course, price that in to our customers will eventually have to pay more for an EV based on that. But we are working, first of all, with our clients very closely to a potentially longer contracts, second life lease contracts for them to absorb that as well. And of course, as the price gets cheaper, the overall cost of having a lease car is also cheaper at the end of the day. So the total cost of ownership will not necessarily reflect that to the full extent. And then to be very honest, the manufacturers, and we actually have some asset projection already with some of the manufacturers, which means if they do these very sharp decreases on prices, we actually reimbursed for that if it comes within a certain time frame. And all the manufacturers today needs to keep selling EVs. And they know that if they want to sell EVs to the most important EV segments, which is the corporate today, you see we are actually at 21% of EVs in the corporate sector, whereas if you take the overall market in Europe, it's actually 13%. And if they want to keep that trend they have to work with us, and we then need some kind of protection from the manufacturers in terms of their future pricing, and they are actually willing to discuss that with us. So we have actually quite a few mitigants on that. It's clearly our intention to keep serving our customers to the way they want. But clearly, the risk that is anticipated, we want to cover full, not to take any further risk or any more risk on EVs than on our ICE cars, for example. So I hope, Julien, that gives you a bit of a feel for that.

Yes. Very interesting and very interesting to hear that the manufacturer will -- you starting -- well, to pay you again to reimburse part of the difference of price when they have cut the pricing. Is this something which is significant right now, which is just an [ idea ] when have to be reimbursed from the price differential when they cut the price?

Well, as you can imagine, it's a confidential information. We can -- but clearly, we already have a few contracts in place and we already have received checks in the past weeks for that. So it's something that is existing. And I think something that -- I mean, I think the manufacturers, we -- our clients actually understand that EV and the transition to EV is not straightforward, and we all have somehow to find the right way to do it in an orderly manner.

So your residual value right now of the EVs inventories you are -- in your car, you consider they are fair value that there are no risk of further, let's say, losses or depreciations?

Yes. As I said, for the last 2 years, we have actually made a stress on EVs, including plug-in hybrids which is not affected through the same way. So yes, that's what is in our balance sheet.

The next question is from Sanjay Bhagwani from Citigroup.

Sanjay, you might be on mute.

Sorry, I was on mute. I have 2 questions as well. And my first one is just on the guidance for earnings asset growth of 7% to 9%. Could you maybe provide some color in terms of the split between what this means for the fleet growth versus the rest? So let's say, should we expect the fleet growth continuing to be at somewhere around 3% or what it was in '23, or this probably is coming down now? That's my first question. I'll just follow up with the next one, if that is okay.

Right. So on the growth, obviously, we have decided to actually now guide on earning asset growth because we think it's more relevant for the fact that we are now a regulated entity. But clearly, it's a fairly modest anticipated fleet growth of probably less than 1% at the end of the day. And it reflects, first of all, that we are still going through the integration. And the fact that we want to reprice the -- let's say, the business to some extent. So we think it's quite a prudent number. But as we are emptying out the order bank, which is, to a very large extent, EVs, obviously, the earning assets are still growing, as we said, between 7% and 9%.

That's very helpful. And my second one is on the written on these earnings assets. So if you look at, for example, the return on average earning assets on the underlying earnings for the full year, that comes somewhere around 5.7%. Now if I understand it correctly, in H1, this is going to go down, but in H2, this recovers based on all of the topics we discussed around more discounts kicking in, the new indexation kicking in and stuff like that. So how should I think of this for '24 in terms of the return? Because if you just use the previous indication you provided that was basically EUR 650 is the average quarter for the earnings, and if I multiply that by 4, then my average return, what that number implies is average return on assets of somewhere around 5.2% or something like that. So can this really be so low or this is more like 5.7% or roughly the same what it is in '23? That's my question.

Okay. Thank you for the question. So I think that getting to the right number, it's difficult to online because it depends on whether you take average or end of period -- end of various assets. But what we have said for '24 is that the -- we expect the margin to stabilize towards the year and maybe to recover second half of the year. So if you take the average on '23, there has been a decrease, which is related to the [ emptying ] of the order book to the fact that inflation was not correctly priced and that also interest rates were keeping increasing or kept increasing with this high order book, which was especially long. But going forward, we are taking measures to stabilize that towards '24.

So the average for '24 is likely to be similar to what it was in average for '23. Is that right?

No, I think the average for '24 is likely to be similar to what it was in Q4 '23.

The next question is from Reginald Watson of ING.

Tim, I'd like to come back to some statements that have been made in the past by ALD and the leasing industry and that relates to residual values. I believe the last time ALD made a UCS loss was in 2008 after GFC, and I think you explained it as sort of a disorderly market, everybody rushing to liquidate their stock. And it feels like we've seen the same again in Q4 this year. My understanding was the industry is consolidated, lessons have been learned, and we wouldn't see this occurrence again. Please, can you sort of give us a bit more flavor of why does this has happened? Because if I look at your destocking, there's a significant uplift in Q4 versus the prior quarters, why wasn't that anticipated and why did you and the rest of the industry choose to all destock at the same time leading to a weak to use car market? That's question one. Question 2 is on the whole issue of EVs and residual values. You've been very clear that second life lease the different characteristics of EVs versus ICE means that residual value risk on EVs should be a lot more limited than on ICE and yet here we are in a situation where EVs, particularly BEVs seem to be suffering more than ICE. So I'd like to understand how those protections and the second life lease and the easier maintainability and reusability of these vehicles isn't actually playing out as you had originally anticipated. So those are the first couple of questions, and I do have a couple of follow-ups, but shall we start with that, please.

Thanks, Reginald. But yes, to your first question, I think the picture of the used car sales in particular, Q4 is -- I mean, it's quite diverse. As you know, actually, the ICE cars are performing really well. As I said, the plug-in hybrids actually as well. And it's true that the EVs, the full EVs, obviously, took quite a hit in Q4. But again, in terms of volumes, it's quite insignificant in our overall numbers. And still is. I mean less than 10% of the fleet is fully EVs, and of course, it's going to come up. So I think the situation is very different from what we saw in 2008 -- back in 2008 at the financial crisis. I mean, typically, all markets actually stopped at the same time. This is not the case and actually, in terms of the EVs, like I said, we're actually doing a lot of cross-border with these because the markets are performing very differently. Actually in Norway, which is the most mature EV market in Europe, we are not seeing any losses on our EVs and it's not like they have different RVs to the rest of Europe. But obviously, there is a real mature secondhand market as well for EV. So the markets are actually performing very differently. And to be honest, the U.K. was probably the worst in terms of EVs in Q4 for different reasons. I think there's been a particular EV bashing in the U.K., to be honest, which have not helped and obviously -- but -- so it's not at all the same picture as we saw in 2008. And overall, our used car sales profits, if you take out the PDs and everything else, the market is very strong. So there's no comparison to that. On the second life lease, I mean, we still believe that, that is clearly one of the mitigants. Again, as I said, the numbers of EVs that we are selling is not that big. But if you go to Denmark, if you go to the Netherlands, I think close to 30% of our EVs exactly going on the second life lease today, which is too quite mature than last markets and it's, I would say, something that we definitely anticipate to be part of mitigating the potential downfall on EVs going forward. So we have industrialized in many countries, that capacity today but again, when you go to some of the markets it's quite limited numbers that we are talking about. But clearly, second life lease or third life lease for that matter for EVs, we still see as a very good opportunity and a risk mitigation on the future of these cars.

Okay. And just sort of as a side step on, but still on EVs, what do you think the message is that SAP has sent by delisting Tesla from their fleet?

Sorry, who was that?

So SAP, the software company that to my understanding is that they delisted Tesla from their fleet and they claim that the issue was too much pricing volatility in the Tesla new car purchase leading to volatility in the used market, et cetera, and it made their fleet management difficult. So I'm just wondering what your take on it is as an industry insider.

Yes. So to be honest, the way that Tesla is pricing is very bad for residual values. I mean having a list price in the market that goes up and down is portioned for residual value setting and we have been very clear with Tesla on that. It means that we have to take residuals down because we don't know what's going to happen. Now Tesla have different ways of handling that and is very keen on keeping working with us and other bigger players in the market. So they are coming up with solutions. But it's true, I mean, when you basically lower the price by EUR 4,000, EUR 5,000, it has an immediate effect on residual values and hence, Tesla is a difficult animal at the end of the day. Now Tesla is having a problem because they're only having electric vehicles and they only have quite expensive electric vehicles so they need to push volumes because now they're actually producing a lot of cars and hence, it's difficult for them. Now if you go to Volkswagen, I mean, they probably have given much more discount than Tesla ever did but they don't show it. They do it hiddenly and comes to people and say, I give a 40% discount on our product. And it's much more healthy for the residual value at the end of the day. But obviously, I think this is a personal thing for Elon Musk. He wants a price that is based on supply and demand to a large extent. But it's quite damaging for the market and it's -- I think for the long term, it's damaging for Tesla the way they do it.

Yes. Because I think a lot of the concern I'm hearing and this is something that I think you need to defend against in the equity narrative is that EVs are going to be the next Dieselgate and therefore, this is going to weigh, I think, on investor concern. But we'll move on from that. And my final question then is thank you for the disclosure on the NGDA. I am just wondering if you could please give us some examples of how you can stop the development of the system but still retain residual value. You mentioned that the assets are valuably reused and redeployed. I'm not a software engineer, so I struggle to understand how you can hold something halfway through and still have something usable at the end of it.

Reginald, this is John. Thanks for the question. NGDA, it's a digital architecture, which actually consists of around 30 or 40 different modules. So it consists of back-office, front-office tools, client reporting platforms, HR platforms, accounting platforms. So when we went through the PPA process and the reset of the strategy, we basically looked at each of those modules, we looked at what we had in ALD historically, and we selected the most appropriate module to take forward for the business. And therefore, what we've done is we've stopped new development on the modules that we won't want to use going forward. A good example being back office, LeasePlan made a decision back in 2019 to start building their own back-office platform because what they had was very old, very antiquated and almost technology obsolescence. So they had no choice. Now on the ALD side, we've got a more modern set of back-office systems in most of the major countries. And we've proven that we can use technology to open those up and deliver these wonderful digital journeys that we do for our clients. So therefore, we stopped the new development on the modules that we don't want to take forward, and that's reflected in a decrease in the capital expenditure going forward versus the position we were in September, and we'll leverage the existing platforms. But as Patrick said earlier on, some of the other modules where we do see value, and some examples of those are insurance modules, modules that support steering of SMR work to the appropriate suppliers, we will continue to invest. It's not one big system. Yes, it's not one big system, it's a multisystem.

No, I wasn't -- yes, I haven't quite understood the complexity of that. That's really helpful.

The next question is from Geoffroy Michalet from ODDO.

Again, coming back on EV residual value. You don't provide the -- on the number of cars you sell at the end of the lease, the -- let's say, the breakdown between EV, BEVs, and ICE vehicle. Could you maybe help us to quantify a bit that maybe not now but in the future? And also to help us understand how much of the drag down was led by EV vehicles in terms of the pricing, why you say that ICE keep a very, let's say, healthy profit, although it's down. I mean, where in fact, EV vehicles dragging down the average selling price that we saw in Q4?

Yes. Thank you, Geoffroy. Well, as you say, we don't give -- we can consider giving a more clear view on the sales of the different powertrains, so we'll consider that. As I said, we have 10% today of our fleet, which is full EVs. So you could anticipate that 1/10th of the sales is an EV basically. So if you look at 86,000 cars sold in Q4, well, you have about 7,000, 8,000 EVs that's been sold to a large extent. Of course, that number will increase because the penetration of EVs have -- is coming up in the order bank. But clearly, the new production will be much more aligned with what we anticipate in terms of residual value. So we are already taking actions in terms of lowering residual values. It's the right time to do it because with the lowering of the prices we have seen in the market, the fact that we lower the residual value means that the customer do not necessarily see the positive impact of the lower price, but they will not see an increase necessarily very much at least in the total cost of ownership of that car. So we are already taking action. So the future production will be in line with our anticipation that actually RVs will be lower on EVs. So -- but you could expect that around 10% of our sales today is full EVs, another 10% is -- another 10% is plug-in hybrids. And again, on the plug-in hybrids, they are actually performing much more like our ICE cars for the time being.

Mr. Albertsen, there are no more questions registered at this time.

All right. Well, thank you. I think that then concludes this call. So thank you very much for your questions and your time and do not hesitate to reach out to our IR team if you have more questions. Thanks a lot, and have a good day.

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