Ayvens (AYV) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you to Ayvens First Quarter 2025 Results Conference Call. Today's speaker will be Tim Albertsen, CEO; and Patrick Sommelet, Deputy CEO and CFO. I now hand over to Mr. Tim Albertsen. Sir, please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to this Ayvens Q1 2025 Results Call. I'm hosting the call with Patrick Sommelet. First, as always, I'll present the highlights of Q1, and then Patrick will comment on our financial results. And then we'll be able to take your questions. Let's go straight to Slide 5 on the key takeaways. Ayvens has started the year on a very positive note by delivering strong financial results across the board for the first quarter, showing a continued improvement on all financials, both revenues and costs. Starting with the revenues, margins have increased steadily both versus Q1 2024 and versus Q4 2024, reflected in margins representing 562 bps of average earning assets over the quarter. On used car sales, our results and depreciation adjustments reflect again a very gradual normalization with results per unit before depreciation adjustments at EUR 1,229, so less than EUR 40 below Q4 2024 and above our 2025 full year guidance ranging between EUR 700 and EUR 1,100. Our used car sales results also reflects the declining impact of depreciation adjustments. PPA on the lease assets being now fully amortized and the release of prospective depreciation reducing progressively versus previous quarters. Overall, the used car sales results and depreciation adjustment per unit stood at EUR 703, up versus EUR 689 in Q1 '24 and EUR 239 in Q4 2024. These strong revenues combined with lower costs resulted in a cost-income ratio of 58%, almost down 10 percentage points versus Q1 '24 and down 2 percentage points versus Q4 2024. As a result, our net income group shares strongly grew by 21% at EUR 220 million in Q1 '25, corresponding to an ROTE of 11% versus 9.4% in Q4 2024. On the balance sheet, as anticipated, our core Tier 1 ratio at 13.2%, as of end of March '25 shows an increase versus December '24, thanks to the application of the CRR3 since the beginning of the year. On debt capital markets, we issued EUR 1 billion worth of bonds in February at a competitive price, showing once again the strong appetite of debt investors for our bonds. Let's now turn to the next page on fleet and earning assets. Our earning assets grew by EUR 800 million versus March '24, reaching EUR 53.5 billion at the end of March 2025, representing an increase of 1.4% year-on-year. Over the same period, total contracts were down 3.8%, reaching 3.25 million units at the end of March '25. This variation reflects our strong focus on profitability in '24, which led to an in-depth reshaping of our portfolio. We proactively selected our best clients and partners to develop our portfolio going forward. This has led to some de-fleeting in the U.K., where we are restructuring our business footprint, notably in the retail segment, in Germany, in particular, on the subscription market and overall in Turkey. Excluding these 3 markets, the decrease in fleet is limited to 1.6%. In line with our strategic priorities for '25, we have launched a series of actions to initiate commercial momentum towards profitable growth, which I will detail in a few minutes. These actions will take a few quarters to deliver due to the usual time lag in our industry between commercial wins and effective deliveries of new cars. As regards to the powertrain dynamics supporting our earning asset growth, EV penetration in terms of car deliveries stood at 41% in Q1 '25, stable versus full year '24, with battery EV penetration at 30% and plug-in hybrids penetration at 11%. Let me now turn to Page 7 to give you an update on our integration. Ayvens has continued to deliver on its integration and transformation journey at a high pace with operating entities having completed their legal mergers and IT migrations in 4 additional countries since our Q4 2024 call in February. Migrations have now been completed in 11 countries out of 21 overlapping locations. As of today, more than half of the group's total fleet is managed on one single IT platform per country. The graph on the right-hand side of the slide shows some KPIs in the overlapping countries, demonstrating further strong progress of integration. 58% of these entities have been relocated to single offices in each country. 90% of them have completed the transfer of insurance contracts to their target scheme and supplier terms have been aligned in 95% of them. Besides, following the approval of our works councils on the group restructuring, Ayvens has now started to implement its target operating model for all corporate functions and IT activities, making our organization leaner, simpler and more efficient going forward. As a result of this outstanding execution, synergies have accelerated in line with our plans, both on revenues and operating expenses, reaching EUR 61 million in Q1 '25, of which EUR 42 million in revenues and EUR 19 million in operating expenses. This compares to a total of EUR 20 million in Q1 '24 and EUR 41 million in Q4 2024. Let's now turn to the next page on our plan to build a sustainable and profitable growth path. After reshaping our portfolio in 2024, resuming fleet growth in '25 with adequate profitability is a key priority for our group. To do so, we have launched a series of commercial initiatives in order to build a path to a sustainable and profitable growth, addressing all client segments with a specific and adapted approach, while monitoring closely our asset risk. For large corporates, which represents the core of our commercial franchise, we are leveraging our outstanding product range, digital capabilities, global footprint and scale to onboard new volumes and clients. Our efforts have proved quite successful so far, Ayvens recording several promising wins since the beginning of the year, Belgian Post, Constructel, Ferrero and Veolia to name just a few. On the retail segments, we are targeting private individuals and micro-SMEs through direct campaigns in selected countries or through our partnerships with 18 OEMs. In Q1 '25, we notably expanded our partnership with BYD to 7 additional countries, now covering 11 countries in total, and we signed a deal with Care by Volvo, which is the result -- which will result in the onboarding of around 3,500 vehicles in our fleet starting in Q2 '25. To support this approach with our customers, we plan to scale and expand products with the best prospect in terms of growth and returns, namely multi-cycle lease, light commercial vehicles, as well as growing our insurance penetration. In the context of EV transition, multi-cycle lease is a strategic product for Ayvens. Thanks to multi-cycle lease, we are extending our reach to the global public with an affordable mobility offer. And at the same time, we continue to generate revenues and reduce residual value risk by keeping vehicles longer in our balance sheet. LCVs, notably thanks to e-commerce and last mile delivery is a fast-growing market, where Ayvens is well positioned. A good example is the financial partnership we signed in Q1 '25 with the European Investment Bank for a EUR 350 million credit envelope, which will help us to roll out close to 20,000 electric LCVs within the next 3 years, showing our continued commitment to this segment. Lastly, insurance is another profitable growth driver. Our fully fledged insurance company, Ayvens Insurance, supports this growth of our service margins. All these actions contributed to stabilizing our order book and improving our order intake, showing a commercial momentum that will materialize in the second half of the year. Let me now hand over to Patrick to comment on our strong Q1 2025 financial performance.

Thank you, Tim, and good morning to all. I will start with a few words on our revenues on Slide 10. Gross operating income reached EUR 819 million in Q1 '25, an increase of more than 3% compared to Q1 '24 and close to 15% versus Q4 '24. This increase has been supported both by growing margins at EUR 708 million in Q1 '25, the highest level since the acquisition of LeasePlan and also by higher UCS results and depreciation adjustment at EUR 111 million, up EUR 6 million versus Q1 '24 and up EUR 73 million versus Q4 '24. If we look at the graph in the middle, underlying margins increased sharply versus Q1 '24, up EUR 69 million. This increase was partially offset by the variation in nonrecurring items. Indeed, nonrecurring items amounted to minus EUR 44 million in Q1 2025, plus EUR 5 million versus Q1 '24, mainly attributable this quarter again to hyperinflation in Turkey. Now looking at the right-hand side -- of the slide on UCS results and depreciation adjustment, EUR 111 million in Q1 '25 results from both a very gradual normalization of used car market prices and lower depreciation adjustment. I will come back to this in a few minutes. On the next page for margin, underlying margin stood at 562 basis points of net earning assets in Q1 2025 in continuation of the increasing trend seen in the previous quarters. This improvement is driven by our actions to restore profitability and is supported by the ramp-up in revenue synergies from EUR 20 million in Q1 '24 to EUR 42 million for revenue synergy in Q1 '25. These synergies are in line with our integration and financial road map that result from better procurement conditions and increasing insurance and short-term rental revenues. Total margin stood at EUR 708 million, up EUR 19 million versus Q1 '24. They were negatively impacted by nonrecurring items, as we said. And this shift is in nonrecurring item -- the shift is mainly explained by our penetration in Turkey this quarter. On the next page, for UCS and depreciation adjustment results. So Ayvens' Q1 '25 UCS results and depreciation adjustment reached EUR 111 million. This is EUR 6 million higher than Q1 '24, EUR 73 million higher than Q4 '24. We observed a slowing normalization of the UCS market in Q1 2025 with stabilized UCS results across all powertrains, including electrical vehicles. In parallel, depreciation adjustment decreased by EUR 64 million versus Q1 '24 and EUR 79 million versus Q4 '24. Volume of cars sold was up at 157,000 units versus 152,000 in Q1 '24 and broadly stable versus Q4 '24. Looking at the graph on the left, UCS results per unit stood at EUR 1,229 in Q1 '25 versus EUR 1,661 in Q1 '24. And compared to Q4 '24, the result per unit is normalizing very gradually, the decrease being limited to EUR 38 per vehicle. At the bottom right of the slide, you can see that depreciation adjustment amounted to minus EUR 83 million in Q1 '25 versus minus EUR 147 million in Q1 '24. In detail, PPA impact amounted to minus EUR 28 million in Q1 '25 versus minus EUR 75 million in Q1 '24 and the release of prospective depreciation amounted to minus EUR 55 million versus minus EUR 72 million in Q1 '24. The PPA of lease assets is now fully amortized. And as a result, there won't be any negative impact in the coming quarters. The indicated future impact of prospective depreciation release is available in appendices on Slide 17. As a result of slowly normalizing used car market prices and progressively decreasing depreciation adjustments, UCS results and depreciation adjustment per unit reached EUR 703 in Q1 '25 versus EUR 689 in Q1 '24 and EUR 239 in Q4 '24. Let's now turn to the next page for operating expenses. So total operating expenses are trending down, showing a decrease of minus EUR 17 million compared to Q1 '24. If we look at underlying costs, they are down EUR 26 million year-on-year, thanks to our continued cost discipline across the board compared to Q4 '24, operating expenses are up EUR 2 million, but Q1 '25 figures include a EUR 7 million charge for annual business taxes, which were fully accounted for in Q1 '25, as prescribed by IFRIC 21, fully accounted for in Q1 for the full year '25. Adjusted for it, underlying costs would be down by EUR 5 million versus Q4 '24. Cost to achieve amounted to EUR 36 million versus EUR 27 million in Q1 '24 and in line with plans. As a reminder, our guidance for the full year CTA is between EUR 115 million and EUR 125 million. Combined with higher margins, these lower operating expenses generated strong positive jaws with cost income at 58%, down roughly 10 percentage points versus Q1 '24. Let us now turn to the next page for the rest of the income statement. First, on cost of risk, so the cost of risk decreased by EUR 2 million versus Q1 '24 at EUR 31 million or 23 basis points of average earning assets. Not much to comment on this item, which is in line with previous quarter and our expectations. Q4 '24 was a bit elevated due to a few one-offs that we indicated previously. Profit before tax is up 12.5% versus Q1 '24 at EUR 316 million, as a result of increasing margin and used car sales results, lower operating expense and a lower cost of risk this quarter. Effective tax rate stands at 30%. This is in line with indication for the year. And the net income group share is strongly up at EUR 220 million, an increase of 21% versus Q1 '24 and 38% versus Q4. On the final slide, we comment on RWA. So as indicated previously, we benefit this quarter from a strong decrease in operational risk charge, leading to a minus EUR 3.4 billion lower RWA for this risk. This is partially offset by an increase of EUR 1 billion RWA due to off-balance sheet items linked to the order book guaranteed on forward deposits. And again, this is at least very largely due to the application of CRR3. And with a CET1 capital at EUR 7.5 billion at the end of March '25, our CET1 ratio stands at a high 13.2%. This concludes our presentation. Thank you for listening. We are now ready to take any questions you may have.

[Operator Instructions] The first question is from Sharath Kumar of Deutsche Bank.

So I have 3, please. First one is on margins. I wanted to understand the sustainability of your strong leasing and service margins. 562 basis points is quite above your guidance. So should we expect some softness going forward, especially in the second half when volumes are expected to pick up? So basically, how should we think about the margin evolution from here and moving parts? That's the first one. The second one is on the used car sale result trends. Obviously, encouraging results, but how do you see the market evolving, particularly in the context of any second order impacts that you see on the residual values from auto tariffs? And the final one is on capital. CET1 quite healthy at 13.2%. How should we think about your excess capital? Should we expect any extraordinary distributions in the near future? Is this contingent on any events like, say, clarity on the U.K. motor finance provisions?

Thank you, Sharath. Let me take your 2 last questions first, and then I hand over to Patrick to give you an input on the margins. So I think on the capital, you're right, we do have excess capital compared to our targets. And as we have said in the past calls, we do not anticipate to keep that. Now we will propose to our Board during the year exactly what to do and in what form it will happen. But obviously, we have said we will be above 12% of core Tier 1. We expect to trend around 12.5%, 12.6%. So anything above that would be eligible for a potential [Technical Difficulty]. On the used car sales, I think what we see in the market is pretty much what we have seen in the past quarters that the ICE cars are trending better than anticipated. So they are holding up better. It's really around supply and demand. And on the EVs, what we have seen in the last probably 2 quarters is that they are stabilizing, still doing losses on the ones that we have been putting on the books until mid-last year, but obviously stabilizing and in some countries, actually improving slightly. There are some markets that is still trending at very high losses. But overall, stabilizing. And we do not necessarily see that, that will change dramatically over the year, the coming quarters. I think what -- I think Patrick already mentioned that obviously, the PPA exercise or impact will actually disappear from Q2 and onwards. And of course, the prospective depreciation will also actually decrease going forward. And so, the markets are holding up quite well. There is actually a good demand for used cars and in particular, for our cars, which is typically 3, 4, 5 years old in a very good quality. And we still expect the normalization to happen, but probably at a bit slower pace than was [Technical Difficulty]. On the margin, Patrick?

Yes. Thank you. On the margin, it's the 562 basis points is a bit higher than the number we were expecting. Again, we have no guidance, no formal guidance on this number per quarter because it's difficult to monitor with this level of precision. What is good this quarter is the level of the various components of the service margin across the board and all its various components are boding well. It's coming from both insurance revenues, which are benefiting from slightly better damage ratios in some countries, also coming from FMG, repair and maintenance and tires provisioning, which is also now starts to be better priced in the contract and the costs have been leveling down a bit. The short-term rental revenues are also roughly stable and the others as well. So it's across the board, quite a decent performance in terms of service provided to our clients. It's also the rollout of the synergies, which is taking progressively some effect. So a good quarter. It's not a guarantee that we will be at these levels in each quarter, but let's say, we are working hard to sell more to our clients.

The next question is from Kiri Vijayarajah of HSBC CIB.

A couple of questions, if I may. Firstly, can I just come back to the excess capital question and specifically, how does the regulator view your U.K. motor finance exposure? I mean, do they need to see some clarity there before letting you make additional capital return beyond that 50% payout ratio target? So is U.K. motor finance a bit of a roadblock or not in your discussion with the regulators? And then secondly, more a high-level question in the context of this kind of greater appetite to use taxpayer money to drive growth and investments in Europe. I just wondered where the company car EV schemes fit into that. Could we see more subsidies in that direction? I know there's been some talk. Or is it maybe more the opposite that political priorities are rather moving away from electrification targets. So just your kind of high-level thoughts on how you see that evolving in Europe, please?

Yes. Thanks, Kiri. So I think on the U.K. situation, as you know, there were the first hearings took place in April, early April. And we anticipate, obviously, whether it's a verdict probably July, August, September, we would anticipate to have full clarity on that. And it's fair to say that at this point, we have not discussed with the regulator around our excess capital and the U.K. case. Clearly, we want to have ourselves kind of certainty for where that case is going. As we have said many times, we feel adequately provisioned with what we got. And we say the outcome of the first hearings have not changed our view on that. But before that case is somehow concluded, it's probably fair to say that we would not necessarily go either to the regulator, to our Board with the proposal for excess capital. On the EV targets, so I think our feeling is, and we're actually very close to Brussels and spending some time try to lobbying also our interest in what's going on in terms of electrification mandates and all the other things that is on the table. The European Commission do not look like they want to give up the targets for electrification. I think the overall -- I would say, the overall speech is that they want to see electrification in Europe, that they have obviously lightened out a bit the CAFE rules to give the manufacturers a bit better time to get aligned with expectations. And -- and what we see from our clients, especially our big corporate clients, they have not walked away, at least at this point from wanting to also electrify their fleets. So we are not seeing any changes there as such. I think what we have seen in the first quarter and maybe coming back to a potential question around volumes. There has been quite some fiscal changes in France and in particular, Italy around benefit in time for company cars, which has actually slowed down some decisions on renewals or getting new cars in. That is more or less behind us. We start seeing that these large clients is now back and have readjusted their car policies and then is moving on. So we don't see a big change there as such, in terms of electrification. And as you saw, we are still at a high pace at 30% of EVs coming into the fleet. So we have not seen a reduced appetite for that at this point. Clearly, the regulators seem to be pushing us.

The next question is from Julien Onillon of Stifel.

Just like to come back a bit with the guidance of '25, in particular the UCS. For the full year when you publish your results, you target between EUR 700 and EUR 1,100 per unit, which is obviously, Q1 is much higher with EUR 1,200. And you have not guide anymore, not repeat the guidance officially in the quarterly. And you mentioned, but you just mentioned, by the way, that the used car market is stabilizing, even some markets like Germany are up, for instance, in terms of pricing, which means that effectively, we should remain close as probably to the EUR 1,200. So why have you not revised your guidance officially on this aspect? Or maybe you have not and so it's why you have not disclosed any guidance to want to see 1 quarter more before eventually revising this guidance?

Thanks, Julien. I think it's fair to say that even if things are moving in a nice direction and there seems to be a bit better, let's say, performing in Q1 here, the electrification and electric vehicles have shown very volatile. So we -- and we do also anticipate to some extent, the ICE cars would normalize. You saw they have normalized a bit as well in '24 -- compared to '24. And then, of course, there is, to some extent, the question around the whole global economy with the tariffs and the trade wars that potentially could have some impact. And hence, we don't think it's the right time to change our guidance. Potentially, as you say, when we get a bit further down the road and we see that things are moving according to what we have seen so far might be the time, but not at this point. I think clearly, what you can say -- think you can say is that we -- where we are today, I think we'll probably be in the upper end of the guidance that we've been giving.

So the guidance is still remaining officially even it's not been disclosed again in the press release.

Sorry, I didn't get that. Sorry.

The guidance is not in the press release, repeat. I mean, it's not -- you have not [Technical Difficulty] guidance officially, but it's still the same.

Yes, yes. Well, we don't -- this is a business update. So it's not for us to change our guidance at this point.

The next question is from Geoffroy Michalet of ODDO BHF.

I have one, it is linked to the strong margin that you had 562 basis points. Is it fair to say that it means that you are now at ease enough to be maybe a bit more aggressive commercially speaking so that we could potentially see a slight degradation in the coming quarters because you would like to reignite the growth, for instance. Notably, we saw that the number of new cars this quarter was a bit weak.

Yes. Thank you, Geoffroy. So I think the level of margin we saw in Q1, I think, coming back to [indiscernible] quarter-by-quarter, it's -- it is varying a bit. But obviously, where we are today with margin gives us some flexibility, first of all, that at the end of the day, if this is the level we are at, we do not necessarily need to grow as much as we would anticipate. But it's also fair to say that we do think we should start growing again [Technical Difficulty] areas, where there is good opportunities to do so, which would also mean that we would probably be a bit more aggressive on the pricing and hence, it could have an impact over the remainder of the year in that sense. So I think where we are today, first of all, we do not guide on our margin. First quarter, I think, was very good and all the elements of margin was actually -- did really well, also based on a lot of actions we have been taking over the last 18 months. So that gives us a good comfort, and it gives us some flexibility, I think, in the coming quarters to do what we want to do.

[Operator Instructions] Mr. Albertsen, there are no more questions. Back to you for any closing remarks you may have.

Thank you. Well, thank you all for listening and for your questions. So that concludes basically our call today. Our IR department is very happy to answer any questions you may have outside of this call. Thanks a lot, and have a good day.

Thank you. Bye-bye.

Ladies and gentlemen, this concludes today's Ayvens conference call. Thank you for your participation. You may now disconnect.