Société Générale Société anonyme (GLE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Societe Generale conference call. I will now hand over to Mr. Frederic Oudea, Chief Executive Officer. Mr. Oudea, please go ahead.

Hello. Good morning. I hope you can hear me. Checking the technicalities. It's okay? Great. Okay. Well, listen, good morning to all of you. And first of all, a very happy new year to you and your loved ones in this still uncertain environment, but let's hope we will be able at some point to turn the pace of this pandemic. We are really delighted to have this conference call on this announcement of this proposed transaction. So what I'd like to do is with my colleagues to briefly present this transaction. I will make an introduction then leave the floor to Tim Albertsen, who is the CEO of ALD, who will enter more in detail in the rationale -- industrial, strategic financial rationale for ALD. Then Diony Lebot, Deputy CEO, in charge, in particular, of supervising this business and who is the Chairwoman of the Board, will comment on its impact beyond just ALD but also on Societe Generale. And I will conclude. Let me first start with the first slide. Clearly, this proposed combination of ALD and LeasePlan that we had, of course, announced a few months ago is a unique and rare opportunity to create a global leader in a growing and highly promising industry that is undergoing a deep transformation. NewALD will be at the forefront of the 3 fundamental trends underpinning the ongoing mobility revolution. First of all, with respect to cars, there is a profound shift from ownership to user-ship with an accelerated evolution towards mobility as a service. Second, rating environmental awareness as well as evolving regulation leads to an increasing demand for electrical vehicles and sustainability mobility solutions, in particular, through multi-cycle, flexible and multi-modality solutions. And third, as you know, the sectors but, of course, in particular with this sector, this industry is facing an asset-driven digital transformation with demand for -- and opportunities for digital services acceleration. So again, it's a formidable transformation ahead for the next 15 years. And really this company will be able to take advantage to benefit from these structural trends. This company will effectively benefit from expertise, which are complementary, increased investment capacities, and again, with a leading position with different clients be at the forefront of this transformation. From a value creation perspective, it's beneficial both for ALD and its shareholders and for Societe Generale shareholders. For ALD and its shareholders, the EPS accretion is estimated at 20%. For Societe Generale shareholders, we estimate that it would lead to an EPS accretion above 5% in 2024, a return on investment of 16% and an uplift of our tangible return on equity of around 80 basis points in 2024. Let's turn to the next page. I just would like to highlight here the formidable development of ALD in the last 20 years, which is really the result of the long-term vision supported by disciplined execution. Let me just remind you that in 2001, ALD was, at the end of the day, a relatively small company Societe Generale bought with less than 300,000 cars. And then we embarked in a development made of organic and bolt-on acquisitions with a milestone in 2017, which was the major one, the IPO, which had already, as the purpose, the opportunity for consolidation in this market. And at that time, we had 1.5 million vehicles. We pursued the development again in the same way with, for example, recently an announcement of this bolt-on acquisition of Banco Sabadell with also acquisition of start-ups to enrich the model. And of course, where we have now this milestone opportunity, as previously described, which will lead to, again, 3.5 million vehicles, which will be managed by this company. Let me now go through the structure, and I must say I have highlighted to you in previous presentations that we were taking the time to really optimize the transaction, negotiate the terms in a very disciplined way. This slide is trying to summarize the transaction. You can see effectively what we are buying. The total consideration paid for LeasePlan is EUR 4.9 billion. It corresponds to a multiple of around 6.5x the underlying annualized 9 months 2021 results of LeasePlan. The price is based on the net asset value of EUR 3.5 billion for LeasePlan, which will distribute its surplus capital to its shareholders ahead of closing. The transaction is structured as an acquisition by ALD of LeasePlan through a combination of cash and shares with a high proportion of share consideration, thus aligning interest of Societe Generale, ALD and selling shareholders in the success of the merger. LeasePlan shareholders will receive 30.75% of the NewALD as well as warrants equivalent to an incremental 3% of the issued share capital of ALD at closing and equivalent to an incremental 2% ownership on a fully diluted basis. Combined with a 12-month lockup period, this is the kind of confidence in the value creation potential of the transaction from a LeasePlan shareholder perspective. In addition, LeasePlan shareholders will receive EUR 2 billion in cash, EUR 2 billion, which will be financed by ALD through around EUR 1.3 billion right issue and the use of around EUR 700 million of surplus capital. Societe Generale will underwrite the right issue and participate in order to achieve a 51% ownership on a fully diluted basis. I really believe this is an optimized structure. It allows Societe Generale, again, to build a formidable leader in this mobility market whilst remaining a long-term controlling shareholder of ALD. It is aligning all the stakeholders in the success of the transaction. The price, as highlighted by many of you, is very disciplined in a world of inflated asset valuation. And it also enlarges the free float of ALD in absolute amount, hence, improving liquidity and attractiveness of ALD share. Let me mention that we expect the closing of the transaction to take roughly 12 months, and we have the ambition potentially to close at the end of 2022. If I turn to the next page, let me just then highlight some really very key features of the benefit of this transaction for Societe Generale's business model. As you know, I think this transaction fits very well with our strategic vision, which is to focus on businesses where we have leadership positions and the mobility success is one of them and where we see growth opportunities and innovation capacities. The combination is clearly also an illustration of our objectives to allocate selectively capital towards the most profitable and most promising businesses in synergy with the rest of the group. Third, as we enter this formidable resolution around ESG, let me highlight that we see this transaction as a clear illustration of our capacity to accompany the economies, our clients in their own transformation, and with the energy transition, I'm very confident, very convinced that for companies as well as people, the capacity precisely to embark in the change of usage of cars with electrical vehicles is clearly a way to demonstrate our own willingness to participate. So I'm really very, very positive. And it's, again, a clear sign of our own commitment to act and engage with our clients. Needless to say, as I have told you previously, we wanted to ensure a manageable impact on our capital. And as you can see, as previously mentioned, the 40 basis points of impact of Societe Generale means we are absolutely in line with this idea of allocating 50% of our capital to the businesses through organic growth and also this kind of very value-creative acquisitions and 50% to the distribution -- in terms of distribution to our shareholders. I would like now to turn the floor to Tim, Tim Albertsen, who will comment more in detail on the mobility industry trends, and of course, the transaction for ALD. Tim, floor is yours.

Thank you, Frederic. Yes, good morning to everyone. So with this transaction, we are creating a global champion with a unique business profile both in terms of size and strength. But this is only one side of the story. The other side of the story is that the mobility landscape is one of the most attractive and exciting growth industries today. And the NewALD will be in a perfect position to drive and lead this fundamental change going forward. So when we look at the mobility sector, it's on the severe transformation together with the automotive industry as well, and I think Frederic already mentioned, the main trends is the data-driven digital transformation, the fact that people are moving away from ownership to user-ship. And that typically the development of innovative mobility solutions, in particular, to the multi-cycle and flexible and multi-modality solutions are in high demand, both from corporates and consumers, and not least the fact that the fleets are getting -- becoming electrified going forward. And all this is actually spelling a lot of growth opportunities for a business like ALD. The trends are reshaping the sector and creating tremendous growth opportunities as illustrated on the right-hand side of this slide with the emergence of new addressable segments such as B2B2E, which is typically where we serve not just the people who are eligible for company cars in our corporate segment but all the employees of the company and together with an expansion of products and services offered, which some areas such as subscription and flexible contracts, which actually is anticipated to grow by more than 25% per annum for the next 10 years. On Slide 9, just a quick word on ALD as of today. We are already a leading player in this industry. And it's, let's say, a leading position not just due to sizable growth but also the fact that we have a very balanced business model in terms of geography mix and client base but also in terms of channels. And we have a very, let's say, innovative culture that has allowed us to innovate and make new value proposition for clients, thanks to a broad product offering in terms of services, digital capacity, and let's say, new mobility products. We have actually close to 30% of our deliveries in 2021 is electrical vehicles, so we are clearly having a leadership in terms of sustainable mobility already. And obviously, we have had some exceptional operating track records in terms of the best cost/income in the industry. The key differentiating attribute of ALD, which are an impressive growth journey, more than 7% CAGR since 2017 while maintaining a best-in-class operating efficiency with a cost/income ratio of below 50% as of the 9 months of 2021. ALD operating excellence is a major reason why we are uniquely positioned as the partner of choice in the industry for our clients, our employees, for the society and for LeasePlan. Together, ALD and LeasePlan will be even better equipped to play a major role in the mobility revolution that is undergoing. On next slide, what is highly attractive about ALD and the LeasePlan combination is that they are 2 leading players of the industry who present compelling complementarities while offering at the same time outsized potential for synergies and value creation. Indeed, ALD and LeasePlan have a highly complementary business mix and footprint, complementarity client base with limited overlap across the full spectrum of corporate, SME clients and consumers. Both players are trendsetters in the fast-growing private segment. We have a complementary European footprint and a global reach with top 5 franchises in most LatAm and Southeast Asian markets. And ALD has a striking strength in the partnerships well complemented by LeasePlan's track record with large corporates. And LeasePlan's deposit collection capabilities further diversify our ALD funding mix. Equally, the combination of the 2 franchises will result in synergies generation through an alignment of business models by enhancing the client coverage and segments, expanding the product offering to a particular extensive digital capability, broadening of the remarketing capabilities through a multichannel setup and a partnership with CarNext, and it will definitely improve the funding structure of the combined entities. So the combination of ALD and LeasePlan will play a leading role in the accelerating shift towards mobility as a service. For corporates, through a unique position to address the emerging complex mobility needs; and for individuals, through a unique ability to propose innovative mobility solutions to address changing mobility vehicles. We are strongly convinced that the combined entity will be best positioned to lead a data-driven digital transformation of the sector. This is due to ALD and LeasePlan's strong digital and innovation DNA as well as the combined entity increased investment firepower it will have going forward. And last, but not least, NewALD will have the size and capability to be a major player in sustainable mobility steering and facilitating the convergence towards electric vehicles. Given its global leadership and enhanced capabilities, the NewALD will be well positioned to capture an outsized share of the expected market growth. Our business will be structurally growing, and we expect the total fleet growth equal or above 6% post integration above the market, which is expected to grow around 4%. Let us take you through second part and talk a bit about the value creation. The combination of ALD and LeasePlan will crystallize a number of financial benefits. First of all, following the transaction, ALD's target cost/income ratio will improve from a range of 46% to 48% to approximately 45% in 2025. Thanks to the natural scale effects resulting from the transaction as well as the realization of cost synergies, the cost synergies has amounted to around EUR 380 million pretax on a run rate basis and will come from both procurement and other cost synergies will be fully phased by 2025. We are confident that we will achieve these synergies as we have been conservative in particular on the procurement synergies. But to give you a bit more color on the synergies, first of all, procurement synergies would account for the main part, not 50%. Savings will come from various purchases made by NewALD as well as from some services and indirect spendings. Procurement synergies might appear to be important. But to give a bit of perspective, they just represent around 1% of the annual procurement spending of the combined entity, which is around EUR 18 billion. This can be seen as rather conservative, we believe. Second, other cost synergies which are expected to materialize mainly through IT integration, operational efficiency and the rationalization of the real estate footprint as well as the rollout of ALD superior operational and technology capabilities across the combined companies. In order to achieve these cost synergies, we have anticipated restructuring charges pretax to be incurred in 2023 and 2024 that would represent around 1.25% times the amount of expected synergies, around EUR 425 million. Next slide, at Slide 14, give you some color on the capital structure and the robustness of the balance sheet of the NewALD. NewALD will be applying for financial holding status, which will widen its funding options going forward. The targeted capital ratios of NewALD at close will be circa 13% CET1 capital and a total capital ratio between 15% to 16%, which will provide comfortable buffers in terms of regulatory requirements while improving the capital structure. SocGen will, of course, continue to support ALD and its funding needs as it has always been the case, which obviously brings flexibility in the funding requirements. NewALD will also benefit from the well-established presence of a LeasePlan bank in Germany and in the Netherlands, where it collects deposits, which will contribute to the diversification of the funding for NewALD. The liquidity, the funding support from SocGen and the fact that NewALD will become a regulated entity should be seen favorable by rating agencies. NewALD is targeting a rating at least in line or better than ALD's current ratings, which is a BBB with Standard & Poor's and BBB+ with Fitch. Overall, NewALD as a regular entity with a strong rating should benefit from an even better market access going forward. Next slide. So in addition to the scale effects and the cost synergies, NewALD is geared to generate additional value in 3 main areas: partnerships, investment capacity and being part of Societe Generale Group. The combined entity will serve large corporates, SMEs and private customers in more than 40 countries with a broad product offering and a total fleet of 3.5 million vehicles. The combination with LeasePlan will allow ALD to leverage its track record in partnerships for additional development through the LeasePlan footprint with more than 150-plus partnerships. The transaction will boost significantly the innovation and digital capabilities of NewALD with an enhanced firepower to invest into IT with a combined strategic investment in digital totaling close to EUR 400 million on a pro forma basis. These combined investments are expected to drive top line growth, cost efficiency and bottom line expansion. The diversification of the remarketing setup and the access to a broad pool of talent will also be a key driver of their expert performance. Equally, NewALD will keep benefiting from the strong support of Societe Generale, in particular, access to the bank's client base, creative and funding support but also best practices in terms of risk management, compliance and governance. In addition to scale effects on cost synergies, the enhancement of the business model of the combined entity will contribute to generate even more value. On the next slide, just to summarize. The numbers highlighted here show the strong strategic rationale of the deal, which translates into an attractive financial effects and delivers highly compelling value to the ALD shareholders. Starting on the left side, as you can see, the NewALD financial targets are very compelling. Cost/income target of circa 45% resulting from structurally strong operating leverage through continued operational excellence and realization of the cost synergies; strong capital return to the shareholders with a dividend payout of a target of between 50% to 60%. As illustrated on the right hand, this combination translates into a very attractive and powerful transaction with a close to 20% EPS accretion for the ALD shareholders. And with that, I hand over to Diony to take you through the next section.

Yes. Good morning to everyone. Indeed, this transaction is reinforcing a business with sustainable profitable growth and recurring revenues. It is highly accretive for the group and for its shareholders, and it will further reinforce a major business within the group, which has strong fundamentals. As mentioned previously by team, growth prospects are strong with the fleet growing higher than 6% per annum post integration. Second, our revenues are resilient and recurring with a high share of services and long-term contracts, a high share of fees around 50% for the combined entity and the low cost of risk across the cycle. As such, it will result in a significant improvement by around 80 basis points of the return on tangible equity at Societe Generale Group level. So let's now move to ESG. As already said by Frederic, ESG is at the heart of the strategy of each and every one of our businesses. But it's even more the case with ALD and this mobility opportunity. Electrification is experiencing a strong acceleration with a number of battery-powered electric vehicles and hybrid electric vehicles expected to triple between 2020 and 2025 in Europe. So we estimate that 1/3 of the market of passenger car deliveries will be electric vehicles in Europe by 2025. Our clients will hence be offered attractive financing terms for electric vehicle purchase as well as electric infrastructure solutions such as home chargers, charging parts, et cetera. The ALD combined with LeasePlan will be very well positioned to lead and promote the transition, thanks to complementary expertise in partnering with key players in e-mobility. They will also develop new services around multi-modal and multicycle offerings to address clients' changing needs. Furthermore, the combined entity will have the innovative firepower, as already explained by Tim, to accelerate the time-to-market delivery of new sustainable mobility solutions. It will create additional momentum to deliver industry-leading ESG performance and accompany clients in their energy transition. So the acquisition of LeasePlan will be highly value creating for Societe Generale shareholders. With the combination, the EPS of Societe Generale is expected to increase by more than 5% in 2024 based on the consensus and the return on tangible equity by approximately 80 basis points, on Slide 20. In addition, it delivers a very compelling double-digit return on investment, above 16%. Overall, thanks to its optimized structure, this transaction will have a limited impact of 40 basis points on Societe Generale core Tier 1 ratio. Regarding the transaction timetable as in this today, it is relatively standard for such transformational transaction. We will start the works council consultation in Q1 along with regulatory sites. The signing of the framework agreement is expected in Q2 2022. ALD rights issue will be launched in second half of 2022 once regulatory approvals are received. And we estimate the closing in Q4 2022. Very importantly and as you have probably heard this morning at ALD analyst conference call, we want to highlight that we can rely on very seasoned and experienced management team, led by Tim Albertsen, and motivated teams that are truly committed to achieving a successful integration. So we plan to complete integration in the main 12 countries within 18 months and to fully implement the target operating model by 2025. So with that, I'll hand it to Frederic for the concluding remarks.

Thank you very much, Diony. I just would like to highlight again the extraordinary unique opportunity we are citing. Let me just mention that it's really the decision made in 2017 to float ALD, which has allowed us to structure the transaction as it is structured in a very optimized way, I think, for ALD and Societe Generale. And I'd like to really highlight that, here, we should think about a 15-year story that we are just embarking. As market participants, I'm sure we will consider and we will focus a lot on the next 3 years but much beyond when we think about what is happening. Regarding, as I've said, the usage of cars, the change of behaviors, the change of the nature of the assets, and here, I'm not even considering the autonomous cars, which was commented in an Anglo Saxon newspaper this morning, there is again a fantastic opportunity to cite and we are going to be a leader to cite that. And I'd like to tell you that I consider this move as the beginning of the creation of the refer pillar in the business model of Societe Generale alongside our retail activities, alongside our wholesale activities and that we have here wonderful options for growth and profitability much beyond the next 3-year period, which would be dedicated to the integration. So I think it's really a historical milestone for the group, and I consider this move as a real opportunity for our shareholders. That's what I wanted to say as the conclusion. And now we are happy to take your questions. Again, let's try to strive to this good discipline [Operator Instructions]. Floor is yours.

[Operator Instructions] So first question is from Madame Flora Bocahut from Jefferies International.

First of all, congratulations on this transaction. I have 2 questions I wanted to ask you. The first one is regarding the 5% EPS accretion that you mentioned in the slide pack. Just wanted to understand the assumptions you made regarding the acquired scope. More precisely, do you expect to have to sell part of the combined entity for antitrust reason? And how have you taken that into account when you guide us on the 5% EPS accretion? The second question is regarding the synergies. I think you have only considered cost synergies in your target, so I wanted to ask how we should think about the revenue synergies there. Should we expect, on the one hand, revenue dissynergies as you combine the top 2 players and there may be an overlap in the client base, but that would then be offset to some extent by lower funding costs as we expect an improved credit rating?

I will let Tim answer the second part of your question. On your first one, let me highlight the calculation is in 2024 based on the consensus. As usual, this -- is always that there's a kind of theoretical calculation and based on the full synergies, knowing that we think that a very significant part of the synergies will effectively be there, and Tim will elaborate on that. And we consider really that the antitrust issues are very manageable. And so really here, we are confident with that. Tim, perhaps can you elaborate a little bit on, again, the synergies and the revenue -- potential revenue synergies also?

Yes. So I think, as you mentioned, clearly, what we have taken into account is the cost synergies, which is mainly composed of a portion of procurement and purchasing, which is around 50% of the overall synergies that we are targeting. And the rest is coming mainly from overheads and a part coming from IT savings as well. And as it was mentioned, it's quite conservatively assessed. We have also taken into account an overlap of customers, which is not significant in any way, to be very honest, but it's in the combined plan. And in terms of, let's say, potential upsides there, as we mentioned through the presentation, we're actually quite complementary, LeasePlan and ALD. ALD have a very strong footprint with partnerships in the SME segments and through, let's say, private consumers where LeasePlan have been quite loyal to the larger B2B accounts. And the combination actually means that we get a very strong footprint in all the segments and all the markets, which have not been factored in as such. But clearly, with a 6% growth per annum when we are fully, let's say, integrated, is taking, let's say, advantage of the fact that we will be very well positioned to take growth in any segment. I hope that answers your question.

Next question is from Madame Giulia Aurora Miotto from Morgan Stanley.

Can you hear me?

Yes. A little bit -- if you could speak a little bit more loudly, but yes, Giulia, we can hear you.

Okay. Great. So 2 questions from my side. Yes, I removed the headset. And so the first question, on the way SocGen will consolidate ALD, so are you planning to basically risk weight in this capital at 350%, which then with Basel IV goes down to 70%? Or you're actually keeping the current weight, but because ALD becomes a financial institution, then the minorities count towards capital? So that's my first question. And then from SocGen's perspective, in terms of the funding that you currently provide to ALD, is there a revenue opportunity because now you will probably internalize also the fund into LeasePlan? Or in fact, potentially, you could lose some revenues because ALD will become a financial entity and they will raise deposits on their own, so they will need SocGen less on that side?

Yes, Giulia, perhaps I will first ask Diony to elaborate a little bit on the choice, on the structure, which, by the way, was also discussed with the SSM. And I would like to thank the teams of the SSM in their support of the transaction. And then I will ask Claire Dumas, our CFO, to elaborate on your question regarding the consolidation and then the funding and what it means in terms of revenues, costs, et cetera. First, perhaps, Diony?

Yes. Yes, so this NewALD entity would be regulated entity. We have the financial holding company status, which we have already discussed in principle with the ECB and the SSM, and we feel quite confident to obtain this status. So as such, ALD will be in the prudential scope of Societe Generale. RWA of the NewALD will be fully consolidated in Societe Generale RWA from a prudential perspective. And we will account for minority interest in Societe Generale for Tier 1 ratio, thanks to this regulated status [indiscernible] structure.

Claire?

Hello. So regarding the first question regarding consolidation, so from an accounting perspective, at the closing, Societe Generale will own 53% of the company. So we'll be the majority shareholder of the NewALD and we will continue to consolidate it. And from a financial perspective, Diony just right now explained you the structure. We will, from prudential perspective, consolidated fully RWA. But in the core Tier 1 discount the minority shareholder, which leads to the very limited impact on the core Tier 1 for the SG Group. Regarding the funding, you have in the slide, of course, the funding mix on the company with an equilibrium between external funding, 45%; SG funding, 30%; and deposit, 25%. This new structure, the [indiscernible], will help us to collect deposits, which is a very good way to diversify our way to fund the company. And it will help Societe Generale to have, let's say, limited funding. Regarding the cost of funding, it's fully embedded both in the financial plan of ALD, and of course, on the SG target we gave you. It will have no significant impact on the SG cost of funding. As you've seen, it's a highly added value and profitable deal, which will have at least a positive impact on, of course, the rating of the companies. And then we will have no impact on the funding of the Societe Generale.

Next question is from Mr. Stefan-Michael Stalmann from Autonomous Research.

Congratulations also from my side for this deal. I have 2 numbers questions, please. The first one, going back to the synergies, could you maybe make it a bit more explicit how much of the overall synergy volume will have been realized in 2024, please? And the second question is I'm struggling a little bit to reconcile the valuation data on the part of this transaction with the resulting stakes. So when the LeasePlan selling shareholders end up at 30.75% for a EUR 2.9 billion equity stake, that will imply that the total enterprise value of the NewALD would be EUR 9.4 billion. But if I look at the individual parts, LeasePlan is bought at EUR 4.9 billion, and ALD, at your way of valuing it, is also valued at EUR 4.9 billion, so that should be EUR 9.8 billion. And so the selling shareholders should only receive a bit less than 30% in the company. And I'm wondering whether I'm missing something in this calculation, please.

Stefan, I will leave Delphine try to answer your second question and Delphine was really at the heart of the negotiation. I will ask Tim to answer your questions on the speed and whom we can deliver the synergies. Tim?

Yes, Stefan. So as mentioned just before, the main synergies are really on the procurement side and on the, let's say, the overheads and some of the IT spendings. When we talk about the procurement, it's a fairly easy task, but nothing is easy, but it's fairly achievable quickly because we will go out and optimize our agreements based on the best deal between the 2 companies. And it means that they come in fairly quickly. We will start the process immediately actually to organize ourselves on that. And what we have put into the calculation there is we anticipate to have achieved 80% of all the synergies by 2024.

I think to come back to your initial question on the 5%, I think it's pretty realistic beyond the theoretical calculation, which is usually made on the general transaction. So Delphine will, I'm sure, spend time with Stefan perhaps entering into the details on a bilateral basis. But perhaps can you just try to give some flavor on the second question?

Yes. So Stefan, so briefly, if you -- so you have EUR 2.9 billion for the 30.75% in the new entity, then remember that the capital increase will not be EUR 2 billion to finance the cash fund but only EUR 1.3 billion to the extent that we have optimized the capital structure. So EUR 2.9 billion plus EUR 1.3 billion, then the result is EUR 4.2 billion. And when you add the market capitalization of ALD, approximately EUR 5.3 billion, you obtain exactly the result of EUR 9.4 billion, the amount you have mentioned. So really, the difference, do not forget and remind, that we have optimized the capital structure, so then we have a capital increase less than the cash part.

I'll let you, Stefan, if you wish, again, I'll let you further dig in that on the bilateral basis if you wish with, of course, our teams.

Next question is from Mr. Pierre Chedeville from CIC Securities.

I have one question regarding the difference between the objectives of LeasePlan and ALD regarding the electrification of the fleet. One is at 50% and the other one is at 100% as of 2030, if I'm right. And I was curious to know what is behind this difference of appreciation regarding the speed of this transformation. And can we imagine any convergence in the future? And my second question is regarding the stake of SocGen in the future in the NewALD. As you told us, the conglomerate will sell in an orderly manner its stake of around 30% beyond 2023. Could you be interested to increase slightly or not at all your stake in ALD -- the NewALD in the future in order to boost in your global model of SG the proportion of high profitability activity?

Pierre, I will let Tim answer your first question on the targets for electrical vehicles. Can I just mention you have -- you are asking a very interesting question, of course. And when I was referring to wonderful opportunities going forward and beyond the next 3 years, of course, we can think about the composition of the capital with a very nice balance with, again, as we said, more floating component with partners who might be interested, whether it's industrial or banks. You know there can be many interesting opportunities, and why not, of course, opportunities for Societe Generale to [indiscernible]. So here, again, the optionality is there. And again, I think we need to go to look beyond the next 3 years when we think about this. Now Tim, on the CSR and electrical vehicles?

Yes. So thanks for the question, Pierre. It's true that we have 2 different targets and objectives. And I guess our target was set back when we launched our Move 2025 plan in October 2020. And it's very clear that we have underestimated actually our capacity to make this transformation happening, and obviously, the need from our customers as well because we were at close to 30% in 2021. So we had in mind to increase our number in the beginning of this year anyway. When you look at the 100% of LeasePlan, we think they have been a bit too ambitious because when they say 100% electric fleet by 2030, it means they should stop selling ICE cars by 2026, 2027 because there's a long tail on our business. And hence, that's -- we think that is simply too optimistic. But clearly, we will increase our target. We probably will come with a joint, let's say, objective that looks probably in between the 2 as it is today.

Next question is from Mr. Omar Fall from [indiscernible].

Just a couple of questions for me. So sorry if I missed this, but what do you assume for the growth in net profit at LeasePlan specifically to 2024 versus current EUR 700 million? It looks like it might be flattish. It's flat conservative given almost half of today's run rate of profit is from car sales results. The ALD consensus is quite a bit lower in outer years. And then secondly, going back to funding, I don't really understand why you assume no funding cost benefit here. LeasePlan's financing costs essentially at least double those of ALD. So it was like EUR 150 million difference, I think, in 2020. So I know there's been some debate about this historically at ALD, but why isn't it much more efficient to just roll out at least the proportion of SocGen internal funding that ALD had to the newco so that you can reduce the market funding?

Omar, I will let Claire answer your second question. Maybe there is also some conservatism behind that. But -- and on the first one, I think we don't disclose this kind of very detailed information. Let me just highlight, again, overall, we have been able to go through due diligence, build a business plan which is very detailed on the combined entity with all these weeks and months of hard work. So we feel very, very confident with all the parameters of the transaction, if I may say. I'll pass on the funding, Claire.

Yes. You are perfectly right. There is part of conservatism in what I told. On the ALD side, you're right, the global rating and the rating will at least be the same or improved. So you're perfectly right, they may have a very positive impact on the funding side. But right now, we are quite conservative, and we assume a constant cost of funding. On the SG side, at the same time, we assume a constant cost of funding with no negative impact regarding the fact that our increased funding to ALD will be very limited considering the diversification of the funding. And at the same time, I told you that we are quite conservative in our financial trajectories. But I would share with you this time that maybe there is part of conservatism in these assumptions.

Just as very quick follow-up -- sorry, as a very quick follow-up, do you have to keep the deposit-taking bank at LeasePlan at least as it stands today in terms of size so that you can benefit from the regulated status at the ECB?

Perhaps Tim can answer. But can I say, as we've said, the capacity to collect deposits for us is a strategic tool. Tim?

I think you answered the question.

Okay. Sorry. Sorry about it. Okay. Omar, yes, so again, we already consider, and I just would like to highlight also for that, that there's a draft legislation in Europe to consider leasing activities as regulated ones. We think really we have made the right choice for the future in terms of the right legal status, if I may, taking all elements into account.

Next question is from Mr. Jean-Francois Neuez from Goldman Sachs.

I just wanted to ask you from -- just from SocGen's strategic vision perspective. So in the decade of the 2010, you've divested some of the businesses which -- of which was this -- the IP or part IP of ALD, some of you had this stake in Amundi, et cetera. Today, you're showing in your presentation a reprioritization of investments into the high return on tangible equity business even if that means consolidating a bit more goodwill, et cetera. And I just wanted to understand, going forward, if in your next strategy iteration, you think it's important to inorganically redevelop -- redeploy capital into these businesses in your capital allocation policy, for example, over increasing the payout ratios or the buybacks further as many other banks are doing in the sector and essentially prioritize your return on tangible equity? Or do you consider this as more of a one-off transaction because ALD is very specific, they will manage this transaction themselves and it may be more of a one-off type opportunity? You see what I'm trying to say?

Yes.

Is this a one-off or is it a series?

Listen, really, and I fully understand, and here, again, let's consider the next 3 years. And by the way, let me just highlight that we were able to close also, as you saw, the disposal of Lyxor and complete exactly in line with what we had said in 2017, I think, or a little bit later but -- the disposal program, so we have been able to deliver absolutely in line with very good execution. In the next 3 years, as I had previously said, what do we have, we have first now a series of, I think, very value-creative projects. Once we start transforming, if I may say, legacy businesses, I don't like this word, but I have, of course, in mind the merger of our 2 networks in the French Retail with a strong ambition, and there will be very clear benefits. But I have also in mind what we are doing in GBIS, and of course, the transformation of the International Retail, which is delivering very well. Second, the development of 2 differentiating assets, and here, I'm not talking about the next 3 years but the next 10 years, ALD was clearly one. And I would like to insist 5 years ago, we had that kind of transaction in mind. Sometimes it can take some time to execute well. You know that what Mr. Jean de La Fontaine say, [Foreign Language] sometimes in business. And it's fair to say we had this transaction in line also, of course, monitoring closely the situation. And we have -- now we've been able to do it in, I think, optimal -- with an optimal structure and parameters. And the second one is also AMA, which I think is going to change the landscape of banking in France -- it's already doing that and where we want to further develop that business. So if you wish -- in terms of strategy, we have -- we are going to enter a 3-year execution plan. I mean it's -- I'm not sure -- we have put in place a new governance at the general management team where each of my colleagues will have one plan to focus on, in particular, Sebastien Proto on French Retail; Diony on ALD; Severin on GBIS, Philippe Aymerich looking International Retail and also AMA. So it's very clear, and we are going to be in an execution mode. In terms of capital allocation, I think we are very consistent with what we had already said: 50% to finance the businesses, both organically and through that kind of acquisition, very value creative, with effectively the willingness to allocate more capital to the most profitable businesses and that will be the case beyond this acquisition; and second, 50% for the distribution to shareholders. I think it really makes sense strategically. As I already told you, if we were just a retail bank in Eurozone with no growth opportunities, maybe we will distribute more. But here, we are talking about really fantastic opportunity in terms of value creation, profitability and the capacity then to fit the nice distribution for our shareholders. So I think really for the next 3 years, taking into account also, of course, the absorption of Basel IV in 2024 is the right balance, is the right balance. And then beyond 2024, it will be another story. So again, we will have then, I think, a very profitable bank, which will generate capital and which will have options in terms of capital allocation and distribution, but that's another story. For the next 3 years, you can have -- you have, if I may say, more and more pieces of the jigsaw and this announcement is one of them, clearly. I hope I've answered your question.

Sure. And my second question very quickly. I just had a second quick question. Yes, if ALD found another opportunity in something, which is growing really fast, is the 50% ownership threshold under which you wouldn't go or would you let ALD see those opportunities they are value creating even that meant you lose control?

Yes. Listen, first, I don't see any kind of a significant opportunity beyond this one where -- and the focus will be on the integration, by the way, an efficient one and a quick one. It does not prevent us to do small things like what we did at Sabadell or small start-ups which will enrich the model, but here we talk about a significant impact in terms of financial impact. And 50%, yes, is -- we want to keep this threshold very clearly. And the transaction is designed for that purpose, too.

Next question is from Madam Anke Reingen from RBC.

I had a follow-up question. On your -- respect of price, you reiterate opportunity to reiterate the 50% payout ratio. Should we expect this to be when you come up and present your new strategic plan, is that already an indication that you will stick to the 50%? And in terms of acquisitions, do you think given how many projects you currently have at the moment with French Retail Banking as well as now the ALD, do you think you have the capacity to do another significant deal in the near term? And then secondly, on your Slide 19 about sustainability and ESG, I just wanted to ask if you can give us maybe a bit of an indication like if and how you see your financing portfolio more towards electric vehicles. Is it like pricing or whatever other measures you put in place to steer your exposure there?

Anke, I will leave Tim to answer your second question. I mean, if I may, I'd like to say we are going to stick to the 50%. But when I say that, don't expect the change. And when I say this, yes, it's not as a part of a formal, if I may say, event of ALD. But if I may say precisely because we had, of course, this acquisition in mind, which again is structured is exactly the way to meet what I've said, and I have been very consistent, 50% distribution, 50% allocated to the businesses. Consider it the rule for the next 3 years, and as I said, with the absorption of the remaining regulatory impacts. I think it makes sense for a group, which has growth opportunities which we see structurally sustainable profitability. And we will then, of course, present in due course what it means when we add all the elements that we have already announced in the last 12 to 18 months on the merger of the networks, on the GBIS, on the different saving plan -- structure transversely, et cetera, what's been, if you wish, in terms of profitability for 2024. Clearly, this transaction, as you can see through the EPS and the increase of return on tangible equity in 2024 is going to contribute, of course, to that. We've also, as I said, at the end of the day, an even better balanced, more diversified business models. And I think strategically, as I said, looking much beyond the next 3 years, makes a lot of sense in an industry, in fact, in a banking industry in Europe, which is, as you know, transforming. Second, I'm not sure I think what kind of additional acquisition you referred to. I tried to describe, if you wish, the area of strong execution focus for the next 3 years. French networks, the merger, Sebastien Proto; International Retail also AMA, supervision of Philippe Aymerich with, of course, all the leaders at the end of each of these business and Benoit Grisoni in particular; Slawomir Krupa, in charge of GBIS; Diony, in charge of fleet management. And I hope you see that the changes that we just announced end of the year last year was, of course, in anticipation of the fact that Diony will work a lot and supervise with Tim the execution of this transaction. Then as you know, I have appointed someone in charge of IT and digital because it's going to be also a strong focus. And if I may say, I'm the conductor, the orchestrator of all these people in a very integrated and united way. So I feel, yes, we have a lot, but I must say it's very motivating. I think there's a good balance of responsibility across this team. And yes, we are absolutely convinced we can deliver. At least I can tell you the management energy is going to be 100% focused on these projects. So it's going to be -- I give you already, if I may say, a lot of visibility for the next 3 years on what we will do. So I hope I'm trying to answer at least your question. Tim, on the electrical vehicles?

Yes. I guess the question was how we steer basically to more electric vehicles our clients. And I guess there's many items that need to be aligned to make sure that we -- but overall, it's really around having a product and services around electric vehicles. And today, we have ALD electric in 22 countries. It's a product and service that allows our customers to actually very seamlessly going from traditional ICE kind to electric vehicle with charging facilities, with switch models and basically anything that you need to drive your cars and run your fleet. And that has been, I would say, the main part of the change in our mix of cars and engines in the last, let's say, 2 years. On top of that, we have signed up some very important partnerships with pure electric players like Tesla, smart, Lincoln co and Polestar are some of the ones that we have, let's say, signed up over the last couple of years, which, of course, is a strong contribution to the electrification of our fleet as well. But it's really around having the right product conservatism, and ALD is already in the forefront of that with the combination with LeasePlan, who have actually worked very hard on the last mile deliveries and have a very strong partnership with Amazon. Again, it's an additional, let's say, footprint. And again, the combination will be second to none in terms of helping clients and partners to electrifying their fleets.

And again, I'd like to insist that I think that all the corporates in the world when they will think about how to show to their staff their commitment to transition, they will about switching their vehicle -- their fleet of cars. So I think if you wish, it's going to be something easy to implement, easy to show, so I would say personally I'm positive on the trends in terms of growth going forward.

Next question is from Mr. Kiri Vijayarajah from HSBC.

Yes. A couple of questions from my side. Firstly, on those shareholder agreements you put in place, I just wondered what does that involve exactly? Is it just about the lockup or just wondering if SocGen has right to first refusal if some of the other shareholders maybe want to sell their shares? So just some background there. Or is there anything kind of specific that we need to be made aware of just in those shareholder agreements? And then on the 13% CET1 ratio for the enlarged ALD, just wondering, do you -- it sounds like you consider that to become like a hard minimum because I was wondering why you don't let it slip a little bit lower at least initially on closing and then let that capital build up -- rebuild over time just given how profitable the enlarged business is expected to be. So just your thoughts on how that 13% CET1 ratio, why does it need to be that high at least initially on closing.

I will let Delphine answer your first question and Diony answer your second one on the level of core Tier 1. Delphine, what can we disclose on top of what we've said in terms of agreements with the consortium?

So You have mentioned the lockup. So it will be 12 months for all the shareholders of the consortium. And then we have agreed some orderly sale mechanism to [ ensure ] to have a perfect element of interest. In terms of the right of first refusal, we will not have any of right. Then they can't and any shareholders from the consortium can't dispose of part of its stake to any competitor to ALD or Societe Generale.

Thank you. And Diony?

So regarding the 13% core Tier 1, we believe it's a very comfortable level above what we expect to be the requirement. We don't have yet the level because this will be once we apply for the status and we obtain the approval from the ECB. So it's a comfortable level. It's an optimized structure, also combining an objective in terms of rating, as we already commented, which will be a strong rating and expect it to be above current rating of ALD and one which gives flexibility in terms of managing the capital in the coming years, also taking into account that we will have to incur restructuring costs. So it's, we believe, a comfortable level but a level which optimizes and allows us to reach all our objectives.

Next question is from Mr. Matthew Clark from Mediobanca.

So firstly, on the banking status for ALD going forward, I'm curious why you didn't adopt the format used by BNP for Arval, where you classify it as a nonbanking financial sector entity that allows you to deconsolidate it and risk weight the book value. That would seem to be a better capital treatment from SocGen's perspective. Is there a reason why that wasn't an available option for you or that you chose to go with the banking entity status instead? And would you rule out pursuing that deconsolidated financial sector entity status in the future? And then second question, on the payout ratio going forward, I mean it's slightly counterintuitive that your profitability is enhanced by this deal, but you don't see greater opportunity to return capital. So is the 50% a ceiling for you for the next 3 years? Or would you consider going over that if profitability and capital ratio has allowed?

Matthew, first, let me just highlight all the benefits that we've illustrated. Of the specific status, which is not a banking one as such, it's a regulated one but it's a new status, which is already the one of LeasePlan actually of a financial holding company. As I've said, there is this draft legislation in Europe which, in our view, makes the absence of consolidation nonsustainable in the midterm. So when we reflected on how to build this future company, again, not just for the next 12 months, we felt it's better to anticipate this potential future legislation beyond all what we said. So that's why we made this choice, which I think is the right one. Second, listen, again, first, we talk about an EPS in 2024. I mean can I say again, in terms of capital, the way we think -- the way I think, next 3 years, 2022, 2023, 2024, absorption of Basel IV, we want to feed the growth of our businesses. As I've said, we think we have great opportunity for our activities. We want to finance this kind of acquisition which are in the long term great in terms of value creation. I think what I said on the 50% fits with this road map. And then there is the beyond 2024 when we will have effectively, well, probably a lot of capital generation. It's another story. Whether we might then increase, it's another story, but I would say it's a little bit premature to comment. So I really believe -- and we will take the time to elaborate more on that front, but I think really for the next 3 years, it's the right balance with what we have in mind in terms of organic growth for our businesses, financing of acquisitions, and as I said, 50%, which would deliver still a pretty attractive yield for our shareholders. So I think it's really the right balance to build beyond, if I may say, just the short term a group -- a banking group, which will face the formidable transformation and disruptions which will still take place in the financial sector while building, again, the long-term future. So I really think it makes sense. As I said, it's not forever, but at least for the next 3 years it's the right balance.

We have no other questions. Back to you for the conclusion.

Well, I think it's, again, clear. Thank you very much for all your questions. And again, we are, on our side, thrilled, I must say, by this extraordinary opportunity that we've been able to make effectively real. Thank you very much again. Happy New Year, keep safe and see you soon. Thank you. Bye-bye.

Ladies and gentlemen, thank you all for your participation. You may now disconnect.