Hello, and welcome to the ALD trading update and Q3 results. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing Star one on your telephone keypad to register your question. I will now hand over to your host, Tim Albertsen, CEO of ALD, to begin today's conference. Thank you.
Good morning, ladies and gentlemen, and welcome to this ALD Q3 2021 results analyst call. First of all, thank you for your attendance, and I hope that you're all in great shape. I can tell you that we are on our end. We'll start by looking at Slide three of our presentation, which contains some of the highlights of our performance. Before this, let me give you a few inputs on the environment our industry have been navigating in during this third quarter of 2021. Most of the markets we're operating in managed to shrug off most of the restrictions from the COVID crisis. Yet at the same time, the pandemic's impact on the supply chain of semiconductors was being felt more and more significantly by car manufacturers, who have struggled to produce and deliver new cars on time, including to our customers.
As a result, the excellent commercial dynamics of the quarter principally shows up in our rising order bank, being by far an all-time high. Nevertheless, with the help of our two recent bolt-on acquisitions, Bancosabadell Renting and Fleetpool, ALD's funded fleet growth is likely to beat the guidance that we issued last quarter. Now let's go back to Slide three, which is full of extraordinary good financial news. We achieved an outstanding financial performance for the nine months of 2021, reflected by strong margins, excluding used car sales just a bit above EUR 1 billion, +10% versus the same period in 2020. We have again posted strong remarketing results this quarter, profiting from our solid supply position and our leading digital platform in a red-hot market for used cars.
The used car sales result stands as EUR 278 million year to date 2021, versus EUR 18 million year to date 2020. Our cost income ratio, again excluding used car sales, improved to be at 48.2% in year to date 2021. I can proudly announce that the Q3 2021 is our best ever results in terms of net income. We have been able to book a net income of just a bit above EUR 258 million. ALD's net income year to date 2021 stood at EUR 610.1 million, up from EUR 347.5 million in the same period 2020. Let's move to Slide four and talk a bit about our acquisitions in these new mobility offerings.
These two latest acquisitions are a great acceleration of our Move 2025 plan and gives us a real lead in the area of car subscription and urban mobility platforms. The Fleetpool acquisition provides us with a full digital car subscription company based in Germany, running a fleet of around 12,000 vehicles and growing quickly. As mentioned, it's a real acceleration of our development of a digital car subscription service in Europe, and the plan is to expand the commercial reach of this subscription solutions to the main European markets in the coming years. On the Skipr acquisition, this is an urban mobility, multimodality platform to manage, plan, book, and pay for corporate mobility services, all in one solution for companies in Belgium and France today, but in the future in several major cities in Europe.
Combining Skipr leading-edge technology with ALD solid mobility expertise, we have taken a lead in this fast-growing market for flexible, cost-effective, and sustainable mobility solutions. If Skipr and ALD move becomes the success that we expect, we have the option to become a 100% owner within the next three years of Skipr. Let's move to Slide five and talk a bit about ALD's electric revolution. The pandemic has clearly accelerated the transformation to EV mobility. We see strong demand from our clients, and we are ready to assist them in this quite complicated transition with both consulting, products and services. We remain at the forefront of electrifying our fleets with a share of electric vehicles and passenger car deliveries in 2021 reaching 27% in Europe year to date. Let me remind you that this is almost a double of the market penetration in Europe.
ALD's fully electric offer is now available in 12 countries, with further rollout on the way in Europe. ALD Electric includes all the features to make the transition to electric as seamless as possible, including a global partnership with ChargePoint that allows our clients to charge pretty much everywhere. ALD also has an increasing number of preferred partnerships in place with key players in the e-mobility space, with the recent addition of an exclusive, fully digital, 100% electric partnership with smart. This is the latest on top of the partnership signed with Polestar, Tesla, Lynk & Co within the last two years. Let's move to Slide six and talk a bit about our fleet. Funded fleet reached 1.382 million units at the end of September 2021, up 0.7% versus the end of December 2020.
With an all-time high order bank and the integration of Banco Sabadell Renting and Fleetpool, which will add around 32,000 vehicles to the fleet, the funded fleet growth for the full year 2021 is now expected to be between 3% and 4%. Total contracts stood at 1.679 million vehicles. This reflects the previously announced non-renewal with one of our fleet management clients based on low profitability, which has reduced the total number of fleet management contracts by around 90,000 units in Q3 2021. Commercial dynamics during Q3 remain strong, but the shortage in supply of semiconductors has continued to have a significant impact on the car manufacturer's ability to deliver new cars in Q3 and hence the very high order bank. Let me now hand over to Gilles, who will guide you through the financials.
Yeah. Thanks, Tim, and good morning, ladies and gentlemen. It will be a quick speech on my side, as most of the reported figures are really speaking for themselves. Let me start with our margins. Leasing contract and services margins, taken together grew by EUR 93 million compared to the first nine months of 2020, representing a 10% increase. Within this dynamic growth in margins, the leasing contract margin reached EUR 555 million, up 24%, and the services margin stood at EUR 464 million, down 3% compared to the same period last year. The strong growth in leasing contract margin over the period is mainly related to two factors.
The first one being the powertrain shift, which is causing growth in the earning assets per vehicle, which is positively impacting our leasing contract margin. The second factor is in relation with our fleet revaluation exercise. During the first nine months of 2021, we have seen a strong positive contribution from the fleet revaluation, whereas the same period last year registered a significant negative impact, which is representing a swing of EUR 65 million between the two periods. The growth in services margins year to date is held back mainly due to the EUR 13 million tax provision we booked in Q2. And to a lesser extent, impact also of the high level of contract extensions campaign, which have weighed negatively on our maintenance costs, but obviously positively on our used car sales.
We see that later. Also an ongoing lower excess mileage billing compared to pre-pandemic period. The operating expenses reached EUR 492 million, up 5.2% compared to last year, the same period, mainly driven by higher costs incurred in the frame of our external growth strategy with Banco Sabadell and Fleetpool and Skipr acquisitions. As I already have shared with you previously during a last update, we have increased this year variable staff compensation as we are outperforming our budget targets. The cost income, excluding used car sales results, improved at 48.2% as margins saw a very fast growth year to date. Let's move to the next Slide on the used car sales results for the Q3 2021.
The strong used car market dynamic that we have enjoyed in H1 2021 has continued, reaching unexpected and new absolute record levels in Q3. The contribution from used car sales results reached EUR 278 million over the first nine months of the year, of which EUR 152 million in Q3 alone. Average sales margin on used vehicles for the nine months is coming at 1,126 EUR per unit, and as high as 1,974 EUR per unit over the third quarter. The continued highly favorable supply and demand conditions in used car markets, mainly driven by the semiconductor shortage, explains most of the record results.
These results are also boosted by the impact of our contract extension program done during the pandemic last year. We managed to sell 247,000 units in the first nine months, of which 77,000 in Q3, leaving a total used car stock level, total used car stock at a very low level. We anticipate the dynamic to continue in Q4, which led us to update our guidance for the full year to be above 1,000 EUR of margins per car. I can even say well above 1,000 EUR of margins per unit sold.
On the next Slide, on the net income and to start with the impairment charges on receivables, they reached EUR 25 million, decreasing by EUR 34 million from EUR 59 million recorded in the first nine months of last year, reflecting an ongoing low cost of risk. Also, I just want to stress here again that for the time being unchanged methodology on our forward-looking provisions. Despite a higher income tax rate compared to last year, ALD's net income group shares stands, are now at EUR 610 million for the first nine months. Up from EUR 347 million last year, with a strong contribution, of course, from Q3 itself of EUR 258 million. Q3 being our second consecutive record in quarterly net income.
Let me hand over back to Tim for the guidance. Thank you.
Thanks, Gilles. Yeah, in view of the performance so far this year, and we believe a better visibility for the remainder of 2021, we are updating our guidance that we gave you back in August. Despite the microchip shortage, but thanks to a very strong order bank and based on our M&A activities, we are confident that our funded fleet will now grow between 3%-4% end of year. The dynamics of the used car market should continue until year-end, and probably further. We now estimate that we'll land well above the 1,000 units of profit per car sold. Our cost income should continue to improve versus 2020 and definitely stay below the 50%. This concludes our presentation. Thank you for listening, and we're now ready for taking questions that you may have.
Let me, however, state that I guess you are all very keen to understand a bit more about the discussions that we are currently having with LeasePlan, but it is too early to give any kind of details at this point. So, perhaps take that into consideration when you ask your questions. Thank you.
As a reminder, if you would like to ask a question or make a contribution, please press Star one on your telephone keypad. The first question comes from the line of Mourad Lahmidi from Exane BNP Paribas. Please go ahead.
Yes, thank you, and good morning, gentlemen. I have three questions on my side. Could you confirm that there was no fleet revaluation exercise during Q3? Is it fair to expect the release of some excess depreciation when you do the exercise in Q4? Second question is about remarketing. Has there been any change in remarketing channels in Q3? Which is to say, was there a higher share of B2C versus B2B? My question relates to the level of profit per car, which is very close to what we can see in the B2C channels. Finally, can you give us a fleet breakdown by powertrain?
Thanks for giving the deliveries, but can you give us some insight in terms of how much diesel, petrol and EV/hybrid? Thank you very much.
Thank you. Well, maybe let's start, I'll start with the second question and third, and then Gilles will take the first question, I guess. So on the remarketing channels, the channels remains actually fairly stable. So we are selling approximately 15% retail today of the used car sales. I think the overall result is not a shift from wholesale to retail as such. The trade markets are very strong as well. So we have not seen a big shift on that, and it's not, that's not, let's say, a result of that you see the results coming in where they are basically. On the third one, so as you saw, we had a 20%,
Twenty-seven.
27% on the EVs. I don't have the exact numbers on diesel actually, but I know we are below 30% in terms of deliveries on diesel cars, which actually then remains the rest for petrol. It's a big swing, you know, if you go back to 2017, 2018, we were above 80% of diesel deliveries, and now we are below 30%. As we said, 27% of EVs, the EVs containing full electric plus plug-in hybrids. Actually, I just got the numbers here.
Year-to-date, diesel is 29%, petrol is 26%, so meaning ICE cars 55%, and then 27% EVs, as I just mentioned, and other green, which is hybrids, 7%, and others, which is other powertrain, at 11%. That's the split between the deliveries this year. Quite a balanced portfolio now as such. Gilles, you wanna take the first question?
Yes. Regarding the fleet revaluation, yes, I confirm that we are currently doing the exercise of fleet revaluation. We still have in Q3 a further release from the exercise we did in H1. It's difficult for me to state on the further potential release in Q4. You would naturally expect given the excellent results that we would have a further release. We are having discussions with our auditors because of course the reference years 2020 and 2021 are a bit exceptional. Of course they distort a bit the accounting fleet exercise. I can't give you a clear outcome.
You would expect a further release in Q4 2021. That would be my guess. I just want to stress that it's more than ever, I guess, a difficult exercise because we have to anticipate also.
On future trends. We also want to remain as conservative as possible on the fleet valuation exercise.
Okay. Thank you very much.
The next question comes from the line of Kiri Vijayarajah from HSBC. Please go ahead.
Yes. Good morning, everyone. A couple of questions from my side. You mentioned that the stock of used cars is at low levels on your books. So presumably that's gonna feed through into a lower number of vehicle sales for the next couple of quarters. I'm just wondering how low can the quarterly vehicle unit sales go? If I look, you know, before your IPO, that was down in the low 60,000s. Already, I think it's been in the last couple of quarters coming down from 90,000-odd to about 77,000. So could that fall a bit more as you deplete your kind of stock of used car vehicles?
Secondly, on your upgraded guidance of 3%-4% on the funded fleet growth for this year, obviously very helpful, but I wondered if you could just give us some color on the outlook for next year. Could you also give us a feel for how that growth you're thinking about for next year splits between kind of underlying organic growth versus what you've penciled in for bolt-on deals that you're thinking about? Thank you.
All right. Maybe on the stock and the used car sales first. So it's true that with the current stock levels, we are really at a minimum in terms of what you can turn around in terms of cars. What we anticipate and what we are told is that Q3 is let's say the really down point in terms of microprocessors, which means that delivery should start picking up from now on and going forward. It will not normalize potentially before probably start of H2 next year. We will start seeing let's say hopefully that we will be able to deliver new cars better than we have done in Q2 and Q3 this year.
That's at least, you know, the input we are getting both from the manufacturers and others who are quite close to the subject. Which means that, you know, the reason why the stock is low is of course that we are selling well the used cars. But the fact is, you know, as we don't deliver new cars, we don't get the used cars back. But as the new cars will start coming, we would anticipate that to normalize over the, let's say, the next two to three quarters. But you could anticipate that the number of cars we are selling would be lower than what we have seen in the past, again, you know, for the next two or three quarters. Not substantially, but lower.
You have seen actually the effect this year that has gone down, you know, slightly each quarter already this year for the same reasons. I think that's that is a good assumption to take, that the number of cars we are selling will be slightly less than what we're used to. On the guidance on the funded fleet. What we can tell you is that actually, we have the 0.7% that we have posted so far in terms of organic growth, is not really representing what we have seen the last months. We are growing a bit better than we have done in the first six months.
with a very high order bank, I mean, really high order bank, we would anticipate as the new cars are coming in, that we will empty the order bank. Hence we do believe that the organic growth next year will pick up, and we will see a more normalized situation from what you have seen from the past from us on that part. Of course, you know, we are always looking for opportunities in the M&A space. We will continue to do that, clearly as well. In terms of the commercial dynamics in the markets is very good. We have signed up very nice new clients over the last six months.
We have also, as you have seen, signed up new partnerships that eventually will start giving decent volumes also throughout 2022. I think that's the best we can do on the guidance on the funded fleet for next year.
Great. Thanks, guys.
The next question comes from the line of Dominic Edridge from Deutsche Bank. Please go ahead.
Hello. Thanks for taking the question. It was just more of a question about sort of current market dynamics in terms of lease rates, and obviously what's going on with residual values. I mean, A, can you just maybe describe how you see the current market in terms of underlying lease rates, how that maybe compares with previous years as well, in terms of the business book that you currently are building? On residual values, do you see the market or yourself changing the views on long-term residual values? Or is your view just, look, this is a short-term distortion in the market, it's a nice windfall, but it won't be something you factor in when you're thinking about lease prices going forward?
Is that something you feel is also the same for the market generally? Thanks so much.
Right. John Saffrett is with us here. He can take the first question. John, you wanna take the first one?
Yeah, sure. Thank you for the question, Dominic. I think what we're seeing in the dynamics of the commercial market. This has always been a competitive market with a large number of players chasing after the corporate business and the partnership business. There's been no significant shift in the lease rates that are being offered to clients today. The corporate market remains super competitive because it's a sticky client base, and once you secure a large corporate fleet, you tend to hold on to it for a long period of time. All of the commercial dynamics in that market have rebounded in line with what we saw before COVID.
Then in the partnership in the SME market, obviously, the lease rates have probably crept up a little bit because of the lack of supply of new cars, which means the discount levels are being impacted slightly, and there are less discounts being available. Again, in terms of our model, we pass that movement on to the clients anyway, where there's lower discounts available. Through most of our partnership channels anyway, the price point for the client is dictated by the partner. We've not seen a significant move in those lease rates, and we don't anticipate there being a movement in those lease rates for the foreseeable future, affecting our margins in any particular way. I'll hand back to Tim for the answer on the second question.
Yeah. On the question on residual values, let's say medium long-term, I mean, the current market conditions is exceptional. I mean, it's a combination of a few things. First of all, there is less used cars in the market than we're used to. I mean, most of the rental companies are not de-fleeting, have not been up-fleeting either, you know, and that they normally post quite a big chunk of used cars into the markets. The fact that people are not delivering or the manufacturers are not delivering new cars to the extent they used to do, and there's probably gonna miss around 10 million cars on a global scale this year in terms of new car deliveries.
It means that the trade-ins that normally comes in, when you sell a new car is not in the market either. As people cannot get their hands on a new car, they tend to try to get a used car. That also actually improves a bit, you know, the demand side. It's probably more supply side problem than a demand side, but it's actually a bit of both at this point. It's an exceptional situation. It will not last. I mean, that's absolutely for sure, you know. I think the to change the policy based on this particular situation, on your policy for residual value setting is not the wise thing to do, and definitely that's not our intention.
On top of that, we are in the middle of transformation to electrification. There's a lot of legislation being put on ICE cars that will start pushing residuals downwards on diesel and petrol cars going forward. I would say, again, as you know, we are fairly prudent when we look at residual values. We will remain that. We will not take into consideration the current situation because it's exceptional as such.
What we are doing instead is that we are looking very deep into the residual value setting of electric vehicles, which is a, you could say, a new exercise for us, where you don't have the same experience, you don't have the same amount of data, and we are working with different new models to actually assess the prices and have other means in place for setting residuals on these cars. I hope that answers your question, sir Dominic.
Maybe just one quick follow-up. I mean, do you feel that your approach is very much the one being taken by the leasing industry as a whole or let me put it this way. In the past, when there has been a time when residual values have risen, have you seen the competitive dynamic change, particularly at all?
I think historically, you have seen that people tend to look short term on things, you know, and there might be a hype that actually could spill into the market and people are getting a bit more sportive in taking risk, you know, in the future, you know. It typically have always ended pretty bad, you know, and I think, you know, we have 30 years of experience in this business. We have been seeing all the ups and downs and so we probably will see, especially typically, you see smaller, let's say, local players who are maybe not considering this business in the long term and they take the opportunity to go out a bit stronger.
On the global scale, I mean, all the big players. I think knows this is the biggest risk in this business. We are prudent across the board, I guess. You know, when you look in the market, there's none of the major players who are looking very different from each other in this particular part.
Okay. Well, thank you very much for the answers.
As a reminder, if you would like to ask a question, please press Star one. The following question comes from the line of Geoffroy Michalet with Oddo BHF. Please go ahead.
Hi, gentlemen. Thank you for taking my question. I was just wondering if you could give us a sense on how dilutive was the contract ended on the fleet management business, the 90,000 fleet that you externalized from your current fleet. Thank you.
Hi, Geoffroy. Thanks for the question. As we said, this contract has been also terminated on the basis that it counts for very little in our net income. It was a fleet management contract which really has immaterial impact on the net income. I can't state more than that, but it has yeah. I can just reiterate what we have disclosed at the time.
Okay. Thank you.
'Cause there's no spread on the funding. There was minimal services around. I would say then even on the stats point standpoint, it's even better without these ones now, as they were not really contributing a lot to the net income.
Okay. Thank you very much.
Welcome.
We currently have no more questions on the line. If you would like to ask a question, please press Star one. There are no more questions on the line.
Okay. Well, I hope that's clear then. That's great. Thank you all for your attention and your questions. As always, our IR team stands ready to answer any further questions you might have, so don't hesitate to get in touch with them. Thanks a lot. Thanks for your time, and have a nice day.
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