Hello, welcome to the ALD trading update and Q1 results call. My name is Rosie, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance, please press star zero, and you'll be connected to an operator. I will now hand you over to Tim Albertsen, Chief Executive Officer, to begin today's conference. Thank you.
Good morning, ladies and gentlemen, welcome to this ALD Q1 2021 result call. Thank you for your attendance, I hope you're all safe and well. 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 has been navigating in here in the first quarter of 2021. The COVID pandemic is still causing disruption in most of our markets with lockdowns and confinements. In Q1, another challenge for our industry appeared as the shortage of microchips has caused a delay in delivery of new cars in practically all our markets, a situation that probably will remain a challenge throughout 2021. Even under these market conditions, once again, our business model is showing strong results and resilience.
Our organization, great people, and our leadership teams are now showing high agility, motivation, and entrepreneurship under this new normal way of working. Now, let's get back to slide three, which is quite full of positive news. Based on the situation just described, strong organic growth could be a bit of a challenge in 2021. As already anticipated during the beginning of this crisis, M&A opportunities would be coming in 2021, and this we can confirm today. We see many opportunities for the moment, and we are working on quite a number of files. For the same reasons, we were very happy to announce the Banco Sabadell deal in Spain, a nice portfolio with a promising strategic white label partnership distributing full service leasing contracts and mobility products to Banco Sabadell clients.
As in the past, such bolt-on acquisitions are very accretive to our earnings, typically through supporting our cost income positively. Another strong performance is our remarketing activities, as the used car markets were particularly dynamic this quarter. Gilles will cover the numbers in more details later, of course. We sold 87,000 cars in Q1, which is a record for Q1, and with a very good result of EUR 439 per unit. These good results are driven by several factors, a very strong performance and activity on our digital car market platforms, and a structural shortage of used cars due to the missing trade-ins and less returned rental cars in the market. We expect this situation to continue well into Q2, and we are very positive for the year in general.
The total number of contracts stood at 1.76 million contracts, stable versus end of 2020, while our margins actually increased by 1.5%. We have continued to pay strong attention to our cost base while growing our margin, and hence, our cost income is developing positively and has decreased to just below 50%. All in all, we have been able to book a very strong net income at EUR 155.5 million for the quarter, increased by 20.7% versus Q1 last year. Let's move to slide four and talk a bit about our progress on Move 2025 strategic plan. After the successful launch in November last year, the plan has been initiated with more than 15 major streams across the group to enable us to achieve the strategic objectives set for 2021 within Move 2025.
As you might recall, Move 2025 is built on four strategic pillars, and you see them in the bottom of this slide, Move for Customers, Growth, Good, and Performance. In Q1, we have done five first deliveries, as you see here. We are very happy to announce that we have entered into a new partnership with Lynk & Co, which is an electric vehicle company of the Geely Group, and they offer a completely new way of using cars, typically through subscriptions. This offer will target essentially corporates as a first step, cover seven European countries for now. It matches three out of four pillars of Move 2025. Customers, as it is a subscription model, Growth, as it is a new partnership, and Good, as it's about sharing and electric vehicles. In March 2021, we joined the ChargeUp Europe.
It is an association of players in the EV ecosystem. It is working to expand and improve the charging infrastructure across Europe, which is one of the current main challenges in terms of the fleet electrification. It covers the pillars customers, as this is enhancing charging for them, and good, as it's part of electrification. We also did further expansion of our distribution partnership network with the two partnerships with Mazda, one in Belgium and one in Luxembourg, and with Ford in Ireland. It supports mainly the growth pillars. These are new partnerships. Finally, we have launched ALD ProFleet in Spain. It is our own connected car platform in our strategic partnership with Vinli. It is to be rolled further out across Europe and Luxembourg shortly.
It supports the pillars customers, as it helps them to optimize their fleets, and performance, as we expect to drive better margins on our insurance and maintenance products. Let's move to slide five and talk a bit about the portfolio development. As mentioned earlier, total contracts overall stable versus 2020 at 1.76 million, but slightly down versus Q1 2020.
This, in the global context of continued lockdowns and microchip shortage at global level, which is resulting in issues with delivery of new cars. The delay of new car deliveries has a particular impact on getting newly acquired clients into an ALD contract, as the customers typically stay with the previous car until the new car can be delivered. For existing clients, this is not really a problem as we propose contract extensions to our clients until the new car is delivered.
In terms of outlook for the year, our order bank of cars to be delivered is very strong. We are very confident that our funded fleet will grow in 2021 as announced in our 2021 outlook. This will also be supported by the Banco Sabadell deal that comes into our fleet with around 20,000 vehicles during the year, probably in Q3, and we anticipate to have a few more M&A opportunities to come during the year. Our Flex Fleet product is also showing very good trends with a 2,000-3,000 new contracts every month, and the program is now live in 30 markets. Let me hand over to Gilles, who will guide you through our financials.
Thanks, Tim. Good morning, ladies and gentlemen. Let me start with the used car sales activity results for the quarter on slide six. The dynamics we've seen on the used car market in H2 2020 have continued. You can see on the slide the quarterly results since June 2020, EUR 30 million in Q3, EUR 43 million in Q4, and overall Q1 remained very strong despite the ongoing operational constraints to sell vehicles due to the limited opening hours and lockdowns in most countries. Q1 has been very strong, showing stronger results month after month during the quarter. We have reached record productivity levels, establishing a record in terms of volume for a first quarter at 80,000 units for the quarter.
We observed a strong demand on our remarketing platforms everywhere, driven by a lack of supply, which is obviously sustaining our margin as we have very attractive vehicle offer with recent and well-maintained, reliable used cars. Overall, an excellent used car profit at EUR 439 per vehicle, along with a normal stock level, obviously much lower than last year. Over Q1, the used cars results reached is EUR 38.2 million. Let's move to our P&L on slide seven. You have a full P&L here. The leasing contract and services margins taken together have increased by 1.5% compared to Q1 2020, and despite a slight decrease in fleet compared to last year. The comparison quarter by quarter to 2020 needs some element of context, the leasing contract margin is increasing by a solid EUR 13.7 million compared to Q1 last year.
Just to remember you, last year, we took a significant and realized charge on our equity portfolio in our reinsurance company in Ireland. We also had taken a conservative approach to our supplier volume rebates, which had weighed negatively on our leasing contract margin in Q1 last year. Overall, the leasing contract margin remains very strong, but these exceptional items explain the reasons for such an increase. It's also worth commenting that Q1 results do not take into account any change in assumptions as regards to our fleet revaluation for the time being, and this exercise has been conducted in Q4 last year. On the services margin, on the contrary, we remain penalized by the ongoing pandemic situation, especially on the lower level of mileage driven, which constitutes a lack of revenue opportunity on excess mileage billing for the customers.
Our operating expense were under control despite some exceptional costs incurred in the context of the acquisition of Sabadell and some other files that we are currently looking at, our cost income ratio is now down at 49.9%. The cost of risk is particularly low this quarter as the support measures from the governments continue to avoid payment defaults.
This leaves us with an excellent net income group share at EUR 55.5 million. As you remember, in Q1 last year, we recorded a EUR 10 million post-tax profit on the disposal of our stake in ALD Fortune in China. If you exclude this effect, our net income group share increased by EUR 36.6 million versus Q1 last year, which is an outstanding performance given the context in which we are currently operating. I now hand over to Tim to comment on the outlook.
Thank you, Gilles. Let me finalize this presentation by taking you through our 2021 outlook on slide nine. We believe the current global level of uncertainty is still too high to switch to a guidance rather than an outlook, and hence we confirm the outlook we gave in February. We confirm that we anticipate a positive funded fleet growth in 2021 versus 2020, and we confirm that the used car sales results per unit is expected to be positive. We confirm that our cost income ratio, excluding used car sales, should improve. This concludes our presentation. Thank you for listening, and we're now to take any of your questions.
As a reminder, If you would like to ask your question, please press star one on your telphone keypad. Should you wish to withdraw your question, you can press star two. You will be advise once you go ahead. The first question comes from the line of Enrico Bolzoni from Credit Suisse. Please go ahead.
Hi. Good morning, all, and congratulations on the results. Just a couple of questions, actually three, from my end. The first one, on the leasing contract margin, you mentioned clearly they were very strong and there were some one-off events clearly that make the numbers look even stronger on a year-on-year basis. However, it feels to me that, this is the second quarter in a row where you do report very strong numbers above consensus. I just wanted to understand if that is due to possibly a lower cost of funding you might have, or if there is maybe a change in mix within the contracts or a bit more private that have slightly higher margins that can explain this number, and whether we should expect it to remain at similar level going forward. This is my first question.
The second question on the used car sales, clearly the positive impact from the shortage of semiconductors, but I have a few related questions to that. First one, you clearly sold a record number of vehicle at 87,000. On the other end, the more vehicles you sell, the more you need to clearly buy in order to keep the fleet constant. I just wanted to understand if we should expect a similar level in terms of numbers of vehicles sold on the coming quarters or actually it should normalize simply because you are not in a position to sell more, or in other terms, you don't want to sell more because otherwise you just have a lack of vehicles for basically new contracts.
The final question for me is again on M&A. I'm not sure how much can be said here, but clearly in the press, the market seems to be very dynamic. There's been some speculation about very large transformation deals. I just wanted to ask your general opinion and if you can give us some color there if possible. Thank you.
Thank you, Enrico. Let me start, perhaps we actually take it in the other direction as you actually asked them. I think we start with the last question first. We have an established practice not to commenting on any kind of rumors on M&A, unless there is something, let's say, really concrete to announce. We don't actually comment on this. As we have talked about many times, clearly ALD is interested in consolidation in this business. On the particular rumors, we don't comment. Maybe the second question on the used cars, I'll take, and then I'll let Gilles answer your question on the contract margins. I think you're right.
There could be a point where actually we will have less cars to sell because it's true that with, let's say, the shortage of microchips, we anticipate that new car sales could be down between 5% and 10% this year, and will potentially not be recovered in 2021, even if production comes back in Q3 and Q4. There could be a delay in getting some of the cars that we typically would sell back. Having said that, we have customers who do not renew their contracts, and some of them have left to a competitor or whatever it is. There is a natural flow of cars always coming back, I would say. It's not like we would completely stop selling cars.
It's true that for some of the, let's say it's actually key accounts where we might have to wait six or nine months to deliver a new car. Those cars that typically would be sold in 2021 might be pushed into 2022, we don't anticipate that to become a specific big, let's say, problem or big line in our P&L. Again, the less used cars there is in the market, the better the prices will be on these cars anyway. A potential shortfall in volumes we would anticipate be offset to some extent in the profit per unit. I hope that answers that question. Gilles, on the gross margin?
Yes. Enrico, specifically on the leasing contract margin, as I said during my presentation, it's more difficult these years because of the COVID situation last year to analyze quarter by quarter. Indeed, we have a strong leasing contract margin above consensus. The cost of funding is low, we are working on a spread basis. As I've already commented many times, the lower the interest rate, it's not always a easy conversation with our customers on the spread. Overall, we have a sound fleet mix, and also the leasing contract margin depends on the fleet mix.
The fact that we have more higher value cars, there are some inflation on the cars overall. It brings more leasing contract margin naturally. The comparison to last year, the so big increase is mainly explained by the exceptionals we took earlier in Q1 2020. Overall, I confirm it's a very sound financial margin. Driven by volume and price on the asset value, sorry.
Thank you.
Our next question comes from the line of Sanjay Bhagwani from Bank of America. Please go ahead.
Hi. Thank you very much for taking my question as well, and congratulations on the spectacular results again. I've got a few questions. Maybe to begin with, on the tax rate. For this quarter, we have seen particularly low tax rate, that's effective tax rate of around 19%. I understand probably that's also because Italian Stability Law tax credits being realized in this quarter as well. Could you please just guide us how should we think about these tax credits for the rest of the year and the effective tax rate for the rest of the year?
Gilles?
Good morning, Sanjay. Good question. Last year, we were still benefiting for a good, I don't know whether we disclosed the number, but for a good EUR 30 million on the Italian Stability Law last year, which has driven another low tax rate in 2020. In Q1, we are still benefiting from it, but I would say that the impact will fade during the quarters of this year. Our tax rate is anyway slightly higher than last year, one point in Q1, and will probably trend up, I would say, during the year. Providing you a precise guidance is always difficult, but I guess you can assume a 20%-ish tax rate for the year. Maybe a bit 20%, 21% for the year, as the Italian Stability Law impact is fading during the year. Am I clear, Sanjay?
Yeah. Thank you. That is actually very helpful.
Thank you.
My next question is on the used car sales. I'm sure there are going to be many questions on that. When we think about this, for example, semiconductor shortage, what we see is Q2 is likely to be even worse than Q1. If I look at, let's say all in all the trends which have supported the used car sales margins in the last two quarters, more or less, they are likely to be there or in fact, these tailwinds can even intensify because all the OEMs are now continuously focusing on better pricing in the new car market. The supply of the new cars is even likely to be constrained. Would you think this positive trend can even become more stronger in quarter two and for the rest of the year?
Yeah, Sanjay, I think we see the same trends at least for Q2, that's for sure. It's obvious that Q2 will be more difficult in terms of the semiconductors. We know that it was approximately 1.5 million cars not produced in Q1. Anticipation is that that number could be double in Q2 and some kind of normalization is anticipated for Q3 and perhaps a full normalization in Q4, but it could even spill into 2022 as well, to some extent.
Clearly that will maintain, I would say, let's say the good trends on the used car markets. There's also a big portion of this is actually based on the fact that the rental cars that typically is in the market have not shown because last year, of course, due to the pandemic, the car renting companies did never up fleet or down fleet.
So far, we have not really seen that that is happening as well. Structurally, that's also a positive. We anticipate that the used car markets, clearly for Q2, will be as good as now. Again, we anticipate a good year, full year for used car sales. I think it's then coming back to the previous question about whether we actually will have cars to sell at some point. Again, here we anticipate that the volumes will still remain quite good and we anticipate that, let's say deliveries will start coming back in Q3 and Q4 and that we can deliver new cars again. Q2 definitely and overall for 2021, we anticipate quite a strong used car market.
Thank you, Tim. When we think about, let's say the medium-term outlook for the used car, like just you said about 2022 and in fact 2023. The supply constraints are more or less likely to continue, right? If I just take out that short-term rental part, but apart from that, the car sales in 2020 was down 20%, and this could even mean like two to three years down the line, there is going to be more supply constraints of the used cars coming in the market. Would you see that is also going to drive, let's say, the used car sales margins strong, even in the medium term?
Yeah, I think it's true that when you anticipate or when you have seen a decrease of 20%, 25% of new car sales in 2020 and potentially a -5% to 10% in 2021, that could have an impact positively, I guess, on residuals in two, three, four years from now as well. Having said that, there's many difference schemes on the used car products. You know that still, even if we have been working very hard on driving down the percentage of diesel in our fleet, and our deliveries is below 30% now of diesel cars. Of course, there is a point where diesel cars become less interesting because we see more and more cities closing off for diesel cars. That's the negative impact that somehow could have a negative influence on the used cars.
I guess as soon as the car manufacturers gets back to normal production, it's a highly competitive market, and they want to sell units. We would anticipate that the competition comes back and that new car prices would actually be coming down to normal levels as well, fairly quickly when production is back. It's true that there is definitely a strong, let's say, trend in one area, but it probably will be offset by the fact that there's other negative factors that potentially have to be offset in terms of the transformation to electric vehicles and the reduction of CO2 emissions across the board.
Thank you. Just one more question, if I may.
Yeah, sure. Go ahead.
Just on the pricing side, let's say what we are seeing is OEMs, they continue to prioritize the higher margin products and also increase the prices on the new cars. How is this impacting you overall? What I understand is you are able to pass it on to the end consumers, but at the same time, are you also benefiting from this by charging, let's say, higher leasing contract, or let's say the installment rental rates to the consumers?
Yes. It's exactly what I explained earlier to Enrico, Sanjay. It's the fact that indeed, we have to take into account the kind of inflation which we used to anyway. The more expensive the investment is, the higher the margin is and then can also better absorb our fixed costs. We'd say it's a positive news for the cost income, obviously. Yeah.
Thank you very much. Very helpful.
The next question comes from the line of Sam Bland from JP Morgan. Please go ahead.
Good morning. Thank you. Just a couple of questions on this semiconductor shortage issue. Is the nature of it kind of a problem everywhere for all OEMs or is it particularly region specific or OEM specific? I guess if you sort of match your profile against that, does ALD look to be particularly better or worse versus, let's say, the kind of global average? I guess that's basically my question.
Yeah. Sam, that's a good question, actually. Clearly the manufacturers are not hit the same way. Exactly what have caused that, honestly, it's a bit difficult to judge from the outside, but if you take Toyota, BMW, Volvo, they seem to be very little impacted by this. Then you have on the other end, you actually have companies like Ford, and actually Volkswagen, who seems to be quite badly hit by this. It's quite different. I guess the shortage looks to be a global, let's say, phenomenon. It's not like in one region of the world. It's happening pretty much everywhere.
What is happening is that the manufacturers try to produce the cars where they have the best margins, which is good for us because typically our cars are well-equipped and they are premium cars, and therefore, these cars are actually coming to the market more than the less equipped cars. It is different, I would say. In terms of our portfolio and the look at our partnerships, I think we are quite well-balanced.
We have some of them, like I said, Volvo is performing extremely well for the time being. Doesn't seem to be affected at all. Ford is one of our big partnerships, and we know that they have announced that they will have a few shutdowns, and they could be quite badly hit in Q2 on this. On the big picture, on the balance, I think we are fairly balanced with our portfolio.
Okay. Is that reflected in, I think you made some comments earlier about having quite a strong order bank for deliveries? Is that the point you're making there, which is, there is this issue, but you do have some visibility on deliveries through the year?
Yeah, the order bank, as we said, it's probably record high for the time being, partly because of the delays of new cars. I think actually also because we have been very active in the first quarter, we've been very successful in actually getting quite a few new, bigger corporate clients in. Of course, when you get a new client in, well, first of all, it can be a bit more difficult to get them into if you can't deliver a new car, you actually don't get them into your portfolio. Secondly, there is typically a lead time from you sign the contract until you actually get the cars on your balance sheet.
It's a combination of the two, I would say, but clearly, we know, again, as I said, with Ford, where we have a big partnership, Ford is delaying a lot of deliveries right now, and that is definitely part of the problem. It's actually a combination of us being, I think, quite active at the moment and having quite some successes on the commercial side as well.
Okay. Understood. Thank you.
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. Firstly, when you do these bolt-on deals, like Sabadell, for instance, I was just wondering, does the pandemic hinder your ability to rapidly migrate the customer base over onto your platform? I wonder if you could just talk a bit about what, pre-pandemic, what sort of customer attrition you typically see when these type of businesses change ownership, given that you do a steady stream of these kind of bolt-on deals.
Just, your view on that. Second question, on the forward-looking IFRS 9 provisions you took last year, it doesn't sound like you've needed to use them so far. Firstly, clarification on that. I'm just wondering how long you're allowed to sit on those provisions in the event you don't actually use them. Is that more a year-end discussion to have with the accountants, or actually could we see potentially provision releases before that in 2Q or 3Q? Those are my couple of questions, please. Thank you.
Thank you, Kiri. On the M&A side, I think if you take a deal like Sabadell, we were actually quite close to close that deal just before the COVID crisis hit last year in March, and then, of course, at that point it was impossible to actually price assets that time. We actually put the discussions to rest and then came back in the autumn here and finalized the deal. I think in overall terms, when you do this, the remote working and all that has not been a hindering for doing M&As and have not been a hindering of making, let's say, an approach on M&A.
We actually opened Malaysia, as you know, in November last year, without having anybody on ground because we could not get people in there. Basically, we prepared everything up front on the distance. There's lots of things you can do still due to the, let's say, pandemic situation. I think we have proven extremely resilient in terms of our way of working on that part. John Saffrett is on the line as well. Maybe, John, you want to give a few inputs on the specific customer attrition and what happens when we do a deal like this?
Thanks, Tim. As Tim said, when we do these transitions of clients, bear in mind, we always do it as part of an ongoing partnership arrangement with the company that we're acquiring. We see very little attrition because the client remains a client of Banco Sabadell going forward. It's their client base that we're servicing. The transition on the technology side is very quick and efficient. We've got a lot of experience and a lot of standard processes for migrating fleet data onto our own books, migrating customer data into our own books, migrating accounting data into our own books.
We simply provide a scale and a level of service that generally these companies are unable to produce themselves, but they continue to front the customer service to a certain extent through their branch network or through the advisors that are sitting in front of the clients as well. The end client doesn't really feel the transition as such because they're still talking to the same individuals where they want to receive a car or receive a quote. We simply provide a much more efficient back office and a much more scalable back office to support the growth going forward. What we always see post these types of transitions is you then see a ramp-up effect very quickly because the distribution network suddenly has a scale and a capability to deliver this product that it didn't have before.
Yeah.
On the forward-looking, yeah.
Yeah. Regarding the forward-looking, it is true that we have not released any of the provisions we booked last year. Just to remind you that these provisions have been booked based on historical probability of default, which has, in general terms, always been rather low. We've tried to assess, as best as we could, these forward-looking provisions.
As you say, we are sitting on those provisions for the time being. I guess as you've seen all the release of banks, they all have a very low cost of risk, as we do. We try to be as conservative as we can, as prudent as we can on the provisioning of customers. Time will say as and when we will be releasing these provisions, when and if cost of risk will become to deteriorate in the coming quarters. It is very difficult to say. You read the press, and you anticipate a lot of customer defaults in the coming quarters. I'd guess that we would use these provisions at some stage, as the cost of risk materialize. As we speak, there is, frankly speaking, nothing.
Okay. That's very clear. Thank you, guys.
Thank you.
The next question comes from the line of Gabriel Adler from Citi. Please go ahead.
Thank you. Morning, Tim , Gilles, John. It's Gabriel from Citi. A couple of higher-level questions from my side. We're seeing a number of examples of online players in both the leasing and the used car market coming to market at the moment with quite user-friendly platforms focused on servicing the B2C channel. How does ALD plan to compete with these digital platforms, both on the private side of the business and also, in terms of remarketing? Although I accept that the latter is probably less of a focus for you. That's my first question.
Thanks, Gabriel. I guess, if you look at quite a few of the partnerships we have gotten the last year is pure digital plays, actually. If you take Tesla, Polestar, the one now with Lynk & Co is a pure digital play, basically, in a partnership with and addresses typically SMEs and private lease through these channels. I think we are fully equipped to compete on this area and much better than actually the newcomers because, again, you need scale in this business to compete, and you need a good balance sheet to fund the business.
I think we are no way behind in terms of the digital capacity to acquire clients and serve our clients. I think if you look at some of the platforms that is out there that we have with some of the partners, they are actually very user-friendly as well. Maybe, John, you want to give a bit more color to this?
Yeah. It's a very good question. Digital is exciting at the moment, particularly in our sector, and everyone's getting excited by the pure digital players that are coming to the market. I think it's worth noting a couple of things. We've been doing this full digital journey now for more than three years. We started to invest in full digital journey five years ago. We are processing digital online business with all of our new partners today, and we're writing more business on that platform for a private lease than any of the pure play digital players that are coming to market. Coming back to the point of having scale, we've been able to invest in that and remain profitable, which is something sometimes people forget that when they look at the market caps and the consideration of these companies.
We've created a scale where we can invest in digital, we can compete directly, we can write more units and remain profitable through the cycle of investment, and come out the other side with a very strong offer. I think a lot of those digital plays are pure play direct. As we know, they require significant investment in brands and digital marketing and sponsorship of football shirts and TV adverts.
Our strategy to date has been to look at working with partners who have strong brands already, and where we can leverage those brands to drive the volume but provide a digital capability to let them personalize the digital experience. There's really only so much variation you can make in terms of the digital online experience for a private lease because there's certain steps you have to go through. I think we're very well-placed. We're competing already.
It's not about how do we compete. I think we're competing already, and we will probably first to market with some of our offers with some of our partners. As you saw in the Move 2025 plan, we'll continue to invest in digital at scale, and continue to grow our digital footprint and recognize that it's an important part of our future, but make sure that we also maintain a healthy level of profitability through that period as well.
Okay, brilliant. Thank you. My second question is on electric vehicles. I think we touched on it earlier in the call. It's that risk of what happens to residual values as we reach a tipping point for EV. Clearly, ALD is shifting its fleet mix. The 30% EV target in 2025 is obviously encouraging. I'd love to hear your views on how the business plans to manage this risk of residual value pressure on petrol and diesel cars, as the new car market reaches a tipping point towards EVs over the next decade. That'd be great. Thank you.
Yeah, Gabriel, that's also a very good question. I guess we have proven actually now through the last four or five years throughout the diesel crisis, that we pretty much know how to deal with this. I think one of the things that we somehow people underestimate is actually the dynamics of the market. There is quite a long tail on technologies in this case, people have been investing into, let's say, quite expensive assets for private families and therefore, there is a drag on the change.
We tend to have a bit more time to get organized than what one would think. I think we showed that with the diesel, where in 2017, when the diesel crisis hit, everybody thought that we would stop selling diesel practically overnight, and it never happened. Actually, what we're selling right now is diesel cars at very good profits.
We have to keep that in mind somehow in terms of looking at this. Electric vehicles is, of course, a complete new play. We have a task force, we have a specific task force working on pricing because in the past, you could say when we talk about diesel cars or petrol cars, at least we have 30 years of history and we know the circles and we know pretty much how that works. We have a lot of history and data, whereas it comes to electric vehicles, you don't have any data, and you actually know that it's a technology that will evolve very quickly over the next 5-10 years. There's many, many moving parts, I think, and we probably don't have time to go through all this on this call.
Overall, I think, first of all, we are looking into this, and we are making sure that we are pitching the technology that we think is the best in three to four years' time. We talk to customers, we talk to our manufacturers, and we talk to experts in this area to make sure that we don't pitch a car that has the wrong autonomy or the wrong charging capacity or whatever it is.
That's a bit like actually with the diesel crisis, the fact that we were constantly two, three years ahead of the circle made it possible for us to actually sell these cars despite of maybe a bit more sluggish market. Of course, there is a question about the supply and demand. For some years, the supply and demand will be in favor of electric vehicle, used electric vehicles.
There'll be very few electric vehicles in two to three years from now, and the demand will definitely be there now. That's another part that's quite positive on that. Of course, there's a question about the price on batteries, the price on the cars, and it will eventually come down. I guess you cannot have an average price of EUR 35,000-EUR 40,000 for electric vehicle and become a mainstream asset. That's not really possible, and all the manufacturers is expecting to launch something at EUR 20,000-EUR 25,000, I guess. It will take time, and again, over the next four or five years, there's lots of subsidies in the market from the government.
As the manufacturers will start pushing prices down, I guess the subsidies will disappear, also potentially the new car prices will remain fairly stable over the next years as well, even if the manufacturers are driving prices down. Last but not least, which is one of our way to mitigate this as well is, we have talked a lot about multi-cycle leases, that we expect, especially electric vehicles, to get into our second lease, a third life lease, perhaps, even price these assets to have them with us for six or seven years. We are now building up nice, let's say, channels and segments to make sure we can actually push these cars into new segments when they come back and not being, let's say, forced to sell a car that potentially is not priced right.
The thing is that you could think that we buy a car today that in four years would be a bit obsolete in terms of technology, and it means that perhaps people would not like to buy it, but they would be fine to lease it because they never get the ownership, because the car would still be able to drive into the cities and it's a zero emission car, which gives all the benefits of a car like that.
Which means that there is potentially a very interesting market for second life lease and third life lease for these cars. I think that's the short version, Gabriel, on residuals on EVs. It's something that we work on very hard to enhance our capacity to follow this very closely. At this point, we feel quite comfortable that we are on the right side of things here.
That's great color . Thank you very much.
The next question comes from the line of Geoffroy Michalet from Oddo BHF. Please go ahead.
Hello. Thank you for taking my questions. Actually, I have two. The first one is on M&A, since you did this small bolt-on deal, roughly 1% of your fleet. You touched a bit on it, but could you please remind us how much time you need to bring those bolt-on acquisition to the group level in term of margin or in term of operational integration? The second question has to do with what you call commercial dynamism. Could you maybe be a bit more specific on maybe the timing and the underlying reasons why is it now so dynamic? Could you give us a sense on how competition is evolving? You've seen that BNP has raised strong results and mentioning Arval in the call. How is it evolving so far? Thank you.
All right. Yeah, Geoffroy, let me take the first one. John, you can take the second one. On the M&A files, I guess they are very different in nature, actually. Some of them are very simple. Some of them comes, like John said, with a partnership. Some of them is completely new implementations in a new country. It's difficult to give you a standard answer on all of those. Typically, if we take SternLease, which was quite complicated, that we did in 2019 in the Netherlands, with about 16,000 cars, and that came with a partnership for 80 dealers in the Netherlands. I would say from we basically did the closing till they were onto our systems, it was about nine months. The first year of operation was actually positive.
We have, over the last five, 10 years, really built up a super expertise in finding interesting bolt-on acquisitions and integrating them very fast. The biggest one we did was in France with Parcours back in 2016, about 65,000 cars, a completely different business model to ours. Actually, in terms of integrating the business into the ALD business was just practically one year. To adjust the business model to fit ALD was three years. Again, due to the fact that we actually were able to bring that business onto our systems, we took all the cost income benefits after one year, basically. Of course, we have optimized the business model and actually used elements of Parcours in our footprint in France today. I hope that answered that question. John, you want to give an input on the commercial dynamics?
I will. Thank you for the question. I think firstly, we should recognize there was a lot of suppressed demand in 2020 because of the severe impact of the COVID crisis everywhere. During this second wave, we should remember that a lot of car dealers have stayed open during this period. A lot of OEMs and suppliers have moved to being able to service clients online, and we've been able to leverage our online platforms to that extent as well. Previously, we had the online platforms, but our partners were shut. Now they're open, and they can use our online platforms to arrange cars.
A lot of that pent-up demand is coming through, and that's why you see a very strong order bank, because a lot of the contracts we extended in 2020, we're now picking up the replacement orders for those vehicles in the first quarter of 2021. I think we've also got a number of new partners that we signed. We remind you, obviously last year, we launched again in the middle of the COVID crisis, the partnerships with Tesla and Polestar. Even though they were digital and online, there was a slow burner element to those because of just the general context. They're now beginning to feed into the volumes that we're seeing. A lot of the corporate clients have taken the opportunity of COVID to review their corporate policies, and in some cases, they're accelerating their transition towards electrification.
Hence, that's why we're seeing an increase in orders on electric vehicles from our corporate clients. It's kind of been a tipping point in terms of CSR and social responsibility amongst these corporates that they now have to move faster in terms of their move towards electrification. A couple of the big corporate wins that we've managed to secure recently have been with clients that are looking to move to 100% EV, and they're looking for a strong partner to accompany them on that journey globally. We've sat in front of them and taken them through the ALD Electric product we can offer, the consulting we can offer, the partners we can bring to the table around EV supply and the charging infrastructure. That's been one of the key reasons why we've secured those deals.
The last point I'll add is, I think we said to you when we were going through the COVID period, that in effect, we had a two-stream approach at the senior management level. One was focused on how we deal with the crisis, the here and now, and another was making sure that we were prepared for a strong rebound at the ending of the crisis or as the world emerged from the crisis.
Hence, we launched our Flex product, which is now live in 30 countries, and we had a big focus on engaging with our commercial clients, so we were ready to service them as we came out of the crisis. I think there's a lot of factors driving that strong commercial performance in Q1, and a lot of the foundations of that go back to the second half of 2020 and the decisions we made back then.
Maybe Geoffroy, you had a question about, in particular, I guess, Arval and the dynamics and I have to say that Arval have done really well. They did really well in 2020, they seem to do well as well in 2021. They have been very active. They have got a few partnerships, we know they're selling well through the BNP network of banks in different countries as well. Arval is doing really well. Having said that, the rest of the market are not very dynamic.
Actually, we don't really see LeasePlan very active, we don't really see them in the market as such. We have seen Alphabet and Athlon rolling backwards 5%, 6%, 7% in 2020. Again, we really don't see them in the market. I guess for the time being, it looks to be Arval and ALD who is out there in the market, quite bullish, I guess, both of us. Arval have done a great job. We have to congratulate them with that. In the past, let's say, 12, 18 months.
Thank you very much. That's very helpful.
Before we continue, please do be reminded that if you have a question, you can press star one on your keypad now. Our next question is a follow-up from the line of Enrico Bolzoni from Credit Suisse. Please go ahead.
Hi. Thanks. Sorry. Very conscious of time. Just two very quick follow-up. Clearly you have this order bank. Can you confirm, I think you kind of said it in between the lines, can you confirm that actually your existing clients might have been actually happy to switch and order a more expensive vehicle rather than wait for a less expensive one? As you said, OEM are focusing on the higher margin vehicles.
These, arguably, you can get them sooner. Are your clients actually happy to pay a bit more and just get it sooner? This is the first one. The second follow-up, instead for the contract that you're actually extending before, of course, you need to wait for the delivery of the new vehicle. Do you think this will have a material impact on service margin? I just think, the older the vehicle, maybe the more it needs to be serviced, and that could impact your margins there. Thank you.
Yeah, I think on the first question, Enrico, I think let John take that. He's a bit closer to that. I don't think we see that people are changing their orders, but John, you have anything there?
Yeah, I think, Enrico, it comes back to our position to service the client, and to a certain extent, we're OEM agnostic. What we're able to work with our corporate clients on is obviously where they're trying to place an order for a vehicle, and we know that supply is challenging, we can use our relationships with all of the OEM partners to try to recommend other vehicles to them and see if they work within the frame of the corporate car policy as well. If that means there's a higher margin opportunity, then obviously we'll take it, but we're not going to do anything to harm the overall relationship with the client when we do that.
Regarding the contract extension, Enrico, you have to distinguish two type of contract extension. Last year, at the time of the COVID, we're doing formal contract extension, trying to help to sustain our customers. Renegotiating the terms, potentially, of these contracts. Nowadays, we are more in an informal contract extension period, where the delivery time of cars is longer, so you don't really change the monthly lease installment, which is overall rather positive. You can be right, it can be negative on the service margin, but very positive on the finance margin and the potential profit on the used car, because you keep the same depreciation curve. Overall, informal contract extensions are generally beneficial.
We also have cases where we provide our customers who are waiting for their new cars with a contract from our flexible fleet, flexible contracts, which we are also using quite a lot these days. The fact that, yeah, contract, the delivery time is extending, yeah, helps us in extending and having more contract extensions from an informal basis, which is overall positive.
Thank you.
Yeah.
That's very clear. Thank you.
We have no further questions coming through, so I will now hand back to Tim for any closing remarks.
Thank you for listening and your attention, and as always, our IR team stand ready to answer any further questions you might have. Don't hesitate to contact them. Thanks a lot. Catch up in August.
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