Hello, and welcome to the ALD First Half 2022 Results. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero, and you will be connected to an operator. I will now hand over to your host, Tim Albertsen, CEO, to begin today's call. Thank you.
Good morning, ladies and gentlemen, and welcome to this ALD First Half 2022 Result Call . First of all, thank you for your attendance, and as always, we hope that you're all in a great shape. We guess you're all pretty ready for vacation, actually. I will start with some highlights on the first half of 2022, and as you will see, we have recorded a strong commercial and exceptional financial performance. Gilles Momper will comment on our financial results in more detail. Finally, I will say a few words on our outlook for 2022 before we take your questions. Let's go directly to slide four. In a more complex environment, we recorded very strong commercial dynamics despite continuing supply constraints. Our funded fleet increased by 5.4% compared to the end of June 2021 to 1.45 million vehicles.
I will comment further on our commercial expansion in a few minutes. The continued shortage of new cars pushed the prices of used cars further up, and I can say that we are not seeing any sign of normalization for the moment, and normalization will likely not happen this year. In this context, used car sales results attained a record level of EUR 3,212 per vehicle sold in H1 2022 compared to EUR 740 in H1 2021. Under these highly favorable conditions, we generated record high profits in car remarketing. Our group net income came in at a record of EUR 606 million in H1 2022, up 72% compared to H1 2021. This number includes a few non-operating items that Gilles will give you much more details later on.
Even stripping out these items, our financial performance is very strong considering the environment that we are experiencing, and it demonstrates the relevance and resilience of our business model. Let's go to page five. Since the beginning of the year, the macroeconomic environment has changed considerably. ALD has been prompt in adjusting to the new challenges as we presented last quarter. I would like also to highlight that the situation also brings many new opportunities to ALD in particular, and ALD is particularly well-positioned to take advantage of these. We're taking tactical measures to manage the disruptions of supply chains. In Q1, I already mentioned bulk purchases and anticipation of orders. We're also extending existing contracts, and we are promoting our flexible products offering as an alternative mobility solution like ALD Flex and used car leases.
This allows us to further reinforce our relationship with our clients, and it contributes to the reduction of our residual value risk. As major economies are slowing down, we are developing our multi-cycle lease offering, and we are closely monitoring our riskier client segments. I would like to remind you that our business benefits from the fundamental shift from ownership to usership. Over the past years, car leasing growth has outpaced that of the car market, and I'm confident that this trend will continue and that it will mitigate the effects of a potential recession. We have a wide access to funding, which is a key competitive advantage in the car leasing industry, and we are continuing to protect our margins through our strict hedging of liquidity and interest rates risks. Taking into account the rising inflation, we are adjusting our pricing parameters in new contracts more frequently.
Another consequence of inflation is that it underpins our future used car sales results, which is positive to ALD. In a context of higher fuel prices, we have reinforced our customer advisory on more sustainable innovative products, such as ALD Electric or multi-modal mobility, in line with our Move 2025 strategic plan. The powertrain transition is definitely an opportunity for us as we are a market leader in electrification. With this tactical plan and considering the opportunities that the situation offers, I'm confident that ALD, thanks to our competitive business edge and the commitment and professionalism of our teams, that we can successfully navigate through this new environment. Let's go to page six and have a look at how we are shaping the world of mobility.
Our commitment to shape the future of the industry was further evidenced by the launch of ALD Move in France in May. ALD Move targets the business to business to employees channel, the B 2B2 E, and it's a cutting-edge mobile application which allows users to plan, book, and pay multimodal transports. Its functionalities have been enriched thanks to Skipr, the Belgian mobility as a service startup, in which we acquired a 17% stake last year. I would like to highlight that ALD Move's potential customer base is much larger than the one of traditional car leasing. This is because ALD Move targets the totality of corporate clients employees, including those not eligible to a company car. ALD Move provides users with a high number of flexible and adaptive travel options, leverages on multimodality, and contributes to the reduction of carbon footprint within a dedicated budget.
Thus, ALD Move is highly suited to changing mobility needs and preferences, and it has had a promising start since it was launched in May. Meanwhile, ALD Flex in the business-to-business channel continues to be the perfect response to corporate changing needs in a more uncertain environment. Our fleet reached more than 52,000 vehicles at the end of June 2022, an 18% increase compared to December 2021. ALD Flex is continuing its expansion, and it will be available in 34 countries by the end of this year. In the business-to-consumer, Fleetpool had an outstanding performance in H1. Its fleet reached 13,000 vehicles at the end of June 2022. Fleetpool is the number one subscription company in Germany, which we acquired last year.
Operating the like2drive and easyCar brands, it targets private consumers through a simple, all-inclusive and fully digital subscription product. It has a great growth potential, and we have plans to roll it out across Europe. Let's go to slide seven, where I can comment on how we're leading the transition to sustainable mobility. The transition to EV is underpinned by strong megatrends, the more stringent environmental regulation, as well as corporates and individuals rising interest in reducing their carbon footprint. Over the last 12 months, the share of EVs in our new car registrations in Europe was 27%, and I'm proud that ALD is much ahead of the market, which recorded less than 22% over the same period. Besides, we have been appointed sole EV solution provider for advisory, fleet, and charging by a number of large corporate clients during H1.
We can mention Thales and Bayer, among others. We want to leverage on our commercial successes, and we'll be deploying the ALD Electric offer in 12 additional countries to reach a total of 34 markets by the end of this year. Finally, in June 2022, we successfully issued a EUR 500 million European green and positive impact bond. This bond will be exclusively dedicated to the financing of battery electric vehicles, and this powertrain is at the forefront of sustainability. By doing this, we confirm our commitment to the highest standards of sustainable development. Let's move to slide 8 and look at our strong commercial dynamics. H1 was strong in terms of commercial dynamics despite continuing supply constraint. Our funded fleet reached 1.45 million vehicles end of June 2022, a 5.4% growth compared to June 2021.
Organic growth was at 3.1% since end of 2021. Our funded fleet grew by 1.5%, which means that we are on track to achieve our guidance of 2%-4% growth this year. Total contracts, including both full service leasing and fleet management, attained 1.76 million vehicles at the end of June 2022. The continued rising order book reflects the strong commercial dynamics. As supply chains remains disrupted, delays in deliveries of new cars are persisting, and clients are placing the orders with great anticipation. Let me now hand over to Gilles, who will comment on our H1 2022 financial results on page 10.
Yeah. Thank you, Tim, and good morning, ladies and gentlemen. Let's have a look at the strong evolution of our margins. I will obviously start by commenting on the few but significant non-operating items booked in H1, which have impacted our leasing contract margin. The first one relates to the Turkish economy. As the cumulative inflation has exceeded 100% on the three-year period in the first semester, 2022, you have seen that Turkey has been included in the list of hyperinflationary countries. That's why we've applied IAS 29 standard for the first time, which is imposing to revalue all non-monetary items, of which our main assets are our fleet.
We operate a fleet of circa 12,000 units in Turkey, and the revaluation has had a positive P&L impact of EUR 40 million, which corresponds to an anticipation of future car sales profits. The second non-operating item relates to our normal fleet evaluation procedure. I had already commented in previous calls that our scenario on the prices of used car was a normalization during the year, and this was a prudent assumption used for our fleet revaluation exercise that we have done last year. As just commented by Tim, we clearly see no real improvement on the supply chain leading to exceptionally high used car prices. In the most recent fleet evaluation that we have done in H1 2022, we have recognized this market outlook, and somehow this is reflected.
Our fleet evaluation reflects these levels of prices in the accounting revaluation of the vehicles, and of the vehicles which will be coming off lease within the next 12 to 8 months. This accounting exercise has led to a positive impact in the leasing margin of EUR 40.5 million. As a second effect, and part of this fleet revaluation exercise, you know that we have always tried to be as prudent as possible by ignoring the potential future profits on the sales of used vehicles. Given the high level of inflation on used car prices, we have now a portion of the fleet for which our net book value in H1 2022 is below or well below the expected future used car sales prices.
Given the significance of the amount, the accounting norms are imposing on us to adjust and sometimes stop depreciating our vehicles further. This has led to an exceptional booking, which is reducing our depreciation costs, which in effect, like for Turkey, is an anticipation of used car sales profit, which would have come in the course of the second semester this year. This is indeed a significant amount, EUR 63 million, which obviously reflect the current buoyant market. The last non-operating item relates to ALD Ukraine, and we have been able to keep our prudent provisioning booked in Q1. I can comment that for the time being, the situation remains under control despite the war, with a slight decrease in the fleet. Our provision rate is prudent as it covers 50% of our rental fleet and customer receivables.
At the end of June, our net assets in Ukraine were only EUR 45 million, which is limited. When one excludes all these non-operating items, our leasing and services margin are increasing by 4.6% year-on-year. Let's go to the next slide on the used car sales results. I will be short. You can see the contribution from used car sales results reach a new exceptional level in H1 at EUR 433 million compared to EUR 125 million in H1 last year. This record result is driven by ongoing supply shortage with no significant improvement in delivery time. The average margin on used car came in at EUR 3,212 per unit. We have only sold 135,000 cars.
Of course, the decrease in volume is mainly due to the rising number of contract extensions and used car leases. Let's look at the rest of the P&L on slide 12. Our operating expenses reached EUR 404 million in H1. The increase compared to H1 last year is mainly due to a few expected exceptional items. We have exceptional spends in relation with the acquisition of LeasePlan, and these costs have increased from EUR 10 million in Q1 up to EUR 31 million in Q2. This increase reflects the implementation of the integration management office, which has been set up in April, and which is 100% dedicated to prepare the integration.
Also need to note that we also have costs linked to the antitrust filing and to the ECB filing for ALD S.A. to become a financial holding company. For the whole year, we are anticipating around EUR 100 million of costs linked to the LeasePlan transaction. The second exceptional item on the OpEx is the fact that we have consolidated for the first time Sabadell Renting and Ford Fleet Management in the U.K. Hence, we have recognized the operating expenses of these entities, and the scope effect represents around EUR 8 million of operating expense. The last item, I mean, likewise for Q1 2022, on the back of our outstanding used car sales results, we had to further increase our variable compensation provision, of which some employee profit sharing in some countries.
When you exclude these three items, our OpEx have risen by about 5% compared to the same period last year. Again, it's worth reminding that the cost base of last year was low due to COVID restrictions, especially on travel. The cost of risk is 16 basis points, stable compared to last year. The impairment charges on receivables coming at EUR 19 million, of which EUR 2 million is related to ALD Automotive Ukraine. Our net income Group share reached an exceptionally high level at EUR 606 million, and this despite the normalization of our effective tax rates. The earnings per share in H1 amounted to EUR 1.50 compared to EUR 0.87 in H1 last year. I'll now hand over to Tim, who will comment on our 2022 outlook, and we'll be then ready for questions afterwards.
Thank you, Gilles. Yeah, let's go to slide 14. As you can see, we posted exceptionally high financial results in H1, partly due to some non-operating effects, which Gilles just described. Notwithstanding, I would like to highlight that even stripping out these effects, our performance is very strong. As I commented earlier, we are actively responding to the unprecedented challenges that arose, and one should not disregard the opportunities that these changes are also offering and which ALD will take advantage of. Despite the challenges, ALD fared strongly in H1, thanks to the solidity of our business model, our agility and the quality of our people. Based on this, I'm confident that we can navigate through the current fast changing environment. We believe that the disruption in supply chains will continue at least until the rest of the year.
Therefore, we maintain our funded free growth guidance between 2%-4%. We're also expecting the highly favorable supply demand situation in used car markets to persist in the near term. As Gilles just explained, with hyperinflation in Turkey and the fleet revaluation, we have anticipated in our H1 margins some used car sales results that would otherwise have been incurred later this year. Therefore, we are maintaining our guidance of used car sales results per vehicle above EUR 2,000. Based on the current market conditions, it will probably be well above EUR 2,000 on average in 2022. Finally, we maintain our dividend payout ratio between 50%-60%. Let's have a look at slide 15. Before concluding, I just wanted to say a few words on the LeasePlan acquisition.
We are continuing to prepare for the closing of the acquisition of LeasePlan. More than 1,600 contributors from both organizations, ALD and LeasePlan, are sharing the same enthusiasm about this combination of our two groups and are working hard to finalize the integration plans. Our discussions with the relevant authorities, the ECB, for the regulatory status and the European Commission for antitrust, are on track with our initial plans. This concludes our presentation. Thank you for listening, and we are now ready to take any questions you may have.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of James de Chastelain from Bank of America. Please go ahead.
Hi, yes. This is James de Chastelain from Bank of America. Thank you for taking my questions. So the first one, I was just wondering if you could give us maybe a bit more outlook on what you expect in the second half on the expected car sales result per unit. I mean, obviously, you mentioned there's still supply strain, supply constraints, which are likely to push up the car sales result per unit, well above the EUR 2,000 mark. I was wondering if you can maybe give us a bit more color on, you know, a broad range on what to expect in the second half, and the full year results.
My second question, in terms of higher interest rates, costs, given the increasing interest rates around the world, what effect do you think this will have on the leasing contract margin? Are you able to pass these costs on in H2? What are you hearing from your customers? Can we expect an impact on volumes? Will you be able to push these increased interest rates into your contract quotations? Thank you.
Thank you, James, for the questions. Let me take the first one, and then Gilles will answer your second question. I think on the car sales, obviously, the very strong results are based still on a supply situation, well, supply and demand situation that is favorable. As it has been said in the call here, we don't anticipate that to actually change dramatically over the year. One of the reasons why you can say we are not guiding higher than the 2,000 is, as we explained, the fact that obviously some of these, let's say, extraordinary profit is now in our margins. Secondly, I guess, we have seen that the results is plateauing at this point.
We also start seeing that the demand side is less favorable. The number of traders on our platforms is coming down, still way above what it was in 2021. We see a kind of cooling off on the demand side as well. The thing is that when the new car sales will pick up, obviously we will start seeing a strong supply of our used cars to the market and hence the situation could normalize quicker than we anticipate at that point. It's true to say and fair to say at this point, for 2022, we don't really see a big difference to where we are. As I said, we do anticipate that above 2,000 is high above 2,000, let's say, for the rest of the year, for the full year 2022.
Yeah. On the high interest rates, I mean, broadly speaking, we are, as you know, we are... Our policy is to consider interest rates as a technical cost. It's taken into account in the quotation system of the subsidiaries. It's fair to say that when you have a month like June where we have increases every week, there is sometimes a time lag between the quotation and the real interest costs, but I mean, nothing material. It's not an obvious one because we, as a team, agreed earlier in the presentation, we need to update our pricing parameters on a more frequent basis. We need also to take into account the competition and what they do. I mean, broadly speaking, everybody is impacted in the same way.
Interest rates rise are impacting everybody, so it will be embedded in the leasing going forward. It is for us, at least, anyway. Regarding the impact on the volumes, I mean, you've seen, we have a record order book. We still have a strong commercial dynamics. People are more concerned about the supply chain and the shortage of cars and the delivery times. We don't see any adverse impact for the time being. If you combine the high interest rates, potential inflation on cars, I mean, this, we have always said that this could drive some, of course, some adverse impact on the volume that we don't see so far.
Great. Thank you very much.
The next question comes from the line of Sanjay Bhagwani from Citi. Please go ahead.
Hi. Thank you for taking my question as well. First of all, congratulations, gentlemen, for yet another strong set of results. I've got a couple of questions. Maybe I'll kick off with my first one is on slide six, you mentioned that you are more frequently adjusting the pricing of the new contract, which is largely a function of inflation. And then there is an interesting point you made that this is underpinning the future used car sales results. Could you maybe provide some more color on how the whole equation works and yeah, what sort of impact will this have in the medium term for the used car sales results? That's my first question. I'll follow up with the next after this.
Okay, Sanjay, thanks a lot for the question. Yeah. I think, you know, in this environment with inflation, you know, you know that we lock in the prices for our customers when we actually sign the contract. You have a budget, basically a fixed budget for the service, maintenance, tires, of course, the interest rate. As we also mentioned on interest rates, we actually hedge everything there, so there's no risk there. On the other parameters in terms of inflation, in terms of tires and maintenance, of course, that has to be reflected in the quotes as well. Hence, you know, we now adjust our quotations, you know, much more frequently than we had to do in the past.
You know, we have had pretty much 15 years without any kind of inflation, very low inflation. Of course, we have to make sure that we reflect that. You could say that on the existing contracts, you know, we do have a risk on the service and maintenance and tire margins there. Obviously we use all our procurement power to ensure that obviously it has the minimal impact, but there is a risk there on that. Hence what we're saying in a high inflation, let's say regime, it has a positive impact on the used car sales that typically offsets, you know, any kind of negatives on the margins on the service side.
Because obviously, with the high inflation, we know from countries where we are, where there have been high inflation, that it's quite positive for the used car sales overall. For us, you know, we see the equation being quite neutral at the end of the day if you take the contract margins and the used car sales overall. I hope that gives you a good answer to that.
Sorry. Yeah, no, that is clear. In a nutshell, inflationary environment is positive for you. Is that a correct read from this? Because you can increase the prices on the new contracts and also you benefit on the used car pricing.
Yeah, exactly. I mean, we even have in our contract in some countries that if inflation goes above a certain level, we can actually recalculate the contracts. Now based on where the used car sales is today, you know, we don't do that because we also want to protect our commercial relationship with our customers. We actually do have in the contracts in quite a few countries an opportunity to actually change the contract if inflation goes above a certain level. Clearly for the future, we build in the expected inflation. Hence, you know, we do believe we are well positioned there for the future business.
Thank you. That is very helpful. My next one is on ALD Move. Congratulations for the launch. Could you maybe provide some color on the subscription prices, what basically the subscription does it cost like per month to a user? More importantly, what sort of penetration you are expecting for this in the medium term? If any color on the uptake, how the response has been so far, et cetera.
Yeah. We have John Saffrett with us here as well. John, you wanna answer that?
Yeah. Thank you, Tim. Thank you, Sanjay, for the question. I mean, firstly, we should understand ALD moved very early in its life, and it's one of the areas where when we shared our Move 2025 plan back in November 2020, we said we wanted to start building some muscle and foundation to address some of those emerging mobility trends such as mobility as a service and subscription. The pricing can vary depending on the offer that the user takes. The pricing also varies depending on the structure of the product.
Sometimes it's linked to a corporate mobility budget which is allocated to employees, which provides access to a limited range of services and a limited range of sustainability mobility options, and sometimes it's a more wide-ranging budget encompassing the car leasing budget as well, so it does vary from company to company. It's too early to really talk about penetration numbers. As Tim said, it's a product that in theory could be made available to 100% of the employees of corporates. Corporates are all grappling with this sustainability challenge, and employee mobility is a key contributor to achieving those objectives, so that's why we've developed it and built it. It's too early really to understand what we think a normal penetration would look like in a large corporate going forward.
We've had lots of good interest from some large corporates, in France, and in fact in other countries who are interested in taking on the platform, and we'll keep you updated as the number of contracts improves over a period of time. So far so good, but very early, and we wouldn't wanna provide you with any more specific detail on it at this stage.
Thank you. Thanks, John. Actually, that's very helpful as well. If I understood this correctly, this is still going to be margin accretive, right? This is not like an add-on service that you provide to your existing customers, but this does come at a cost and adds to the margins. Is that right?
Yeah, this is an incremental product. There's a lot of talk sometimes about how cars will be replaced by mobility budgets, and I think most of the reasonable studies on that indicate that that will be a tiny minority of the company car fleet will transition into mobility budget management. What will happen is corporates will become more focused on the rest of the employees and the way the rest of those employees complete their work travel and their mobility travel around cities, around urban centers, and they'll be focused on making that as sustainable as possible. We see this as an incremental product which we can offer to the non-company car employees primarily.
Thank you. Sorry.
Go ahead.
Sorry. My last question is, like, are you seeing any kind of slowdown in the order intake? I understand, like, the order books are still quite strong. Any slowdown here from the corporates as in, like, are they fearing the upcoming slowdown or the consumer recession, or are you seeing any cancellations as well in the order book? If you could provide some color on that, please.
Yeah. No, honestly, as Gilles just mentioned, you know, we don't see that for the time being. You know, our order bank is record high, you know, so it's not because we have emptied out the order bank that we are growing, where we are growing for the first half year. Actually, the order bank is still growing. So I mean, the commercial dynamics are very strong actually, and we don't see our customers changing their behavior at this point. It's probably true that, you know, there could be a time where they have to reflect on the cost of this, but it's not happening now.
In the past, what we have seen is that our customers do not necessarily change their policy of providing company cars and mobility to their employees, but they might change and they might downgrade the car policy to a model that is, let's say, a bit smaller or what it could be. I would say a lot of our customers, what they're doing right now is actually they're looking how they can actually electrify their customer, their fleets. Obviously they need us in that journey and it's more important for them to actually fulfill their ESG agendas and trying to be more environmentally friendly than obviously looking at the cost of their fleets for the time being. So far we haven't seen any change in behavior, and we have not seen any cancellations due to a potential recession in the future here.
Thank you. That's very helpful. Basically even if there is a consumer recession, the electrification of the fleet will continue to be the margin accretive for ALD.
Yeah. I think like we said, you know, I mean there is this, you know, structural change, you know, for, I mean, corporates and consumers to not own assets, you know, and it's, you know, coming right into our field, you know. Even in a period where perhaps, you know, corporates will have to downsize or whatever it is, you know, we probably will have such a strong structural growth in the move to our products that we still expect, you know, that volumes should not become a problem for us.
Thank you, gentlemen. Very helpful. Thank you.
The next question comes from the line of Dominic Edridge from Deutsche Bank. Please go ahead.
Hi there. Thanks for taking questions. Just three sort of ones for myself. One firstly, quite specific, maybe for Gilles, which is that, just on the reduced depreciation and the changes there, just to be clear, is that just on the fleet that is due to be, sold or is coming out of service over the next six months, i.e., the remainder of the fleet is still valued at historic cost versus a minus depreciation? That was one question. The second question was just about a market update on competition, as others have already asked about. I mean, obviously, we're seeing a lot of things going in different directions, interest rates up. The residual values are also going up.
Can you just maybe comment on what you're seeing in terms of the level of competition in the leasing market at the moment and how you see that? More of sort of a general point, just thinking about returns. Obviously, your current cohort that you're currently selling, I'm assuming the returns on those cars have been extremely positive. Can you just say about when you look at your models and where you're pricing currently, do you see you being in line with the historical theoretical returns as well, based on all the parameters that you've talked about in terms of inflation, et cetera? Just the last question was, are you pretty comfortable now with the returns you're gonna get over the EV life cycle versus the internal combustion engine? Because I know that you sort of were doing some work on that in the past. Thank you very much.
Thanks, Dominic. Let me maybe turn to your second question first, and then I'll leave it to Gilles to take your number one and three, actually. Yeah. On competition, I think, you know, what is obvious, you know, what we have seen in the past, where there have been, let's say, crisis or recessions, you know, it helps us a lot because a lot of the smaller competitors and, let's say, competitors who are not necessarily have access to funding to the extent we have are struggling. Typically we have actually a very good position in a market like this.
Of course, the scale of the business is becoming even more important than that as well, and making sure that we can take all the scale effects of everything. As you know, you know, the cost income of ALD is still leading in this industry. Overall, on the competition, I think what we can see and what we expect is that, you know, going forward, as I've just mentioned, you know, this market is becoming mainstream, and we probably will see a few new competitors coming to the market over the next two, three, four, five years. You have already seen Crédit Agricole, who obviously have announced their arrival into this market with very ambitious plans. You know, we know that Santander is looking to expand into our area as well.
We're looking at a much bigger market, obviously, for us. At the same time, competition will also change, you know, a bit over time. Where we are today, where our typical competition is coming from Arval, LeasePlan, and the likes of those, I guess, no particular difference there between us. It's typically the smaller players who are struggling in this environment. We have seen that over the last 10, 15 years. We have been consolidating the market, and actually this will just accelerate a further consolidation, I guess. I hope that answers that part, Dominic, and then I'll hand over to Gilles to-
Yeah. Yeah. Regarding the decrease in depreciation costs, it is indeed, as I said, in my comments, we have reset the prices of the vehicles, which will be coming off lease in the next. We are doing the fleet calculation on the whole fleet and depending on the date of returns, of course, but the change relates mainly to the cars which will be returned in the second half of the year. That's why, as Tim commented in the conclusions guidance, we know that this impact, this positive impact that we had in H1 will be, in fact, is an anticipation of the used car sales results of H2 this year.
It's primarily H2, because the longer the maturity of the contract, the less bullish we are, of course, and we take some stress also and some normalization of car prices. It mainly relates to the cars which will be sold in the next six months. 'Cause we can't sustain with the auditors to have a very negative view on the prices as we are just experiencing very high prices. Of course, the returns we see now are obviously very highly profitable, and much more profitable when you look at the return on owning the assets or return on assets. We are.
I mean, of course, due to the used car sales and the positive impact of inflation on the used car sales, we have high returns for the time being, thanks to the car sales. Does it answer your question, or do you want me to be more specific?
Yeah. I was also wondering about the new business that you're writing at the moment. I mean, obviously, I know there's a lot of variables that go into your model, and you've discussed some of them in terms of inflation and other elements. I mean, just on the back of the market comment, it sounds as though the underlying returns in your business are pretty stable, it sounds like, at the moment. Is that a fair comment?
yeah.
Yeah. No, I think, Dominic, you know, we have not changed our assumptions for residual value setting, for example, based on the current results because we think it's exceptional. In the pricing of the future, let's say margin, we anticipate quite a normalization, you know, and we are not pricing in, you know, these kind of results into the contracts today. I think that's important to state. You also had a further question on the electrification, of which I think we have covered a few times. That obviously is true on the electrification. First of all, it's more expensive cars, hence, you know, the margin on interest is typically better.
Now, we also know that typically an electric vehicle is less expensive when it comes to maintenance and service, but it's a bit more expensive on tires, you know. Obviously we are working very hard to expand the services around electric vehicles, where we see there is new options for revenues and margins. Our assumption is not that we will see a deterioration of our margins going forward, actually neither on EVs nor on the fact that we are not factoring in, you know, the used car prices we see today in our quotations.
Okay. That's very clear. Thank you very much.
Next question comes from the line of Kiri Vijayarajah from HSBC. Please go ahead.
Yes, sir. Good morning, everyone. Just a couple of questions, if I may. Firstly, on the funding side, you know, when you think about collecting retail deposits, in the future, just wonder if you could talk about which geographies you think are right for deposit collection in a way you can grow the deposit base. The reason I ask is that, you know, as we move towards a more normal interest rate environment, I suspect collecting deposits is likely to grow more competitive. Linked to that, is it mainly just the LeasePlan deposit collecting platform in its current form you'll be using, or are you planning to build out into other geographies for that deposit collection platform?
Second question's on the OpEx, slide 12, where you list the notable items inflating the operating cost base there. Is it correct to assume you've listed that in order of descending importance? You know, the increase in the variable comp accrual, that's the smallest of the three items you flag on slide 12. Just trying to get a feel for the relative magnitude of the variable comp item. Thank you.
Yeah. Okay. On the funding side going forward, what we have been sharing at the time of the MoU in January is that we will leverage on the existing platform of LeasePlan in the Netherlands and in Germany, is where they are collecting around EUR 10 billion for the time being. We believe, and we have seen that it's a very competitive funding and of course, interest rates are rising, so of course it will cost more, but it will still be, we believe that it will still be a very cheap source of funding. It seems to be quite efficient. On the OpEx, indeed, we are quoting the variable compensation.
It's not an obvious calculation because you understand that the bonus of the senior management is also linked to the net results, and we also have some profit sharing agreements in place. Of course, most of our net income increase is due to the used car sales. Of course, we have to further increase this. It's not a significant item as part of the OpEx. I mean, you can estimate it being between EUR 6 million-EUR 8 million. It's our best estimate.
Great. That's very helpful.
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Okay. Well, thank you all for your attention and your questions. Of course, as always, our IR team is ready to answer any further questions you may have. I guess that concludes this call. Thanks a lot for your attention, as I said, and we wish you a great holiday if it's in front of you. If it's already behind you, we hope you had a good one. Catch up soon. Thanks a lot.
Thank you. Thanks very much.
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