Hello, and welcome to the ALD Q1 2022 results. My name is Ben, and I will be your coordinator for today's event. Please note 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 call. This can be done by pressing star one on your telephone keypad. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Mr. Tim Albertsen, CEO, for today's conference. Thank you.
Thank you. Good morning, ladies and gentlemen, and welcome to this ALD Q1 2022 trading update. First of all, thank you for your attendance, and as always, we hope you're all in a great shape. I'll start with some highlights on this first quarter of 2022. Next, Gilles will take you through our excellent Q1 financial results in more detail. Finally, I will present our outlook for 2022, and in particular, our revised guidance before we take your questions. Let's start directly with slide 4. As you can see, we have had an excellent start of the year. In a more complex environment, once again, we demonstrated the relevance and resilience of our business model through the consistent delivery of high-quality results. We recorded very strong commercial dynamics despite continuing supply constraints.
Our funded fleet increased by a strong 4.8% compared to March 2021 to 1,436,000 vehicles. The continued shortage of new cars in the context of strong demand pushed the prices of used cars further up. Used car sales results attained a record level of EUR 3,101 per unit sold, compared to EUR 439 Q1 2021. Under these unprecedented conditions, we generated exceptionally high profits in used car sales. Our group net income came in at strong EUR 255 million this quarter, up 64% compared to Q1 2021. This despite that some adverse impacts from Ukraine.
I would also like to highlight the fact that we achieved another good milestone towards the acquisition of LeasePlan with the signing of the framework agreement on the twenty-second of April this year. I will comment further on this in a few minutes. Let's move to slide five. Over the past months, the economic and geopolitical environment have changed dramatically. The environment definitely has become more uncertain. Supply chains are still disrupted. We are seeing inflation rising, fuel prices and interest rates strongly coming up. The geopolitical tensions have had an impact beyond Russia and Ukraine. They have significantly transformed the macroeconomic landscape. In March, COVID returned in China, which with new stringent lockdowns, that was implemented. All this poses unprecedented challenges to the global economy and to leasing companies such as ALD.
Nevertheless, we have been prompt in adjusting and taking necessary measures also to respond to these new challenges. Let me introduce the tactical plan which we have launched to mitigate the situation, which, by the way, also offers potential interesting opportunities for our group. The plan is around four main objectives, securing supplies, maintaining the highest standards of service to our customers, preserving our margins, and not least, reducing our risk. With the risk that disruptions of supply chains persist due to the geopolitical tensions and the lockdowns in China, we are securing our car supplies by increasing bulk purchases and by anticipating orders. To do that, we can draw one of our great strengths, the powerful and long-standing partnerships with OEMs.
In parallel, we have continued to accompany our clients by extending existing contracts and by promoting ALD Flex and used car leases as alternatives in the current car shortage situation. Taking account of the rising inflation, we are also revising the pricing parameters in our quotations more frequently. At the same time, in a context of higher fuel prices, we are reinforcing customers' advisory on more sustainable and innovative products, such as electric vehicles and multi-modal mobility. Overall, we have turned this challenging situation into an opportunity to accelerate our Move 2025 objectives. We are also maintaining our strict funding policy. We are hedging the liquidity and interest rates risk at the origination of the contracts, and by doing this, we are continuing to protect our margins.
Finally, acknowledging this uncertain geopolitical environment, we announced on the eleventh of April that ALD no longer concludes any new commercial transaction in Russia, Kazakhstan, and Belarus. With this tactical plan, I'm absolutely confident that ALD, thanks to our competitive business edge, the commitment and professionalism of our teams, can successfully navigate through this new environment. Let's go to page six and have a look at the commercial dynamics. We recorded good commercial dynamics in Q1. Despite continuing supply constraints, our funded fleet reached 1.36 million vehicles end of March 2022, up 4.8% compared to March 2021. With this performance, we are on track to achieve the 2%-4% growth this year. The share of electric vehicles represented 26% of passenger car deliveries in Europe in Q1 2022.
This is a great performance compared to the market averages in Europe. The total fleet, including both full service leasing and fleet management, attained at 1.737 million vehicles end of March 2022. The continued rising order book reflects the good commercial dynamics. As supply chains remains disrupted, delays in deliveries of new cars are persisting and clients are placing their orders with greater anticipation. Let's go to slide 7 and have a look at the LeasePlan transaction timeline. Since we announced the LeasePlan acquisition on the sixth of January, we have successfully completed consultation of the relevant works councils, which has enabled us to launch our integration management office. This integration office is now working hard on preparing the combination of the two groups. We signed the framework agreement on the twenty-second of April.
This agreement is binding and confirms the terms of the transaction as disclosed earlier this year. It allows the parties to prepare for the completion of the transaction. The main next steps leading to closing are the regulatory and antitrust filings for an expected closing by end of 2022. Let me now hand over to Gilles, who will comment on our excellent Q1 financial results.
Thank you, Tim, and good morning, ladies and gentlemen. Let's go on, page nine to have a look at our astounding financial performance and the evolution of the margin. Taken together, our leasing contract and services margins stand at EUR 329 million. During the quarter, we observed a good resilience of our services margins at EUR 161 million for the quarter and growing at +2.6% compared to the same period last year. The decrease in leasing contract margin from EUR 172 million last year down to EUR 168 million this quarter requires some explanations. Two main factors to explain this variance. A positive one, which relates to the fleet revaluation.
The fleet revaluation exercise was conducted at the end of last year, and the result of which has been a positive impact of EUR 12.5 million in the leasing contract margin, compared to a charge of EUR 900,000 last year, leading to a EUR 13.5 million variance when comparing to last year. Based on the exceptional level of used car profits, we may expect some further positive impacts in the coming quarters. As a reminder, we are currently working on our fleet revaluation for H1 2022. The second impact to explain the margin evolution is a negative impact which relates to our operations in Ukraine. As you know, ALD is present in Ukraine, and we are managing here a fleet of 5,000 vehicles.
We've decided to book this quarter provision for depreciation of the fleet for EUR 27 million. For the time being, this provision is meant to be prudent, and we'll review this during the year, taking into account the evolution of the situation in the country. When excluding these two items, the positive fleet revaluation and negative provision for Ukraine, leasing contract margin increased by a strong 6.2%, supported by the shift to higher value vehicles. Plus 6.2% on leasing contract margin, plus 2.6% on the services margin. Overall, our margins increased by 4.5% compared to last year when we exclude the exceptional items. A few words now on the operating expenses. They've reached EUR 188 million in Q1, compared to EUR 164 million last year.
This increase is mainly driven by two elements. The first one is the preparation costs for the acquisition of LeasePlan, so circa EUR 10 million. For the time being, these costs are mainly related to the change of status of ALD becoming a regulated entity at the closing of the transaction. As I already commented back in February, these transformation costs will ramp up during the year. As Tim has just commented, we have just implemented our integration management office. The second element impacting our operating expenses is the rise in variable compensation provision driven by the outstanding used car sales profit. You know that our cost income is negatively impacted as the denominator. The income does not include the profit on the used car sales. The cost income ratio overall stands at 57.1% in Q1.
However, when one adjusts for provisions in Ukraine and the preparation costs for the acquisition, the cost income ratio, excluding used car sales, stands at 49.9%, stable compared to last year. Now let's go on page 10 to look at our exceptional used car sales results. The contribution from the used car sales results reach an exceptional level in Q1 at EUR 215 million compared to EUR 38 million last year. This record result is driven by unprecedented supply shortages, and for instance, in France, the delivery time of new vehicles is now reaching around 200 days. The average margin of our used cars came in at EUR 3,100 per unit, which represents an increase in profit per unit of above EUR 2,600 in only one year, as shown on the graph.
On the right-hand side, you can see that ALD has sold 69,000 cars in Q1 compared to 87,000 in Q1 last year. This decrease in volume is mainly explained by the increased number of contract duration extensions and higher number of used car leases. As you can imagine, our stock of used cars obviously remaining at a very low level at the end of the quarter. Let's go now on slide 11 to look at the cost of risk and the net income. The impairment charges on receivables came in at EUR 7.9 million, slightly down compared to last year. Despite a EUR 2 million charge recording against customer receivables in Ukraine. This level of cost of risk reflects the continued low default rates that ALD has been experiencing during the last year.
The net income group share reached an exceptionally high level at EUR 255 million, up 64% compared to last year. This despite the provisions for Ukraine in the margins and in cost of risk and the normalization of our effective tax rate as we are not benefiting anymore from the Italian Stability Law, which explains the increase in tax rate from one year to another. Lastly before handing over to Tim, I would like to mention that in February 2022, ALD has issued EUR 700 million of senior unsecured bonds, and this issuance was largely oversubscribed and confirms the market's solid appetite for our debt in the last month. Now hand over to Tim who will comment on the outlook.
Thank you, Gilles. As I described earlier, the macroeconomic environment continues to be disrupted, and it's likely that the supply chain constraints will persist in the near term. In this context, we expect the exceptionally favorable supply-demand situation in the used car markets to continue this year. As a consequence, we're adjusting our guidance on used car sales results per vehicle upwards. Our new guidance is above EUR 2,000, up from the previous guidance of EUR 1,000 on average for 2022. Rest of our guidance remains unchanged. Funded fee growth between 2%-4%, and a dividend payout ratio between 50%-60%. Let me also remind you that we are continuing to prepare for the closing of the acquisition of LeasePlan.
As you saw, ALD posted excellent Q1 results and the used car sales results we'll record this year will help to absorb the integration cost of LeasePlan. This concludes our presentation. Thank you for listening, and we are now ready for any questions you may have.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. Please ensure your line remains unmuted locally. I will be advised when to ask your question. The first question comes from the line of Gabriel Adler from Citi. Please go ahead.
Hi. Good morning, everyone. It's Gabriel from Citi. Two questions from me. Clearly Q1 was another exceptional quarter for the car sales result. But we're now beginning to see some softening in the residual value data that we track for Europe. Could you comment on your expectation for the used car market in Europe for the rest of the year in light of the raised guidance? Also how we should think about the used car sales results trending over the next few years in a scenario where supply of used cars does begin to improve and prices begin to soften. My second question is on the tactical measure that you mentioned in the presentation around increasing bulk purchases.
I just really want to understand how feasible this is given the supply constraints from OEMs and whether you're concerned that because many OEMs are aiming to reduce the number of cars that they sell into leasing channels in the midterm, the supply of vehicles from the OEMs for your business could remain structurally lower in the future?
All right. Thank you, Gabriel. I think on the car sales, I guess, I mean, we are not seeing a softening as such in any of the markets in Europe. It's true that we have seen in the U.S. that the used car market has come down from a very, very high level. In Europe, we are not recording that for the time being. But of course, I mean, we are trading at levels that is unprecedented. Hence, you know, we are guiding, we have taken up the guidance to 2,000 per units, but we are right now trading, as you saw, at 3,100, which means there is room for, let's say, a decrease over the year and could make sense.
Obviously, it doesn't look like the supply demand situation will change dramatically throughout 2022, which still means that we are anticipating a very strong used car market throughout the year. On the second part for the coming years, again, in terms of supply and demand, obviously, you know, you have had a low year in 2020, you had a low year in 2021. 2022 might also be lower than anticipated, which again would obviously mean that used car supply to the markets in the coming years remains quite weak. Again, it would obviously result typically in stronger used car market than what we have been used to in the last, let's say, last part of the last decade.
Overall, you know, we are quite positive on the used car markets definitely for this year and but also in the coming years, we do not anticipate, let's say, anything else than positive markets of sorts for used cars. On the supply of new cars, I mean, the bulk purchasing as part we have done, there are still manufacturers out there who are ready to do this. We have done a few. I would say it's not so much centrally because it's true that a lot of the manufacturers are not really having enough cars to do a lot of bulk selling for the time being, but there's a few of them.
It's more actually country by country, and we are picking up cars typically from dealerships and others where we actually are supplying or, let's say, securing some supply of smaller bulk purchases, more locally, country by country. There is actually cars in the system. Of course, there is also Chinese manufacturers who are trying to get into Europe and who are actually quite bullish in trying to get in with bigger bulk of cars. To the last part of your question, in terms of the longer term allocation of cars to us from the manufacturers. I think what is important to state here is that the big corporate market, you could say is to a large extent owned by the big leasing companies.
You know, we are having products and services that none of the manufacturers can actually supply to big multinational companies. I think the manufacturers knows that they actually need us for serving these segments. Of course, the manufacturer sees these customers as their customers together with us. As such, you know, they are not stopping supply for that. Secondly, you know, for the SME and the private lease business, we are serving that market through our partnerships, typically with the manufacturers. Hence, we are also still seeing that we get the supply there. Obviously, what is happening is that with the shortage of supply, that the manufacturers are increasing their margins. Those prices we push on to our customers.
Obviously, in terms of, let's say, the margins remains strong, you know, and obviously, the more expensive the cost becomes, the better the finance margins typically are for us. Obviously there is probably in the next two, three years, quite big, let's say, structural changes in the automotive sector in terms of distribution and other parts that will have an impact. We feel very confident that we are very well-placed to still be a very important partner to the OEMs, and obviously with the combination with LeasePlan, we become an even more important partner for them. I hope that answers your questions, Gabriel.
That's great. Thank you very much. The next question comes from the line of Geoffroy Michalet, calling from Oddo BHF. Geoffroy, please go ahead.
Hi. Good morning, gentlemen. Thank you for taking the question. I have two. The first one has to do with your Ukrainian provision. I was wondering how prudent or conservative is it? Have you put the value of that country or those assets to zero? Second question: Is it possible for you to come back a bit on the variable compensation accrual and explain a bit how it works for the used car sales? It could help us to quantify the magnitude of the impact this quarter and maybe for the coming quarters. Thank you.
Yes. Good morning, Gabriel. To come back on your question on Ukraine, as I mentioned in my speech, we are operating 5,000 cars there for total assets of circa EUR 70 million. For the time being, the operations in Ukraine are holding on very well. I mean, we are still, surprisingly enough, invoicing our customers. We don't have. I mean, clients are paying. We know that some cars have left the countries. We know that some cars have been destroyed. We've made, as I said, a prudent estimate of what we believe at the end of March could be the number of cars which should be depreciated fully. It's a good.
As you can see, EUR 27 million out of a total balance sheet of EUR 70 billion, I would say, it's a good chunk, but for the time being, we are operating as normal there. That's why I'm saying it's prudent. We have the blessing from our auditors on that, so but we continue to monitor the situation. Regarding the variable compensation, it's just to say that on our cost income ratio, we are calculating our cost income ratio excluding the profit on the used car sales. When you look at our used car sales last year, the profit per unit was EUR 440 per unit last year, at the same time. How does it work? There is two elements.
We have some profit-sharing agreements, and which means that.
You need to share some of the profit on the performance income. We also have higher bonus accrual because we have not anticipated such high level of used car sales results in our budgets. That's also the other reason to explain that. Thank you. Do I answer your question, Geoffroy? Yeah, that's clear. Thank you.
The next question comes from the line of Kiri Vijayarajah , calling from HSBC. Please go ahead.
Yes, sir. Thank you. Good morning, everyone. Firstly, just going back to your tactical plan and this order anticipation, that you're gonna do. I mean, my question is, how do you manage the risk that you're not saddled with vehicles that the end customer might not want to potentially take off your hands? I know that feels like a distant prospect short term, but I'm thinking particularly given there's kind of fairly rapid change going on at the moment in terms of the mix and the types of vehicles, that customers want. Also in terms of the accounting, will you include the pre-bought vehicles in your funded fleet, even if the customer hasn't taken possession or you haven't signed a contract for that vehicle?
Do you include that in your stats, in your growth numbers, you know, within that 2%-4% growth number when the vehicle may only be sitting there as kind of stock, if you like. Second question, just quickly clarification just from the last question. Is the EUR 70 million carrying value in Ukraine after the EUR 27 million write down or before? Just so we can sort of get a sense for how prudent you've been there? Thank you.
Can you start?
Yes. Thanks, Kiri. I'm not sure I understood exactly your first question. Are you asking about the validity of, let's say, our used cars as such in the market, based on the technological development and all that? Is that your question?
No, no, it's more the new cars. You know, you're gonna do this order anticipation. You're gonna start buying cars before a customer says, "Look, I want
Okay.
I want this new car." New vehicle sourcing, yeah.
Right. Okay. Yeah. I think, you know, there is, I mean, obviously, if you look at the origin of this business, we always, you know, basically took, let's say, an order from a customer that was completely configured to the needs of the customer. What we are seeing is, you know, that people are more and more into flexible products as well, and obviously subscriptions. People are not necessarily very, let's say, sensitive to exactly what kind of car that they are getting. I think for these kind of segments, we can do bulk buying very easily. That's also actually part of the, let's say, the financial equation on these products. Obviously here, you know, people do not really care about the color or, you know, whether it has leather seats or whatever it is.
Hence, the bulk buying makes a lot of sense on these particular segments. I mean, there will be, you know, still, I mean, you know, a big part of our business is configured cars to the potential buyer of the car. But obviously, the markets are changing and, let's say the behavior of our customers is more that they want more flexibility. With more flexibility, they also understand that they cannot get exactly the car they want, but they are happy with actually getting a kind of a category of a car. Obviously, when we look at buying bulk cars, it's important to judge, you know, on the right technology and, of course, the right equipment.
We spend a lot of time in making sure that the cars we are buying in bulk do have a demand in the market. We're not buying all the lemons that is in the market standing around that nobody wants. We are buying, of course, the best cars we can find and yeah. Hope that answered that part of your question. Gilles, you wanna take the second part?
Yeah. I guess, Kiri, your question is more relating to the funding of these cars. As a reminder, to avoid liquidity gaps, we always engage into forward loans when we order cars. The difficulty these days is the accuracy of the delivery time is not obvious to follow, but we try to revise that on a timely basis. These cars are funded and applying our funding policy as all other cars. I don't know whether I answer your question, Kiri.
No, yeah, I think I do understand. No, no, that is clear. Thank you. Then the Ukraine, is that
On Ukraine, yeah. Ukraine is EUR 70 million is the total assets before the 2027.
Okay. Right. Cool. All right.
Maybe just a comment, Kiri, on the flex production one and cars being bought by bulk. You know, when we look at this business, we look at it also in terms of, let's say a utilization rate. Actually, Q1 last year, we were around 80% utilization of our flex fleet. Today, this quarter here, we are at 82.9%. That's also a very important number, actually. But there is a huge demand for these flex cars, actually, for the time being.
Thanks, guys. Thank you.
Just to be precise, Kiri, on the vehicles which we are ordering, they are not in the funded fleet statistics. I don't know whether I was clear on that, but I mean, they are obviously not included. They are part of our order bank.
Yes. Yes.
Yes.
Thank you.
We currently have no question coming through. As a final reminder, if you would like to ask a question, please press star one now. There are no further questions, so I will hand you back to your host to conclude today's conference.
All right.
Thank you for joining today's call, and you may now disconnect.
Okay. Thank you. Thank you all for your attention and for your questions. As always, Beatrice and Sean in our IR team stands ready to answer any further questions you might have. Don't hesitate to get in touch with them. Thanks a lot for your time.
Please stay on the line and await further instruction. Thank you.