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Hello, and welcome to the ALD Q1 2019 Trading Update. My name is Molly, and I'll be coordinator for today's event. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions]I will now hand you over to your host, Mike Masterson, CEO, to begin today's conference.
Good morning, ladies and gentlemen. Welcome to this ALD Q1 2019 Results Call.The highlight for this quarter's trading updates are on Page 3 of your pack. The total fleet reached 1.68 million vehicles at the end of the first quarter, representing an increase of 9.3% over the past 12 months. The growth is underpinned by continued dynamic development of our private lease segment. ALD confirms the 5% to 7% 2019 organic fleet growth guidance for the year. This quarter saw a number of strategic and commercial achievements, the acquisition of SternLease in Netherlands, a promising partnership with Hubo and Nissan in Belgium, and international framework agreement with ChargePoint, further enhancing ALD's EV offer. Leasing conference and service margin together was 4.7% versus Q1 2018, in excess of growth in operating expenses, which were at 3.5%. Car sales results came in at a resilient EUR 258 on a per unit basis. Net income for Q1 2019 came in at EUR 133.8 million. Gilles will comment on our financial results in greater detail. Given this solid performance, ALD confirms the financial guidance that we've given at the start of the year.Now let me take you through this year's fleet growth, which is analyzed on Slide 4. The underlying drivers behind the fleet growth remains strong and ALD's fleet growth continues to increase in Q1. We're constantly adding new partners, who help us to extend our reach, deep into the SME segment, thereby, consolidating ALD's leading position in Europe. These partnerships also drive strong growth in private lease, where we are on track to reach our target of 150,000 vehicles at the end of this year. We have mentioned previously that we've been taking measures to encourage or shift away from diesel vehicles. Manufacturers are still in the process of switching production lines to EV and hybrid vehicles, for which, delivery periods are currently long. As a consequence of the increasing demand for nondiesel vehicles, our order bank is particularly strong.And we move to Slide 5. To support future fleet growth, including via our partners, we continue to work hard at improving our market-leading digital tools, ensuring that they cover the whole customer journey. Our digital retail lease solution can be used for direct sales and replicated in our partners' systems. This tool already operates in 11 countries and is being deployed further. You can see examples in the U.K. and in France on the left part of this slide.On the right part, we highlight the app we have developed with Vinli, in relation to our partnerships with ENEL and E.ON. With the help of Vinli's technology, telematics devices are placed in the cars and can be used to offer new services such as geolocalization of charging points, optimization of car journeys and access to a whole range of EV-dedicated services. We also use the capabilities provided by the connected car to develop and deploy innovative products. This includes a rechargeable lease solution and the car sharing solution, which is appreciated by our corporate customers willing to optimize their fleets while improving employee satisfaction.Solutions such as these allow us to accompany different customer segments with tailored digital solutions during the whole life of the lease contracts. We are convinced that this diversified portfolio of digital solutions is a must-have today and will continue to support our growth in the foreseeable future.This brings me to Slide 6, which focuses on our approach to remarketing cars at the end of the lease contract. Due to the nature and the size of the business, ALD is one of the biggest sellers of 3- or 4-year-old, high-quality used cars in this market. This is why we believe that a multichannel approach is optimal. Most of our sales continue to go through ALD Carmarket, our B2B digital platform, which guarantees we get the best time-to-market, the lowest cost parameters and the highest sales price available in the wholesale market. This online tool was developed in-house and has already been deployed across 34 countries. It accounts for around 2/3 of our sales to professional dealers.ALD Carmarket also includes access to the reexporters of used cars, whose purchase represents around 20% of the volumes on the platform. Furthermore, the scale achieved by ALD Carmarket makes it a very attractive tool for third parties with used cars to sell. To address the retail segment, we tailor our approach to the characteristics of each international market. ALD currently has 50 branded outlets across 19 countries, where retail customers can see and test a used car before buying or leasing it. To increase our presence and efficiency further, we've started rolling out our Clicks and Bricks (sic) [ Bricks and Clicks ] remarketing solution, combining the on-site and the online offering in one seamless customer experience. To do so, we've developed a retail platform, which integrates all the steps needed for a fully digital customer journey. Once all done, the customer can access a large selection of used cars, including full information on maintenance record. If they require assistance, they can chat with the sales rep before completing a purchase or lease transaction via e-signature and online payment. We believe the solution we provide is market-leading and helps us to maximize the number of vehicles sold to retail, while [Technical Difficulty]
Please stand by whilst we reconnect your host.Thank you for your patience. Please stand by whilst we reconnect your host.
Okay. Hello. And sorry to everybody for the interruption to the call, which seems to have been caused by telecommunication problem. I must admit to not being 100% sure of the exact moment at which it cuts out, but I propose to restart at Slide 7, obviously we're available for questions afterwards.Slide 7 mentions some of the strategic and commercial initiatives that we've taken in recent months. First of all, we've signed, in March 2019, an agreement to acquire SternLease, the leasing arm of Stern Group with around 13,000 vehicles rented to SME and private individuals. In this context, we've also entered into a distribution agreement with Stern Group's 85 outlets in the Netherlands. This acquisition, which will grow our total fleet by 0.8% in 2019, is an example of our external growth strategy, which focuses on targeted and value accretive bolt-on acquisitions.In the context of the transition towards a cleaner fleet, we announced yesterday the signing of an international framework agreement with ChargePoint, the world's leading electric vehicle charging network. This agreement will help us to complete our EV offer for the whole range of charging-related tools and infrastructure at international level to be provided, together with our partners, as an integrated end-to-end EV solution.In terms of partnership development, we recently entered into a deal with Belgium retail group, Hubo, to sell private leases via 40 of their shops offering Nissan vehicles. This offer will be 100% online, using our end-to-end digital platform and is an opportunity to promote our digital solutions to other potential partners.And so with that, let me hand over to Gilles, who will comment on our financial performance.
Thanks, Mike, and good morning, ladies and gentlemen.Let's start by taking a look at Slide 8, where we can see on the graph the ongoing improvement of our cost income ratio, which confirms our leadership in the industry in terms of operating efficiency. Leasing contract margin rose strongly by 12.4% in Q1 '19, while services margin dropped by 2.7% versus Q1 '18. Due to quarterly fluctuations and the impact of increased commercial discounts, of which I will come back on, it is not useful to look at leasing contract and services margin separately. And taken together, leasing contract and services margin rose by 4.7% compared to Q1 2018.As commented during our annual results, we are aiming to rebalance our fleet towards less diesel. In 2018, we have managed to reduce the share of diesel in the deliveries by 10 percentage points. But in order to do so, we've been repricing the residual values of our diesel vehicles steadily over the past couple of years. And this repricing of diesel is consistent with the stress on the diesel cars, which were embedded in the fleet revaluations over the past few years. And some of the decrease on the residual values has impacted margins as the competitive situation of the market has not always allowed us to increase pricing of our services by the amount of the change in residual value. And this pricing discount has a particular impact on the services margin as discounts are applied against this component of the P&L rather than leasing contract margin.We also believe that current market conditions should be seen as a transition towards a healthier and sustainable fleet growth and will slowly normalize. The good news is that our total operating expenses increased by just 3.5% in Q1 '19 to EUR 157.5 million. Given a particular low Q1 '18 baseline, the underlying trend is actually lower and OpEx is growing well below the leasing contract and services margin, generating strong operating leverage. As a result of scale benefit and further automation of processes throughout the organization, our cost income ratio, excluding car sales results, continue to improve to reach 49.6% measured over the 4 rolling quarters, and we're on track to reach the 49% target we set ourselves for 2019.We see potential for substantial further improvement in operating leverage through automation and digitalization of processes. In the medium-term, we are confident in our ability to maintain our cost base at a level which we continue to contribute to further decrease our cost income ratio and remain a benchmark in the industry.Let's now move to Slide 9, which comments our car sales results. Supported by good demand for used cars, car sales results reached EUR 19 million this quarter, down from EUR 29.6 million compared to Q1 last year, but up from EUR 17.1 million in Q4 '18. Volume of cars sold continued to rise to 74,000 in Q1 '19 from 71,000 a year earlier. And despite this increasing volume of cars to be sold, our average stock turnover remained stable in Q1 2019.Car sales results per car for the quarter stood at EUR 258, down from EUR 417 in Q1 '18, but up from EUR 235 in Q4 2018. This level is well inside the EUR 100, EUR 300 range that we have guided on at the start of the year.Slide 10 shows you the full P&L for the year. The P&L shows that our margins have increased by EUR 14 million in Q1 '19, compared to last year, while our operating expenses have only increased by EUR 5 million. Impairment charges on receivables reached EUR 10.4 million this quarter, which was down when compared to Q3 and Q4 last year, respectively at EUR 13.4 million and EUR 11.1 million. Our effective tax rate remains low at 17.6%, reflecting the continued impact of the tax benefit of the Italian Stability Law. And our net income group share reached EUR 133.8 million for Q1 2019, down modestly on the same period last year in light of lower used car sales results and higher impairment charges.And I guess the last slide concerns the guidance. The guidance we gave for 2019 is confirmed based on the above elements, and you can see it in Slide 11.And I guess we are now ready for any questions that you may have on these trading updates.
[Operator Instructions] The first question comes from the line of Gabriel Adler calling from Citi.
I have a couple. The first is on the diesel repricing. Could you just provide some commentary around the impact on the service margin? And specifically, how long do you expect the price to continue for? And also whether you're seeing any signs of improvement in diesel residuals in the latest fleet base you assessed. And then, as a follow-up to that, also what you see as a suitable level of diesel mix within your fleet to meet your customer demands, so those that want diesel vehicles. And my second question is on the gross outlook, which you previously suggested that your guidance of 5% to 7% organic growth has lacked some caution around macro-economic risks such as Brexit and the Italian economy. But it'll be great to hear an update on your diesel in macro environments 2019 and whether you think have 5% to 7% organic growth is beginning to look a little conservative, particularly given the very strong fleet growth that was reported this quarter.
Okay. Yes, sure. Yes, I mean, I think the -- obviously, one of the key strategic objectives that we've got this year is to really lead the market in terms of the transformation of the powertrain. We believe that if we grow this year by 7% or 9%, it's not the key issue actually at this stage in the cycle. And if we can continue to transform our powertrain, then, we believe, that will be, for the long-term, a strength of the business. That transformation of the powertrain is ongoing. We are particularly looking at diesel residual values and not just estimating -- well, we obviously know where the market is today, but looking -- forward-looking in terms of how diesel residual values will develop over the coming period. And sometimes that means that we're slightly out of the market because of our relatively conservative position on diesel, diesel pricing, and to some extent, that is having an impact on margin. So if you look at the last couple of years, where we've been moving diesel RVs significantly. Obviously, if you get an impact of, let's say, EUR 600 on an average diesel vehicle, that has a significant impact on the monthly rental and in relation to key customers, where we have long-term supply arrangements and we want to stay in the market. To some extent, if we want to set the proper residual value there, we sometimes have to discount the lease rate during this transitionary period. And to some extent, we believe that, that will have -- through 2019, that will have some impact on our margins. But at the end of that period, we're going to have -- continue to have a rapidly transforming fleet with still a very strong growth rate and that will leave the company very well positioned for the future. I think the -- in terms of the mix, we do see -- we're very strong in the LCV area, and LCVs are a product that's still largely diesel, and we believe, in the coming years that the passenger car market and the LCV market will have a slightly different evolution in terms of the powertrain. And the shift in powertrain in terms of timing will be slightly different in that respect. So we still see some diesel LCV vehicles going on for the next 5, 6, 7 years. But the passenger cars are transforming fairly rapidly, subject to the availability of new product from the manufacturers, and obviously, that takes a little bit of time.Just start moving on to your question on the macro environment. I mean we -- like a lot of companies, we're a little bit conservative in our outlook for this year given certain uncertainties. We're actually seeing very strong demand, both on the delivery of new product, but also on used car prices, which, in some markets, is quite surprising, but I think the situation does remain volatile. There's still some uncertainty around Brexit. And obviously, the U.K. market is key for us. And the Italian market is still showing signs of stress. So I think that conservatism remains justified. We certainly -- when we set those guidance around growth, we certainly anticipated to be at the top end of that guidance and that remains the case today. But we don't want to be in a situation of chasing growth in diesel products, for example, or in the wrong segments, and we believe this is good this year, but it provides us with a good opportunity to transform the fleet, still have a -- good growth and slightly improved margins in certain areas of the -- certain segments of the business.
The next question comes from the line of Lucas Ferhani calling from Deutsche Bank.
I wanted to come back as well on the services margin. Do you also see any issues in terms of the mix, meaning some products that were maybe high margin or really requested are performing a bit less? And also as you move to different types of sales with connected car telematics, this could potentially help the services margin better? Or that -- is it entirely due to the pressure on diesel? And also maybe is there a mix impact from the your growth in SMEs and the private piece, which maybe have a lower intake of services versus a larger client?
Yes, I'll let Gilles just say a few words on the mechanics of the margin calculations for that.
Yes, just to be clear to everybody, when -- in the structure of the P&L, I don't know whether it's clear for everybody, but all the discounts we could potentially grant to a customer goes in the service margin and that's the main impact on this quarter's -- for the service margin growth. That's clear. And it's even rule -- according to IFRS rule, we can't book that elsewhere, so that's a clear point. I guess private lease doesn't have such an impact given that the stake of private lease in the total of the fleet, but it's primarily the repricing of the residual value on diesel, which is at stake here. I just want to recall that we have reduced by 10 percentage points the share of diesel over the last 2 years from 72% in Q4 '16, down to 64% in Q4 '17, down to 53% in Q4 '18, that's a tremendous achievement. It has been done steadily, and it's our #1 objective. And we are aiming to further decrease the share of diesel cars this year.
Just to add a couple of points to that. Because of these -- the impact of discounts on the margin, I guess this is something we -- we've said before, but just to repeat that, I think the -- it's very useful to look at the margin in total. It's not so useful particularly on a quarterly basis to look at the service and the interest margin separately. Obviously, when a customer pays a lease of EUR 600, to a certain extent, it's internal [ caulking ], which can vary across different countries to what extent margin is placed on certain services or certain -- or the interest rate. So we're not selling individually a maintenance or an insurance or a vehicle replacement contract. We're selling a total lease rate to the customer. And to a certain extent, depending on the growth in different markets and different products for different tactical reasons, we might have a different margin split. So I think the issue around the total margin is a relevant one, which is what we've spoken about, but it's difficult to look at the individual elements and margin. And the other point, I guess, Lucas, there which you're also aware of, so -- is that the -- really, it's -- I think the key issue here is operating leverage where we are in -- with an ambition to continually improve that cost income to deliver -- continually deliver better returns, and we are seeing this cost income continue to improve. On Chart 8, as analyzed -- you'll have seen share analyzed. We've moved some 51.2% (sic) [ 51.1% ] last year of cost income to 49.6% cost income. As a business, ALD is significantly in advance already of the market. This operating leverage gives us a great capacity to be competitive in the marketplace and continue to deliver strong returns. But it's not our ambition to stay at that level of cost income. We believe there are significant opportunities through digitalization to continually improve this cost income. Most of our mature countries are below 40% cost income, and we're continuing to drive in that direction. And I think that, progressively, is really the key -- maybe the key metric there in terms of delivering value for the shareholders that we're able to continually -- to drive that operating leverage.
Great. I mean that's what I had in mind, but I just wanted to know whether maybe that you were seeing other things. My second question would be on the car sales result. I think it's positive. It's above the midpoint. Do you see any benefits, maybe, from the B2C part, which could be accretive, I would say, versus selling wholesale?
Yes. I think, as you say, the car sales market is strong. We're seeing strong demand for cars. We've got very, very low stocks actually. We've seen the first indications that we've had for April is -- are better than the -- than Q1. And I think what, progressively, is going to be more and more important is the opportunity in the consumer space. As you say, there is a significant spread between a sale to an individual and a sale to a trader and internalizing that margin in a cost-efficient way, and I think that's the key element. And getting the right mix of vehicles between the consumer space and the trader area, I think, is going to be critical. But we have a lot of initiatives in that area. We have this leading position in terms of the number of dealers that we've got, the number of directors, sales to consumers that we've got across the largest number of countries, and those retail sales as they increase will improve. I mean the margin there varies an awful lot. It can be EUR 600 to EUR 700 in a very mature country. It can be more than EUR 2,000 in some countries. And it's really trying to identify the product, which is the -- right for the retail market and that we can sell in a cost-efficient manner, which will continue to have a positive impact. And in that regard, the Clicks and Bricks (sic) [ Bricks and Clicks ], I won't go back through that again, but having this digital sale to consumers is clearly something that we're continuing to develop and roll out and that will progressively have a positive impact as well.
Great. I mean that's already quite elevated numbers with -- in terms of margin. Do we think competitors will also go for a similar offering? Obviously, you're far ahead of competition, but is that margin, maybe, going to be in jeopardy in, I mean, the medium term, I would say?
Well, I think there is -- there are good reasons why competitors will also look at this area, so I'm sure some of them will do. I think, obviously, we have a sort of first-mover advantage there. We have a strong retail presence already and a good digital platform, which helps us. I think if you look at the total used car market in Europe, it's enormous. And the movement of 1 or 2 or more of our competitors is not that material in terms of that enormous used car -- the used car market is several times, as you know, bigger than the new car market in Europe. So the -- for sure, there will be other players in this area, but the market opportunities, the market here is huge. And this transformation of the used car market towards digital sale, for a company like ourself, which has such a digital presence, presents a huge opportunity for ourself and also for other leasing companies in the sector. But I think there's space there for a number of players to grow over the year -- in the next few years.
The next question comes from the line of Albert Ploegh calling from ING.
My first question, I'll force you to come back to the services margin. So from the earlier comments, so -- is the conclusion then fair that, let's say, in the remainder of 2019, the combined leasing and services margin will -- clearly, below the fleet growth? But that moving into 2020, the balance, in a way, should be restored more that you should be able to close, closer to the fleet growth again? Or is that assumptions maybe still a bit too positive, given that transition away from diesel and it could be more of second half '20 even? So that would be the first kind of question. The second one is on the cars -- the used cars sold. So let's say the absolute number, the 74,000 you mentioned, that's up year-on-year around 4%, 5%, while fleet growth over the last year was around 10%. So what explains this? Is it purely a mix effect that you probably -- yes, between LCV and passenger vehicles, with the first one having a lower contract length? So it seems that the contract length is changing a bit, so maybe some explanation around that would be helpful. And the third question I have is on the -- let's say, the ALD Carmarket in third-party sales. I -- yes, I -- to my understanding, you already have some partnerships? Or should we expect some more announcements, let's say, in the remainder of this year? And how are these sales booked? Is it part of the cost sales? Or is it booked somewhere else? And yes, what kind of fees do you get from a third-party vehicle sale that's around EUR 200 per vehicle, for example? So any color on that would be helpful as well.
Okay. Thanks, Albert. As usual, Albert, you've made maximum use of your 2 question -- and answer -- congratulations on that, so -- no, that's fine. Yes, I think just looking at the service margin, I mean, broadly speaking, I would globally agree with you -- your analysis of how we see that margin. If you look back over the last 10 years, broadly speaking, margins and fleet have roughly grown in line with each other. That doesn't mean that each quarter or even half year that the margin and growth -- the fleet growth is the same. There have been various cycles. There have been a number of periods where margin has grown faster than fleet. In general, where you have a very quick year of growth like we had last year, margins don't grow as quickly because fast growth -- because of the way the annuity calculation works and the way we defer maintenance revenue, makes your fleet younger and the margin -- it has some negative impacts on margin. But in general terms, across the cycle, we see -- we have seen margins and fleet grow in the same way. At the same time, I would agree with your analysis that over the coming quarters, we can see that the margin growth will be lower than the fleet growth. And as we move into 2020, that we will see a -- progressively a realignment of margin and fleet growth. And that relationship, in the longer-term, we still see as -- there being a strong link in that regard. On the used car sales, yes. I mean I think the -- obviously, there are slightly more car sales sold, but not as many as the fleet growth -- the 10% fleet growth would indicate. We are increasing rapidly the number of second lease that we are providing. And obviously, to the extent that our car arrives at the end of its lease contract goes out onto a second lease, that prolongs the retention of the vehicle and defers any sale. To a certain extent, contract extensions or modifications do the same thing. The difference there is that it is an extension or modification to the same driver and the same customer, but that's a -- that remains a focus that we have. But the element that is moving there is the -- this second lease product. Progressively, we see that accelerating quite quickly over the next 12, 18 months and significantly extending the period of retention of the vehicles.
We must also look at the volume of used cars to be sold on a 12-month basis. Comparing 1 quarter to another is not a waste -- a most obvious analysis to do. You also have the impact, as we have commented earlier, of the delivery time of cars, which can impact on 1 quarter. We've seen longer delivery times, which also can impact on the number of cars to be sold, hence, having more contract extension, so that's -- that also can drive the volume of cars sold in a quarter.
And just on the last point that you raised, obviously, we have a number of external partners who are leveraging our Carmarket site in order to sell the cars. There's a couple of interest there. One, which you raised, is the margin impact of that because we're not carrying the asset on our balance sheet, but we're getting fees in relation to the sale of those vehicles. And the amount of those fee depends upon the services and the volumes that they put through, but many of those are at -- around the EUR 300 level that you mentioned. The other interest there is also to broaden the product that we have available on -- through our digital platform, where we have, let's say, a rent car company or a dealership who wants to sell these vehicles through -- either directly through Carmarket or on a white-label solution. We provide a white-label solution for many of our partners, so it's branded within -- with their own name but using our back office and technology. That can provide a different kind of product, maybe a 12-month, 24-month product, which improves the attractiveness of the overall offering that we have to traders and makes ALD a go-to provider of used car market to the trade sector. So there's a couple of different reasons why we -- we're progressively trying to grow these third-party solutions.
The next question comes from the line of Sam Bland calling from JPMorgan.
I have 2 questions for me, please. First is on the ChargePoint agreement. Just want to get a few more details on what it is, what it covers to the extent you -- are you now particularly more advanced than some of your peers in that area? And how durable might that advantage be? And the second question was on M&A. Obviously, there was the Stern acquisition in the quarter. Just give us a sense of how active that M&A space is in auto leasing. Are there other deals that come up occasionally? And this relative attractiveness of organic growth versus M&A-led growth, that would be great.
Okay. Let me start with the Stern acquisition, and I'll ask my deputy. Actually, Tim Albertsen is with us today to say a few words on ChargePoint because he's been involved in that. So the Stern acquisition is very much aligned with our strategic targets in terms of acquisitions, but for 2 or 3 different reasons, many of -- all of which, I think, we've shared in the past with you, but it is consistent with BBVA and other kind of deals that we've done. First of all, it's interesting because it is in the Dutch market. The Dutch market is a market which is unusual for us because it is a market where we're not in the top 3, and we don't naturally have the scale that we have in many other markets where we're typically the leader in countries like France and Belgium and in many countries in Europe. So we are looking to grow in the Netherlands to make sure that we have the scale, that we're a top 3 player. Our ambition, as you know, is to be a top player or #1 player Europe-wide, but to also have a top 3 position in each market to ensure that we've got the scale and the purchasing power that we need. And the second reason why it fits very well with the -- our strategic ambition is this partnership philosophy that we've got. Stern, with the number of outlets they've got across the Netherlands, is a very strong group with a -- and these outlets will provide us a distribution channel into the future where we'll not only get the value of the existing [ start ] but we create a partnership for the future. And in that regard, it's a similar kind of arrangement to BBVA and many other deals that we've done. There are a number of opportunities or -- on acquisitions around the world. We look at a lot of deals. We're trying to be quite selective in terms of those strategic interests. So there are, as I said in the past, probably 10-plus kind of deals that you look at any point in time. And obviously, the number and frequency of the deals that are completely depend upon the relative pricing and the strategic fit of the deals in question.We have existing organic growth, which is strong and sustainable, so there's no burning platform there for us to consolidate this market through acquisition. But we do believe there will be more consolidation of the market, and we do want to be a player in that consolidation, but there's no -- obviously, no need to panic there or look at deals that are not accretive to the shareholder. So in that regard, we're quite selective.With that, I'll reintroduce Tim Albertsen, who you all know, who's the Deputy CEO and who has been involved a little bit in this.
Yes. Good morning, everyone. Good morning, Sam. Yes. On the ChargePoint agreement and the partnership we just signed, it's part of a broader scope of actually assisting our customers in the transformation to electric vehicles. I mean, we've always done a lot of consultation around the fleet and fleet management but, of course, moving from the ICE cars and the traditional powertrains to EVs actually takes another level of assistance to our clients. And we have a -- we basically have a program to increase, let's say, our offer in the market quite substantially over the next years. And then an important part of that is to actually give access to an infrastructure for electric vehicles. And typically charging at the office, charging at home, actually having a roaming agreement if you go abroad with your car and so on, and ChargePoint is, by far, the best partner we have seen in the markets who actually fulfill that part of our EV program. And it gives, first of all, us the opportunity to go out with a broad program to our clients and it also gives our clients an opportunity to introduce EVs in a very efficient way into the fleets that they run today. So the program, basically, is a supplement to the 2 partnerships we have with E.ON and ENEL. So in Italy and in Germany, to some extent, they would be our preferred partners, of course. But overall, we need a presence in all the mature markets we're in today in Western Europe, and ChargePoint is the supplement to that. So it's -- we think it's a great agreement and a great partnership, and we look forward to get to our clients with a great offer in that respect.
That's great. And I presume on -- when you're talking to customers, they may have a large fleet requirement, but a small portion of that may be electric or hybrid vehicles, and you need a comprehensive offer for that small portion of hybrid vehicles in order to win the larger sort of whole vehicles. Is that fair?
Yes, it's true. I think today still, when you look at the fleet and when you basically consult on what is the right -- let's say, the right vehicle for the right purpose, and that's true today still. I mean in the corporate fleets, it's still a smaller part of those fleets that will be minded for an EV. Our customers are, to a large extent, ready to make that investment, to actually get to know the EVs and get on with the change of their fleets and the powertrains. So to some extent, there is an additional cost. And I will say, we see today an appetite in the market that the customers are willing to pay that actually to get ahead with the transformation.
[Operator Instructions] The next question comes from the line of Pierre Bosset calling from HSBC.
I have 2 small question on the P&L and 2 question on trading. First of all, on the P&L, there has been a strong increase in the cost of risk in Q1 this year versus Q1 last year. Any -- exceptional? Or is it likely to be next level? Second question...
Go ahead, Pierre. Go ahead…
Okay. The second question is on the tax rates, which is at a very low level like in Q4 2018. Can you give us some guidance on the outlook for the year? So that would be the first 2 question on the P&L.
Yes. On the cost of risk, you've seen that we are coming from a very low base, Q1 '18 was very low. With this level of cost of risk at EUR 10 million for the quarter, we are in the range of our historical cost of risk that we have had over the last few years, I mean the range of 20, 21 bps. It's worth also saying that it's decreasing. We have had a high cost of risk in Q3 '18, it's lower than Q3 '18, lower than Q4 '18, so this is in line with the budgets. And -- I mean we -- as we've always said in the past, with the increasing portion of SMEs and private lease customers, we expect a gradual rise in average cost of risk, but we should be modest. And of course, this is more than offset by the margins we get from these customers. But again, with EUR 10 million is around -- is in the average that we've had in the last year.On the tax line, we are still benefiting from the Italian Stability Law, and this will last until 2020. The benefit of the Italian Stability Law peaked at EUR 53 million in 2018. We will still have a benefit of above EUR 40 million of tax this year, which will keep our effective tax rate well below 20%. The benefit of the Italian Stability Law will erode over the years, and it will stop after 2020 basically. So I -- the tax rate is in the range of what we've seen prior year. And then, again, I would look quarter-to-quarter. This is indeed very low. We are below 18%, but we've reached that level. We are close to 18% last year, overall, so that's not an unusual tax rate given the huge impact of the Italian Stability Law.
Okay. And 2 question of -- on trading. First of all, the Italian market, as far as I know, has been very weak during the first quarter of the year in terms of new [ car buying ] in term of new leasing, especially, for ALD and lease plan. I just would like to have your view on the output for that. And the second question is on the competition. If you get lease plans, they want to be fully electric in 2030, so it is quite a drastic change. Does it mean that they are as conservative as you on pricing the new leasing contract for ICE vehicle for diesel? Are they even more aggressive? If they want to be fully electric in 2030, they have to change a lot of things between now and 2030.
Okay. Yes, I mean, the Italian market is still performing okay. I mean we're still growing in Italy. I think the growth in Italy this year will be lower. It's partly by design, partly by the impact of a general economic environment, which is challenging. But the Italian economy still remains challenged but, anyway, there's still significant opportunities to grow there. We have a very diverse portfolio in Italy in relation to big corporate but also SME, and we're certainly the leader in the development of private lease there. We have a very strong technology platform, very -- market-leading car-sharing tools. We have a number of flexible leases that charge by kilometer. We have the deal with ENEL, which is a significant strength of the business there. We work with several regional banks, and we have 6 or 7 different manufacturer partnerships, which continue to drive growth. So -- but certainly, as you say, less growth there, some general economic signs, which are negative, and many of the manufacturers and other leasing companies have highlighted Italy as being quite challenging this year. We've, to a large extent, planned that for the year. So obviously, we raised at the start of the year when we talked about slightly lower organic growth this year. That was one of the factors that's built in. And I would say that we've got the first quarter that broadly is online with what we would have expected and an outlook which is unchanged from the start of the year, which enables us to reconfirm the guidance that we've given.In terms of lease plan, I can't really comment, Pierre, on lease plan very much. I mean partly because I don't know intimately things any better than probably you do. I've no doubt that they have a similar ambition in terms of diesel transformation. I think it's difficult to estimate exactly where the market will be on hybrid and other technology in 2030. So again, I can't really comment on that, Pierre, but...
But then do you believe that they are as conservative as you in pricing new leasing contract for ICE vehicle and for diesel vehicle?
I can't really comment on that either, Pierre, the pricing position of competitors. I'm sorry. And again, I wouldn't be able to do that with real authority either, Pierre, so it's partly the way I am. In terms of comment on pricing, I think it's a slippery slope and, in any case, it's not something that I have the full visibility of, so...
We have no further questions on the phone lines. That now concludes the question-and-answer session. I'd like to finally hand back to our host for any closing remarks.
Yes, thanks, everybody. I think the first quarter, as we said, is -- has been encouraging in terms of the growth engines that we've got around, not just corporate but the partnership and private. I think the outlook on the used car market is probably more positive than we've seen for some considerable period of time with a perspective on Q2, which is looking quite positive based upon our first view of the sales that we've made towards the end of March and so far in April.And as I say, I think we can still go further on operating leverage. And while maybe the growth will be slightly less than last year at the end of the day, that won't be material. And with the focus that we've got on cost, we believe we can still get further on operating leverage. We look forward to seeing you -- some of you on roadshows that are upcoming. And if there any further questions, Hans van Beeck will be happy to help you with those. So thank you very much for your attendance, and we'll speak to you all soon. Thank you. Bye.
Thank you for joining today's call. You may now disconnect your lines.