ALD SA

PAR:ALD

Earnings Call Transcript

[Operator]

[Audio Gap] Please note this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Hans van Beeck, CAO, to begin today's conference. Thank you.

[Hans van Beeck]

Hello, everyone on the line. This is Hans, Hans van Beeck, CAO of ALD. As you will have seen, our CEO, Mike Masterson, has informed ALD's Board that he will be leaving his position as CEO at the end of March for health reasons. The Board has accepted his decision and indicated its intention to appoint Tim Albertsen, currently Deputy CEO, as his successor on March 27. Mike regrets he's unable to be with us here today. So let me pass the microphone to Tim, who will start today's presentation of our full year 2019 results.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Good morning, ladies and gentlemen, and welcome to this ALD Full Year 2019 Results Call. Our main achievements for 2019 are presented on Page 4 of your pack. 2019 has been another year of strong fleet growth, confirming ALD's leading position in Europe. At the end of December, ALD managed 1.76 million cars across the globe, representing an increase of 6.1% over the past 12 months and in line with our guidance. When looking at the funded fleet, the growth was even more dynamic, reaching 7%. The powertrain transformation we set in motion a couple of years ago was showing the share of diesel deliveries moving down to an unprecedented level, representing just 43% of passenger cars deliveries in Q4 '19 versus 72% 3 years earlier. Private lease continues its rapid development, with the total fleet under management reaching 153,000 contracts at the end of 2019, above the target that we set at time of our IPO. This is a great achievement, in large part thanks to our unrivaled partnership network, which remains a key driver of our overall fleet growth. Looking at the financial performance. We are proud that our cost income ratio reached another record low this year at 49%, exactly in line with our guidance. Car sales result stood at EUR 254 on a per unit basis, comfortably in the upper part of the EUR 100 to EUR 300 guidance that we have given for the year. Net income for 2019 came in at EUR 564.2 million, up 1.5%. Earnings per share rose from EUR 1.37 last year to EUR 1.4 in 2019. As you can see from our 2019 results, they are all in line with the guidance we have provided, and we are very proud of our record of consistent delivery. On the basis of these solid results, ALD Board has proposed an increase in the dividend per share payable for 2019 from EUR 0.58 last year to EUR 0.63 this year. This represents a payout ratio of 45%, in the middle of our guidance range. Gilles will comment on our financial results in greater details a bit later. Now let me lead you through our recent strategic initiatives on Slide 5. We are happy to announce that we have entered into a distribution agreement with Tesla, to be their preferred operational leasing partner in Europe. The agreement concerns all Tesla models available in Europe and targets SMEs and private lease -- private individuals. ALD's full-service leasing offer for Tesla cars will be rolled out progressively across 17 countries starting this month. ALD's leadership position in Europe and our digital expertise, together with the quality of the service delivered to our customers, were recognized as key assets in establishing our partnership with Tesla. This month also sees the collaboration with Polestar progressing, with the start of the rollout of our full-service leasing offering via our fully digital online solution. Through these initiatives, we are clearly strengthening our ability to provide our clients with a broad range of electric vehicles under a full-service leasing contract. ALD France is taking an important step today with the launch of ALD Demain program, by which ALD France and Parcours will be combined to consolidate ALD's leading position in France. This new and unified mobility offer will provide our clients with an improved customer experience throughout the French network, while bringing significant efficiency gains in the medium term. And finally, the sale of our 50% share of our ALD Fortune in China is progressing, and we expect this process to be closed later this month. Let's take a closer look at our fleet growth at Page 6. As you can see from the top graph, we continue to grow our fleet at a dynamic pace, even if it's somewhat below that of previous 2 years. Annual growth of the fleet over 2016 to 2019 averaged 8.7%. But let me point out that the funded fleet increased by a solid 7% last year, and growth was sustained in all regions. 3 specific drivers will support our future fleet growth as well. Our wide distribution network via our partners, which puts us ahead of the competition, our recent partnerships with innovative reference players such as Amazon, Tesla and Polestar, and not least our flexible products which are designed to answer changing customer demands. ALD reaffirmed its leading position in Europe this year with a total fleet reaching 1.76 million at the end of December. This figure includes the fleet of Stern Lease, following our successful acquisition, which boosted fleet growth by 0.9% and brought ALD a new distribution agreement in the Netherlands. Last but not least, let me mention the booming trend observed on electric and hybrid vehicles over the last quarters. We now manage more than 150,000 electric and hybrid vehicles, a number which has grown more than 50% for the second year in a row. On Slide 7, you can see that our extensive partnership network remains a key driver of our fleet growth. Our partners help us access the small and medium corporate segments and contribute actively to the development of our private lease. In 2019, the fleet sourced through our partnerships increased strongly. As we have often said, ALD pioneered this model, and we now count more than 160 agreements with car manufacturers, banking and insurance networks, electricity suppliers and mobility platforms. As illustrated by the recent distribution agreement signed with Amazon, Polestar, Tesla, and Eroski, ALD's unique partnership model continues to be a key differentiator with our competition. In the private lease segment, we ended the year with 153,000 vehicles, up 36% versus last year and above the 150,000 target we have set ourselves for 2019. Continued development of this segment, supported by our state-of-art online platform, is expected to remain a key driver of fleet growth. On Slide 8 shows you the evolution of our fleet mix. Our proactive approach to promoting a powertrain shift has proven successful, with the diesel share within our deliveries of passenger cars dropping to 43% in '19 -- Q4 '19, significantly down from 72% 3 years ago. In 2020, the EU-mandated CO2 emission targets for OEMs will come into force. And this is expected to be a landmark year for electric and hybrid vehicles. The penetration of green powertrains in ALD's fleet continues to rise. They represented 13% of our deliveries -- of our passenger car deliveries globally in '19 versus 11% in 2018. And the share was even higher in our European fleet, close to 15%. We expect it to continue to rise in 2020 to more than 20%, supported by our new partnerships with reference players of the EV ecosystem, from electric car manufacturers to charging infrastructure and support providers such as Chargepoint, E.On and Enel. Furthermore, we have developed the ALD Electric offer, which is aimed at answering all the needs of our clients who want to choose an electric vehicle. Our dedicated products include ALD Switch, which allows you, on top of your everyday electric vehicle, to enjoy 60 days of rental of a traditional vehicle for long distance trips. And we're also very proud of our state-of-art car sharing platform, which is very much appreciated by our corporate clients. So let me hand over to Gilles to give you more input on the financial numbers.

[Gilles Momper, Chief Financial Officer]

Yes. Thanks, Tim, and good morning, ladies and gentlemen. So let's start by taking a look at the main drivers behind our solid financial performance on Slide 10. Leasing contract and services margins continue to grow at a dynamic pace. Taken together, they rose by 4.5% compared to 2018 on the back of a fleet growth of circa 6%. This margin growth has been achieved while transforming our engine mix from less diesel towards petrol and green vehicles, which means that the contracts terminated in 2019 and originated 2, 3 years ago have been replaced by new contracts with lower contractual residual value on diesel, for instance, which has weighed on our margins. The second element to keep in mind is that these figures include only 7 months of margin from Stern Lease, which was integrated at the beginning of June '19. Our operating expenses stayed under control at plus 2.8% over the year, resulting quarter-after-quarter in a lower cost/income; and finally, a record low cost/income ratio, excluding car sales, which reached 49%. On Slide 11, let's take a closer look at our operating expenses, which, as I just mentioned, rose by just 2.8%. Our ability to maintain growth in our costs well below that of margins is driven by scale benefits and further automation of processes throughout the organization, generating strong productivity gains. And to illustrate this, you can see in the upper graph that the average number of vehicles per full-time employee has risen from 232 in 2016 up to 267 today. And looking at the detailed split of our operating expenses, our depreciation and amortization rose by EUR 8 million in 2019, reflecting our ongoing investment in IT projects, which continue to represent around 20% of our overheads. We will pay attention to these investments in technology and digital platforms, as we believe they contribute to building the future of ALD. Our general and administrative expense, on the other hand, decreased by EUR 2 million in 2019, reflecting the strong cost control culture embedded throughout the company. Let's now move to Slide 12, which comments on our car sales results. In 2018, car sales result -- 2019, sorry, our car sales results were EUR 75 million, down by 27% compared to last year. Market normalization continued in 2019, as can be seen in this -- in the car sales results per used vehicle for the year, which was EUR 254, down from EUR 362 in 2018. And this level being comfortably in the upper part of the range on which we had guided at the start of the year. And the volume of cars sold continued to rise to 297,000 vehicles in 2019, up 4.5%. Our online remarketing platform, ALDcarmarket.com, continues to be very efficient, executing more than 60% of our used car sales, 20% of which being exported. In the course of 2019, we've also started to develop the used car second lease offer in some countries while leveraging on some of our existing partners. Slide 13, on the P&L, shows you the full P&L for the year. And let me point out on some of the key figures. Our margins increased by EUR 56 million over the year, while our operating expenses only went up by EUR 17 million. Clearly we continue to benefit from a substantial incremental operating leverage, which means EUR 1 of operating expense has generated more than EUR 3 of margin. The cost of risk remained contained at 22 bps, expressed as a percentage of average earning assets, and it was 21 bps last year. Our effective income tax rate was still very low at 17.6%, reflecting the positive impact of the tax benefit of the Italian Stability Law, which amounted to EUR 49.6 million in 2019, only slightly below of what we had last year. As a result, our net income group share reached EUR 564.2 million for 2019, up 1.5% last year despite the decrease in the used car sales results. The earning per share stood at EUR 1.40. And the Board, as Tim mentioned, will propose a dividend of EUR 0.63 to the general assembly of shareholders, representing a payout of 45, which is a significant rise from last year with a payout of 42. Let's move to Slide 14 and have a quick look at the balance sheet. Our earning assets rose 10.9% during the year, outpacing funded fleet growth. The main reason for that is that our vehicle mix is evolving towards higher-value models: SUVS, electric vehicles; and countries in higher prices, such as the Netherlands, where the Stern acquisition added 14,000 vehicles. On the rest, equity reinvestments in the long-term deposits with SocGen have continued to run off. IFRS 16 increased the amount of other assets for EUR 130 million, and the full details will be provided in the notes to the accounts, to be published shortly. The total equity on total assets ratio has remained fairly stable over the last 3 years and stood at 15.7% at the end of 2019, within the range of 15%, 17% that we were targeting. And the last slide on Slide 15 on the -- sums up our performance for the year, which we have already discussed. And it was -- all the items were in line with the guidance we provided at the start of the year. So we will now pass the microphone back to Tim.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Thanks, Gilles. So we're on Slide 17. So clearly, 2019 has been another successful year for ALD, marked by strong growth and outstanding operating performance, and financials consistently in line with our targets. We continue to believe that ALD is well positioned to maintain its leadership in the mobility sector in the years ahead and maintain dynamic fleet growth. The reasons are summarized on Slide 17. And I think most of you on the call are familiar with them already. With the post-IPO period now closed, we know many of you are interested in an update on our business strategy. And as you can see from Slide 17, we are going to plan an Investor Day during the second half of 2020, and the official date will be announced in due course. So for now, we would like to share with you, on Slide 18, the guidance for 2020. We anticipate a 5% to 7% organic growth in the total fleet versus 2019, plus bolt-on acquisitions as opportunities arise. Given the current economic uncertainty, we believe this is a strong growth target. Regardless of the evolution of the car market, where most analysts seems to expect annual growth of 1% to 2% this year, ALD's organic growth drivers remains very much in place, and we are confident of our market-leading position. Moreover, our proven track record of bolt-on acquisitions will enable us to seize relevant opportunities as we go along. Car sales results per unit is expected to average between EUR 100 and EUR 300. This is the same range as last year and shows that we believe that the normalization trend is ending. Cost/income ratio should improve by at least 0.5 percentage point from 49% in 2019, thanks to the continued scale effects and our strong cost control culture. For 2020, we target a payout ratio of between 40% to 50%, enabling a rising dividend trend. This concludes our presentations. Thank you for listening. And we are now ready to take any questions you may have.

[Operator]

[Operator Instructions] And we do have a few questions coming through. The first question comes from the line of Gabriel Adler from Citi.

[Gabriel M. Adler, Senior Associate]

My first question is on electric vehicles. Could you update us on the corporate demand that you're seeing for EVs, and whether you're still finding it difficult to source these EVs from OEMs? And also, how did your pricing power on electric vehicles compare to your pricing power on diesel and petrol vehicles? And my second question would be on the gap between fleet growth and the growth that you're seeing in services and leasing operating margin. How do you expect that gap to develop in 2020? Should we expect the gap to close, or diesel repricing continue to drag in 2020? And then my last question, just on car sales, the car sales result was a little bit weaker than expected in Q4. I understand that Q4 is seasonally a tough quarter. But was there any other weakness in European residuals that you were seeing that weighed on this number in the fourth quarter?

[Tim T. Albertsen, Deputy Chief Executive Officer]

Thanks, Gabriel. I guess I'll take the first one on the EVs and then leave the word to Gilles on the 2 other questions. So I think in terms of EVS, I guess first of all, as you have seen, the numbers are coming in very nicely, and we see a very interesting trend in terms of new deliveries. And it's true that 2019 was particularly difficult in terms of actually getting the electric vehicles delivered. Waiting times were up to 9 to 12 months. And in terms of sourcing, we have basically been discussing with all the manufacturers throughout the last 3, 4 months. And clearly, 2020 is the year where we anticipate that, let's say, sourcing will be much easier than what we have seen in 2019, and that we are seeing a number of new vehicles, electric vehicles coming to the market. So in terms of sourcing, we clearly anticipate that, that will be more normalized for 2020 than what we have seen in '19. The ownership of electric vehicles, that is comparable to either diesel or petrol. And of course, that's mainly where there is strong subsidies from the government to support the rollout of electric vehicles. It's very clear today that in markets where there is no subsidies, the total cost of ownership for an EV is still substantially higher for an EV than on an ICE car. I think in terms of the pricing and our pricing power as well and, I think the 2 latest partnerships that we have signed up, Tesla and Polestar, which is, I mean full electric vehicles distributors, shows that our capacity to price these vehicles in the right way is absolutely there. So we feel very comfortable about how we go into 2020 when it comes to the electric vehicles and to hybrid and plug-in hybrid cars. Let me hand over to Gilles for the 2 others.

[Gilles Momper, Chief Financial Officer]

Yes. So on the gap between fleet and margin growth, you've seen that the gap is closing this year. I mean with a margin growth of 4.5% and a fleet growth of 6%, the gap is closer. Don't forget that we also had the acquisition of Stern during the year, and we missed 0.5 year of margin of Stern and the margin would have come slightly above 5% with the Stern acquisition. So of course, we've been impacted by, as I was commenting, all the termination we had last year have been replaced, and especially on diesel -- we still are delivering diesel -- are impacted by the adjustments in prices that we have done on the residual value of diesel. And this has continued to weigh in on the margin because we're placing -- replacing contracts originated in 2016 with higher residual value, replacing them with more conservative residual value on diesel, and hence having an impact on the price and then at the end on the margin. But however, again, as we have commented in the past, what matters to us even beyond the margin increase is the cost/income evolution, and the cost/income evolution has been excellent. I mean coming from -- you see the trend on Slide 10. On the UCS, in Q4, it was weaker, weaker than Q3. I mean the trend, when you look at the quarterly trend we had in the prior years, I mean when you look at 2018, we had a decrease of EUR 9 million. This year, the decrease is slightly higher, but I mean overall, we are within the range of the guidance, we are in the upper range, so we are not particularly concerned. And also, keep in mind that in any quarter, you may be impacted by the volume of cars which are terminated, which are coming back. And as we are always commenting, December is never a good month to sell cars as -- and depending on the volume of termination you get, this may have an impact on the prices. But overall, the used car sales result is in line with our expectations.

[Operator]

The next question comes from the line of Albert Ploegh from ING.

[Albert Ploegh, Research Analyst]

Yes. 2 questions from my end. The first one is coming back to the specialty service margin, with the Italian Stability Law, maybe there are 2 questions. First of all, what is the tax benefit over the full year '19? And can you maybe update us on the guidance for the coming years? And on this Italian Stability Law impact that weighted (sic) [ weighed ] also on the services margin in Italy. Now with this phasing out, do you see any recovery in Italy on the services margin? Or is that still very difficult for competitive reasons? That's my first question -- or set of questions. And the second one is on the subject of the vehicles per person, the efficiency, it's quite impressive, 5% more per FTE over '19. How should we look going forward? Is this kind of growth trend still possible? And I'm especially thinking of the fact that also growth is being skewed more towards private lease and SMEs, which may be a little bit more intense in terms of FTE servicing. So any color there would also be appreciated.

[Gilles Momper, Chief Financial Officer]

Okay. Okay. Albert, I will take the first question on the service margin. The service margin, as I explained, is not -- we still comment on the Italian Stability Law, which benefit was EUR 50 million for the year, last year, which is significant, but it has not -- it's not the Italian Stability Law which has weighed on the service margin, it's more the repricing of diesel that we have had in the recent years. And as I explained, when the cars are coming back, we need to renew the contracts, and then we need to discuss with the customers. The customers are surprised, they look at -- the prices have increased because of these adjustments on the residual value. And it's where it comes to a discussion on the prices and then, hence, having an impact on the margins. The Italian Stability Law clearly is not such an impact from one year to another. Last year, Italian Stability Law, the impact was EUR 53 million. It's around EUR 50 million this year and should be more than halved in 2020. So what we are aiming to do in Italy especially is -- Italy is a very competitive market, as you commented it. The car market is also difficult. What we try is to -- as much as we can, we try to extend the contract to keep the benefit of the Italian Stability Law. And it's why, certainly this year, the benefit of the Italian Stability Law has been higher than expected. And the teams there are doing a very good job in prolonging the cars, trying to get the benefit of the Italian Stability Law because -- and in a very competitive market anyway. So I hope this clarifies the position. So the service margin is more impacted by the repricing on diesel RV than the Italian Stability Law.

[Albert Ploegh, Research Analyst]

Yes. But maybe one follow-up. I was referring more to Italy specifically, so not overall group services trend, which indeed is diesel. But I -- if I remember correctly, that was also due to the law, the benefit -- the fiscal benefits you enjoy, that you had to give part also to the clients in terms of pricing.

[Gilles Momper, Chief Financial Officer]

You are right.

[Albert Ploegh, Research Analyst]

Or otherwise, they could invest themselves in the car, so to speak. So on the new contracts, is there a somewhat positive trend? Or is it more -- is that not really feasible compared to, let's say, pre the Italian Stability Law?

[Gilles Momper, Chief Financial Officer]

It's where in Italy, it's even more difficult. And you will -- it's even more difficult because you have the -- both impacts, the impact of the repricing on diesel and the end of the Italian Stability Law. So the Italian team are facing 2 challenges here on the prices. It's where -- it's not as easy, and it's where we're aiming to have -- we're aiming reaching a growth which remains profitable. It may have -- it has had an impact on the growth in Italy, because it's a very tough conversation with the customers, because you need to explain them that the law doesn't apply anymore. And also, you need to explain them when you come to renewal of contracts that the RV of diesel is not the same than 2 or 3 years ago. So Italy in itself, I must say, it's a difficult market because also we have the competition of Arval and LeasePlan there. And the market is difficult. The new car market is very difficult. So that's the explanation on Italy.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Okay. Albert, so I will take #2, in terms of the productivity improvements that you mentioned, which we are very happy to see, of course, happening. I think the basis of this is really what we have come back to many times, that the scale effect of this business is very clear. And as we add base business either through organic growth or through acquisitions, we see those effects coming through very, very clearly. We have done, I think, a tremendous job so far to digitalize our front ends. And I think there is still -- we know there's still work to be done on our back offices to fully digitalize that process as well. So as we go further on, we do believe that we can continue this trend in terms of improving productivity and actually constantly drive leverage out of our business.You mentioned private lease as a specific thing in terms of productivity. And if you look at most of the private lease initiatives we have, either through manufacturers or through mobility platforms, these are 100% digitalized platforms. So actually, I would say adding to this productivity improvements. And again, this is where we see the business is going, and therefore we anticipate we can continue this trend going forward for the next coming years as well.

[Operator]

The next question comes from the line of Pierre Bosset from HSBC.

[Pierre Bosset, Head of French Equity Research]

I have 4 questions, if I may. First of all, I just would like to have a bit more details on the productivity on employee. You mentioned 267 vehicle per full time employee. Just to have a comparison basis, when you bought Stern Lease, what was the number of vehicles per employee in Stern Lease, so we can have a view on the gap between a small medium-sized company and yourselves.The second question it's about the subsidies for electrical vehicles in France, which have been cut, especially for the most expensive SUV. What will be the impact for you and on the competition and on the adoption of electrical vehicles in France, in car leasing? My third question is on Amazon and the deal you have made with them in Spain. If you can give us a bit more granularity on how it has developed since you signed the agreement. And if you have planned to roll over this agreement into other countries. And my last question, sorry, just looking at your return on equity. If I make my calculation correctly, it's something like 14%, which is decreasing because of the increased equity and stable profit. So my question is, looking forward in 2020, do you plan to increase your payouts a little more? Or do you think that we'll have enough acquisition to keep the return on equity at a good level?

[Gilles Momper, Chief Financial Officer]

Okay. I take the first question on the productivity. I can't remember off the top of my head the productivity of Stern Lease, but Pierre, keep in mind that in Netherlands, we are a challenger compared to [ At Loan ] or LeasePlan, which are playing in their home country, being much higher than we were. But adding 14,000 units in the fleet generates a really, really strong efficiency gains for us. So I mean, the Stern Lease acquisition in itself cannot explain the whole productivity of the whole group. And you can see, we have had this productivity gains over the last years. It's mainly coming from -- of course, from our growth, coming from the automation of some processes, the way we interact with the customers, with our suppliers. And of course Stern contributes, but honestly, Stern is not the main explanation of the 5% increase. But it's key for the Netherlands. That's a given. I mean, adding -- putting the Netherlands to the fifth position, coming from the seventh position in the market, that has been a tremendous achievement for them.

[Pierre Bosset, Head of French Equity Research]

Gilles, I probably badly expressed myself. I just would like to compare small and medium-sized companies to Stern Lease, to see how much vehicles they manage. I'm sure that the overall impact of selling that nation on ALD is negligible, I would say. But I just want to have an idea of what is difference between a small company and a large company like yourself when you measure the productivity in terms of vehicle managed by FTE.

[Gilles Momper, Chief Financial Officer]

I guess you can't compare -- I mean, it has -- I mean, you imagine comparing a company with 14,000 units and a company like us with 1 point -- I'm just rounding -- 1.8 million, I mean it's completely irrelevant. In terms of cost/income, in terms of -- they were completely out. I mean it was -- and it has been the case. It's the case for all the acquisitions we've done. And sorry, Pierre, I don't have the productivity in itself of Stern, but surely that was certainly one of the reasons why they wanted to exit. It's, of course, maybe they had some -- they wanted to exit this business because they had some funding challenge, but also they hadn't the appropriate scale. And it's not only a question of scale. It's for them, like for some others, the lack of investment capacity in tools, because we are entering a new era here, where you need to have tools to deal with your new type of customers, which are private lease, SMES. And it's where we are bringing to Stern our scale, our funding costs, our competitiveness and our cost/income. And I can give you in more detail the Stern lease productivity, if you want. I mean it's irrelevant, I guess.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Okay. Pierre, Tim here. On the second question, as you know, I'm new here, so I have not been looking after France directly in the past. But I would say, if you look at our EV share basically in France and then overall in the market, the registration of EVs was very, very strong in January. And in France, we do have the full ALD Electric offer in place, which means we have the Switch offer, we have basically a charging provider and the whole program running. So I mean to my knowledge, and we can come back on that question in more detail, but to my knowledge the new subventions is not damaging the number of deliveries of electric vehicles or hybrids in France at this point. And again, as we said initially, in terms of the total cost of ownership, France is one of the countries where we are quite close in terms of total cost of ownership versus electric, versus basically an ICE car. But if you want, we can come back and give you a bit more detail on that. On the third question, we have John Saffrett with us here as well. And on the Amazon question, I would like to delegate that to John.

[John Saffrett, Deputy Chief Executive Officer]

Thanks, Tim. Pierre, so regarding your question around Amazon in Spain, firstly, just to make sure we're clear on the offer, it was launched in July. And it allows an Amazon client to select a private lease from a range of offers on the Amazon website in Spain. Put that in their basket like they would with any other product they buy on Amazon, and then proceed on the ALD digital platform through a credit check process and e-signature process. And the car is then delivered within 14 days, and the client then enjoys the full range of services from ALD. And it's a fully -- a full-service private lease with all of the service maintenance and repair and tires loaded in. It has been a learning experience for us working with Amazon. We're learning a lot about digital marketing. We're learning a lot about traffic management in terms of bringing people to the offer and the website. We're learning a lot about the challenges of a digital consumer and their expectations in terms of 24/7, their expectations in terms of customer service. As you're well aware, Amazon in a, customer obsession is one of their key words, and they're very focused on the customer experience on the website. So we've been adapting the journey and adapting the range of offers that are available on the Amazon platform to those users. So recently, we've extended the age of the vehicles available to slightly older used vehicles, because we were seeing a demand on the platform for those cars as well. And obviously, that starts to fuel our second life lease initiative, which we've spoken about on previous investor calls as well. We're still working with Amazon to find the ideal offer for that consumer, so we're still playing with different types of vehicles, new, used, more used than others, to try to find the right sweet spot. But we have a lot of interest on the platform. We've been writing business on the platform. We don't comment on numbers on any specific channel, but we're happy with the performance we've seen in the platform so far, and we expect the performance to improve in 2020 as we continue to refine the offer. And I can't comment on any plans to expand the offer outside of Spain with respect to our partner. But obviously, if they do look to expand the offer into other countries, we'll be hopeful of accompanying them on that journey.

[Gilles Momper, Chief Financial Officer]

And to take your last question, Pierre, Gilles speaking. So the ROE at the end of last year was EUR 14.8 million. The drop versus last year being mainly explained by the drop in used car sales results. You can see that in the balance sheet our leverage ratio has remained unchanged. I mean our equity level remains very strong. As Tim commented, so we've -- for the guidance for the year, we've confirmed the guidance of dividends being between 40 up to 50, but we know that with this level of equity, we can afford paying a higher dividend if we wanted. And it's also -- we've kept so far this level of equity to size some opportunities in terms of acquisitions. We've done some last year. We still have some deals in the pipes that we are looking at, which may or may not close soon, but we are looking at deals. So that's the -- I mean the level of equity we've kept. And we know we have a little too much equity when we compare to some of the others. But for the shareholders, it's either an insurance for getting a higher dividend, or it's also enabling us to make some acquisitions.

[Operator]

The next question comes from the line of Kai Mueller from Bank of America.

[Kai Alexander Mueller, Associate and Analyst]

Actually coming back to the last one, on the equity ratio, you obviously have been in the past always looking at some sort of more bolt-on acquisitions, smaller fleet size as you roll up in your vehicle park. Would you also consider maybe larger ones at some point and you might be saving for that, just as a game changer where you can apply, obviously, your platform to a much bigger vehicle fleet, as the first one? And then the second one is, obviously, you mentioned earlier, you had a very strong fleet growth in the prior year. So it's sort of slowed down a little bit. Is that you being a little bit more careful also when you say the competition is there, in order not to be too aggressive on pricing? Or is it just the market that is getting a bit softer? And lastly, maybe obviously, on your private lease penetration, you showed the chart of the very strong growth rates here. How do you see in 2020, 2021, in particular, some of these tax changes in the U.K., the zeroing of the benefit in kind tax on EVs. In Germany, a significant drop in those for corporate fleets and maybe even sort of a -- some sort of structure where employees give up a pay for vehicles. Is that something you see starting to drive more people towards private lease as well?

[Gilles Momper, Chief Financial Officer]

Yes. Okay. The last one on the equity ratio, yes, we are looking at deals, and at deals which would make sense for us, we would be happy to look at. So for the moment, I mean as I was commenting, I cannot say more than the fact that we are looking at deals. I cannot comment. But anyway, depending on the size of the countries, depending where the deals happen, it can be a small deal in a country where we are small, which adds a lot. But I mean any kind of deals we are interested in, and we are looking at when we can, because they are already really the incremental benefit on the cost/income ratio is really appreciated.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Okay. Kai, I'll take the one on the future growth. Basically, it's true that, of course, we see competition quite active in the market. Having said that, we know there is -- I mean fundamentally, there is strong growth drivers in our market. We still see a trend towards full-service leasing coming for the more traditional funding forms like finance lease and outright purchase. And I would say with the private lease offer, with the second life lease that we are developing, we actually see a lot of opportunities, of course, still coming to this business. And it's true that with some of the -- let's say the more fiscal initiatives in some countries, we do see that some of the corporate drivers actually becomes maybe a private lease, maybe a B2E business. And again there, as we have been basically developing our distribution channels in the last years, we are very well positioned to take that business as well. And actually that could even, I mean, expand the market because, today, typically, we would serve customers who have -- let's say, who are entitled to a company car. With our B2E programs, we actually typically get out to a much broader audience inside the corporate clients that we're serving. So overall, in terms of growth, it's true that in the 5% to 7% number is the anticipation that competition remains quite fierce, and that we don't want to really destroy our assets. We want to make sure that we take the business at the right price. But overall, as I said, growth continues to be very good, and we anticipate a strong market going forward.

[Kai Alexander Mueller, Associate and Analyst]

Maybe one quick follow-up. On your car sales result, obviously you're guiding, again, the EUR 100 to EUR 300 per car range. I understood from last year, sort of that 2019 might be somewhat of a trough, and then from 2020, you see some more stabilization. What led you to stick to the EUR 100 to EUR 300 and not at least take the bottom end slightly higher, given obviously you achieved the upper end of that range in 2019?

[Gilles Momper, Chief Financial Officer]

On this, as we've commented many times, the range is very narrow already, it's EUR 200, which is less than a percentage point of the investment of the car. So I guess we're -- we confirm the normalization trend, but we cannot -- we are not in a position to narrow the guidance. I mean, EUR 50 wouldn't, if we were to narrow the guidance, we are not in this position yet. I mean things can happen in one market, in another. But we are confident that on the results overall on the P&L, we won't have the drop that we have had since 2015, where we are coming at EUR 207 million. We've lost EUR 140 million -- around EUR 140 million of used car sales -- of pretax used car sales between -- in 4 years, which obviously has impacted the ROE. But when you look at the underlying ROE, when -- if you normalize the used car sales results across the year, our financial performance has been very good and even better. So the used car sales guidance cannot really narrow. I guess...

[Kai Alexander Mueller, Associate and Analyst]

I mean, maybe higher, the 200 to 400, given you were already at 250 for the year.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Well, I think, Kai, what -- I mean what we said as well around our growth targets, it is a quite unstable economic environment that we are seeing. And of course, car sales could be impacted by that. We feel very comfortable with the business we are getting back in 2020. I think we have said as well that, typically, we have seen increasing residual values coming back. We know that this year, it's fairly stable compared to the past. So the EUR 100 to EUR 300 also take into consideration that the economic environment is a bit more unstable than we've been used to, I guess.

[Operator]

The next question comes from the line of Enrico Bolzoni from Crédit Suisse.

[Enrico Bolzoni, Research Analyst]

Just 2 questions from me. The first one, again, on the result of car sales, you were mentioning that you are, of course, changing your fleet towards electric vehicles and other sorts of vehicle which have higher values. And therefore, I would expect also higher residual values towards the end of the life cycle. Would it be fair to say then therefore, we might expect a higher degree volatility in your car sales results going forward, to reflect the fact that now you basically have a fleet that contains some vehicles which have much higher value? So that's the first question. And the second question is related to what has been announced in the U.K. a couple of days ago, for example, where there are [ those ] conversation about actually banning also in the short future, so in the next 10 years, not only normal combustion engines but also hybrids. So is that something you are factoring? Of course, the average contract length would allow you to change the fleet if necessary, but that could potentially have an impact as well on your residual values going forward. So I just wanted to know if you have any thoughts on that.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Thanks, Enrico. I think in terms of car sales, and of course, it's true that with new technology, you introduce, let's say, new challenges. I think what we have been doing the last 2 years, we have been working very hard on developing a second life lease offer, third life lease offer, fourth life lease offer. And that actually took its initiative in the electric vehicles. Have proven to be interesting for ICE cars as well, but basically that's where it started. And we think as we go along, that will actually become even more present in our fleet. So we do, first of all, see the second life and third life as a mitigating factor for risk on residuals in EVs. And I think on top of that, we are developing a lot of channels. As you know, we are developing channels, retail channels, car sharing channels, where we know that we can put these cars that do not necessarily need to be brand-new cars. So I would say on that part, clearly, we have already done the groundwork to counteract that. Secondly, I mean electric vehicles is not new in our fleet. In Norway, we have had electric vehicles for many years now. We have seen a couple of cycles coming back. So we have experience. We also actually have one big fleet management client in France who is running and have been running for 10 years quite a substantial number of electric vehicles. So we do have some history. And we have an expert team around electric vehicles. That is, I mean industry experts, people who knows how to price and actually giving us the opportunity to look at this in a completely new way. So we clearly know that electric vehicles is introducing unknowns. We think we are well positioned to address those. And we think we have a good mitigating factor in terms of our capacity to put these cars into new channels, new segments. And I'll let Gilles answer the U.K. one.

[Gilles Momper, Chief Financial Officer]

I guess it's what you did, I mean on hybrids. No, I have -- I don't have any further comments.

[Tim T. Albertsen, Deputy Chief Executive Officer]

Yes. So Enrico, perhaps because, honestly, we don't have a completely clear answer on your second question on the U.K. part, so we'll come back to you on that. I mean every day, there is a bit of news of cities who are banning cars, and not just ICE cars, but I mean, if you take Oslo, they're actually banning all kinds of cars, even electric cars, in the very center of the city. So I think it's something we have to start living with, that the fact that there is a bit of uncertainty, how you can use your cars in urban areas, and clearly, it's very clear that 0 emission cars is, of course, much more suited to go into the really core of the urban centers. But overall, it's part of our consideration, also the team that is working on our electric vehicle pricing. They are looking at all these trends and take those kind of things into consideration when we price. I hope that can give you...

[Operator]

The next question comes from the line of Charles Bordes from Kepler Cheuvreux.

[Charles Bordes, Equity Research Analyst]

First one, regarding diesel shipments, and the mix have considerably dropped in the past 2 quarters. Considering this trend and expected boom of shipments of electric vehicles, where do you see diesel shipments going in 2020? And second question, if I may, regarding the cost/income. You mentioned additional effects to keep kicking in, in the coming years. So what should we consider as the long-term targets at the group level for the cost/income?

[Tim T. Albertsen, Deputy Chief Executive Officer]

Yes. Thank you, Charles. On the diesel, I mean we have done a tremendous work, I think, in trying to get the diesel numbers down in our fleet in the last years and been very successful with that. Reaching 43% of all passenger cars end of last year, we think we have potentially reached somehow the bottom of that. We do not necessarily see we need to drive that down much more further. And of course, if we want to drive that anyway, it have to go to either green -- I mean, in hybrid, plug-in hybrids or EVs and not so much to petrol cars. So I think we have seen the bottom of where we want to go with diesel penetration. It's true that if you look at diesel today, some of the newest diesel engines clearly are very, very clean. And they are still, in terms of diesel, very efficient because of their fuel consumption. So we still see that diesel will have a future for the forthcoming, let's say, 5 to 10 years and will be part also of our passenger cars. It's very clear that when you look at our commercial vehicles, we still don't have a really good offer in terms of converting those to either hybrids or electric vehicles, so those will mainly be on diesel also in the coming years, but we anticipate that to actually pick up in the coming years. And we will see electric vehicles on the commercial fleet coming through.

[Gilles Momper, Chief Financial Officer]

On the cost/income, Charles, just to say that, indeed, as you've seen on the Slide 10, again the significant drop that we have had in the past, I mean it's coming through the economies of scale through a fleet growth. We've been able to achieve this record low cost/income and all the automation of processes. We -- as we are forecasting another year of solid fleet growth next year, so we expect that the absorption of fixed cost will be -- will continue, will materialize, leading to another improvement in cost/income of another 50 bps. But keep in mind that some of our big subsidiaries have cost/incomes which are lower than 40%. And also, when you look at our incremental cost/income, I mean long term, it's difficult to give a long-term -- I don't want to provide a long-term guidance, but surely, our cost/income will continue to improve as long as, yes, the -- we can benefit from some economies of scale and productivity gains. So that's the basic of the guidance for next year. And the long-term guidance should be an ongoing improvement of the operating leverage.

[Operator]

There are no further questions in the queue, so I'll hand the call back to your host to conclude today's conference.

[Hans van Beeck]

Hello, this is Hans van Beeck again. Thank you very much to all the participants. We will close the call here, and the IR department is available for any further questions you might have. Thank you. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect.