Full Year 2017 Results: Europcar delivers a strong performance and accelerates its transformation through strategic acquisitions, fully in line with its Ambition 2020
- Revenue of €2,412 million up 13.5% at constant exchange rates with organic growth of 3.4%
- Adjusted Corporate EBITDA of €264 million up 4.6% at constant exchange rates
- Adjusted Corporate EBITDA margin at 11.8% excluding New Mobility and Buchbinder
- Adjusted Corporate Operating Free Cash Flow of €126 million excluding New Mobility and non-recurring items, resulting in a 46% FCF conversion rate
- Reported Net income of €61 million due to a €71 million non-recurring expense
- Proposed dividend of €0.15 per share implying a 40% payout ratio
For Caroline Parot, Chief Executive Officer of Europcar Group:
“We delivered a strong performance in 2017 both in terms of revenue and Adjusted Corporate EBITDA growth in a challenging context relating to the closing of several sizable acquisitions and the unexpected litigation issue in the UK. 2017 has been a pivotal year for the Europcar Group during which we have significantly scaled up through an acceleration in our M&A plan. The acquisitions of Buchbinder and Goldcar are transformational for the Group and will help us deliver our 2020 Ambition while they clearly confirm the role we want to play in our industry’s European consolidation process.
2017 will be remembered as a year during which Europcar took a significant step towards its Ambition 2020 and we remain confident in our ability to reach at least €3 billion of annual revenue and an Adjusted Corporate EBITDA margin of at least 14% excluding new mobility by the end of 2020.
After an intense year on the acquisition front, we are now fully dedicated on integrating the newly acquired companies, delivering the expected synergies, and continuing to work on the digitalization of our customer journey, the development of our footprint and the pursuit of our operational excellence. We are looking forward to accelerating the Group’s digital transformation in order to successfully position the Europcar Group in the Mobility ecosystem which is expected to offer double digit growth prospects by 2025.”
2017 Operational Highlights
The Europcar Group delivered a solid revenue growth performance in 2017 across all of its business units.
In Cars, the Group continued to outperform the market growth and reaped the early benefits of its customer journey improvement programmes. In Vans & Trucks, the Group delivered a solid organic growth and made the acquisition of Buchbinder in order to significantly boost its presence in the segment. In Low Cost, whilst closing the acquisition of Goldcar, the Group continued to deliver strong growth in its existing Low Cost InterRent business.
The Group’s leisure business, responsible for 56% of Group rental revenue in 2017, acted as the main growth engine for the Group’s Cars business unit as it benefited from a strong market momentum particularly in the southern European markets. The Group’s corporate business, responsible for 44% of Group rental revenue in 2017, also performed well in 2017 and acted as second significant growth engine for the Cars business unit. The Vans & Trucks business unit also benefited from strong demand from both corporate and leisure customers. Finally, the Group’s Low Cost division delivered another year of stellar growth performance across its corporate countries as well as its franchisees, which strengthens its belief that putting its Low Cost business at the heart of the Group’s long term growth strategy is the right one.
The Group continued to focus on improving its customer service through several dedicated programmes such as the Air Force programmes (focused on the Group’s 40 largest airport stations). These efforts have enabled the Group to deliver another year of strong improvement in its net promoter scores (NPS) with an increase of 5.1 points during the last twelve months. Group NPS reached 54.7 points in December 2017 compared to 49.6 points in December 2016 and 44.8 points in December 2015.
In 2017, the Group delivered a good performance with regards to two of its key operating metrics: fleet utilization and fleet cost per unit. The Group enjoyed significant improvement in terms of fleet financial utilization on an organic basis with a 40 basis points increase in 2017 reaching 76.9% versus 76.5% in 2016. The Group also continued to show some good control of the Group’s fleet cost per unit per month which were flat at constant exchange rates and on an organic basis in 2017 at €242 despite the negative impact caused by a temporary recovery issue in the UK.
2017 Financial Highlights
The Group generated revenues of €2,412 million in 2017, up 13.5% at constant exchange rates compared with 2016. On an organic basis, ie at constant exchange rates, constant perimeter and excluding petrol, the Group revenues grew by 3.4% and its rental revenues grew by 4.3%.
This significant increase in Group revenues in 2017 was the result of positive rental day volume growth across all the Group’s key markets with differences in performance between the UK growing mildly and the southern European countries delivering strong double digit growth. All of our three major business units significantly grew their rental revenues over the period with Cars growing by 9.8%, Vans & Trucks growing by 29% and Low Cost growing by an impressive 71%.
The number of rental days increased to 69.3 million in 2017, up 16% versus 2016. This growth in rental days was spread across all its key divisions with Cars growing 11%, Vans & Trucks growing 29% and Low Cost growing 58%. On the other hand, Revenue per rental day decreased by 1.5% at Group level, impacted by a 0.8% decline in Cars and a 0.2% decline in Vans & Trucks, which were partially offset by an 8.3% increase in Low Cost.
Adjusted Corporate EBITDA
Excluding the impact of New Mobility and the Buchbinder acquisition (consolidated since September 2017), Adjusted Corporate EBITDA increased by 8.1% at constant exchange rates to €273 million in 2017 compared to €254 million in 2016. Hence, the Adjusted Corporate EBITDA margin increased slightly in 2017 versus 2016 to reach 11.8%.
This margin performance can be explained by (1) strong growth in rental volumes, (2) efficient cost cutting measures implemented after the summer, (3) increasing variable costs (rental and revenue related) and increasing network costs (impacted by the integration of recently acquired companies) and (4) the poor performance in the UK, which has been impacted by both a weak economic environment as well as the changes implemented to its repairs and damage invoicing process. The UK repairs and damage process has now been fully revamped and is now operating satisfactorily since the beginning of 2018.
Adjusted Corporate Operating Free Cash Flow
Full year 2017 Corporate Operating Free Cash Flow reached €91 million compared to €157 million in 2016. This decrease was caused by (1) a significant increase in financial refinancing expenses and (2) a higher level of non-recurring expenses in 2017 versus the previous year This amount of €71 million of non-recurring expenses for 2017 principally relate to the significant M&A fees paid following the Group’s recent acquisitions, the downsizing expense at Europcar Germany’s headquarters, the increase of the Group’s consulting fees to accelerate its transformation, and UK litigation related fees. The €21m financing charge relates to the fees paid for (1) the redemption of the company’s €350 million fleet bond and (2) for the bridge financing implemented at the time of the acquisition of Goldcar.
When adjusting for €22 million of non-recurring cash items and €13 million of New Mobility losses incurred in 2017, the Group’s Adjusted Corporate Operating Free Cash Flow reached €126m implying a 46% operating free cash flow conversion rate  in 2017.
Net financing costs
Net financing costs under IFRS amounted to a €141 million net expense in 2017, up 16% compared to a net expense of €121 million incurred in 2016. This increase is due to the impact of the new €600 million corporate bond issued in October as well as to the change in perimeter which is the result of the multiple acquisitions made by the Group in 2017 and explains the €21 million financing expense mentioned previously in the adjusted corporate operating free cash flow paragraph.
2017 operating income came in at €223 million down 15% compared to €263 million in 2016. This decrease is due to the fact that the Group incurred a higher level of non-recurring expenses in 2017 compared to 2016 which was impacted by the UK litigation, headquarter restructuring, transformational consulting and M&A related fees.
In 2017, the Group posted a net income of €61 million, compared to €119 million net profit in 2016. This is the result of higher non-recurring expenses, higher net financing costs and a more normative income tax rate. The €71 million non-recurring charge incurred in 2017 is the result of transformational M&A fees, UK litigation related fees and headquarter restructuring costs in Germany.
Corporate net debt increased to reach €827 million as of December 31, 2017 (vs. €220 million as of December 31, 2016) mainly as a result of the additional financing raised following the acquisitions of Buchbinder and Goldcar.
The Group’s pro forma corporate net leverage reached 2.6x at the end of 2017.
The fleet net debt was €4,061 million as of December 31, 2017 vs. €3,045 million as of December 31, 2016. This increase reflects (1) the higher number of vehicles in the fleet in order to sustain the growth of the Group’s operations and the fleet mix evolution as well as (2) the impact of the integration of the fleets of Buchbinder and Goldcar into the Europcar Group’s overall fleet size.
Dividend Payout of 40%
The board of Directors has decided to recommend the payment of a dividend of approximately €0.15 per share for 2017 representing 40% of the Group’s net income.
In the fourth quarter of 2017, Group revenue growth reached 20% at constant exchange rates. On an organic basis, ie at constant exchange rates, constant perimeter and excluding petrol, the Group total revenues grew by 1.2% and its rental revenues grew by 2.7%. Corporate adjusted EBITDA grew by 17% at constant exchange rates to reach €47 million versus €40 million in the fourth quarter of 2016. This was the result of significant cost cutting measures implemented by the Group after the summer and gives further proof of the Group’s strong resilience.
Group revenue was driven by a 22% growth in rental day volumes and a flat RPD. By business unit, Cars grew by 15% driven by a 16% growth in rental day volumes and a slight 0.7% decline in RPD. Vans & Trucks grew its revenue by 63% split between 52% growth in rental day volumes and a 7.2% growth in RPD. Finally, Low Cost grew by 44% in the fourth quarter driven by a 42% growth in rental day volumes and a 1.2% increase in RPD.
Fleet cost per unit increased from 245€ to 250€ as a result of the UK repairs and damage issue. Fleet utilization was down 10 bps at 73.8% versus 73.9% in Q4 2016 on an organic basis but was down 140 bps at 72.5% as a result of the lower utilisation at Buchbinder and Europcar Denmark.
Several major financing events took place in 2017.
In June, following the signing of the agreement to acquire Goldcar, Europcar completed a capital increase through the placement of 14.6 million new ordinary shares at a price per share of €12.00, for a total of around €175.3 million, representing approximately 10% of Europcar Group’s ordinary shares pre-capital raise. Group employees also participated in the capital increase to which they contributed for an amount of €21.7 million.
In July, the Group signed a new secured €500 million Revolving Credit Facility (RCF) with a diversified pool of international banks. This Facility, which has replaced the existing €350 million Senior Revolving Credit Facility (SRCF), will mature in June 2022. The Group has optimized the financing cost of this new RCF by a 25 bps reduction of the applicable margin. The €150 million increase of the nominal amount will allow the group to support its 2020 ambition and the related growing financing needs.
In July, the Group also signed a €1,040 million Bridge Facility with a pool of international banks dedicated to the acquisition of Goldcar, the refinancing of its existing debts and the financing of its fleet. This facility included two tranches: a €440 million tranche dedicated to the acquisition of Goldcar and a €600 million tranche dedicated to the refinancing of Goldcar existing debt and the financing of its fleet of vehicles.
In October 2017, the Group announced it had successfully completed a dual round of bond financing. Europcar Group issued a new €600 million corporate bond yielding 4,125% and also refinanced its existing €350 million fleet bond which now yields 2.375% versus 5.125% for the previous one. This fleet bond refinancing alone will enable Europcar to save close to €10 million in interest costs on its fleet financing on an annualised basis, which will fully and positively impact Corporate EBITDA going forward.
Finally, in December at the closing of the acquisition of Goldcar, the Group (1) cancelled the first tranche of its Goldcar Bridge Facility mentioned above thanks to the proceeds of the new €600 million corporate bond issue made in October and (2) also cancelled the second tranche of the Bridge Facility which was replaced by a new €450 million Asset-Backed Bridge Facility secured by the fleet assets of Goldcar in order to optimize the fleet financing conditions in the future.
In 2018, the Europcar Group plans to achieve the four following financial targets:
– Accelerating organic revenue growth ie above 3%
– An adjusted corporate EBITDA excluding New Mobility above 350 million euros
– A corporate operating free cash flow conversion rate above 50%
– A dividend payout ratio above 30%
Today, the Group announced it had signed an agreement with Daimler Mobility Services on the sale of its 25% stake in car2go Europe GmbH for an amount of €70 million. The completion of the transaction requires the approval of the competent antitrust authorities and the parties expect to receive these approvals and close the transaction before the end of the second quarter of 2018.
 Adjusted Corporate EBITDA is defined as current operating income before depreciation and amortization not related to the fleet, and after deduction of the interest expense on certain liabilities related to rental fleet financing. This indicator includes in particular all the costs associated with the fleet. See “Reconciliation with IFRS” attached.
 The Operating Free Cash Flow conversion rate is defined as Adjusted Corporate Operating Free Cash Flow / Adjusted Corporate EBITDA excluding New Mobility and Buchbinder expressed as a percentage. The calculation is based on the Group’s Corporate EBITDA and Corporate Operating Free Cash Flow on a LTM (Last Twelve months) basis.