Third Quarter 2017 Results: Europcar delivers strong revenue growth, notably in the leisure segment, and closes the acquisition of Buchbinder
- Q3 Revenue of €794 million up 13.5% at constant exchange rates with organic growth of 3.4%, leading to 9M Revenue organic growth of 4.0%
- Q3 Adjusted Corporate EBITDA of €164 million up 3.9% at constant exchange rates, leading to a 9M Adjusted Corporate EBITDA margin at 12.4% excluding New Mobility
- 9M Corporate Operating Free Cash Flow of €140 million resulting in a 65% FCF conversion rate
- Q3 Net income of €105 million up 9.2% YoY, and 9M Net income of €78 million down 21% due to €42 million of transformational M&A related fees and one-off restructuring costs
- Europcar fully confirms its 2017 financial guidance
Saint-Quentin-en-Yvelines, 9 November 2017 – Europcar (Euronext Paris: EUCAR) today announced its results for the third quarter of 2017.
For Caroline Parot, Chief Executive Officer of Europcar Group:
“We delivered strong revenue growth in the third quarter thanks to a supportive summer season across most of our European markets. This performance was supported by a dynamic leisure momentum across all our brands. Despite a highly competitive environment, particularly across our southern European markets, we were able yet again to show strong resilience and an ability to generate robust free cash flow generation and sound Corporate Adjusted EBITDA growth.
As a result, we are able to confirm all of our full year 2017 targets in terms of organic revenue growth, Adjusted Corporate EBITDA margin and Corporate Free Cash Flow conversion.
As expected, we closed the Buchbinder transaction in September and are confident that we will be able to close the Goldcar transaction by the end of the year. In October, we successfully raised the necessary financing for these two transactions in the bond markets and also took the opportunity to refinance our existing fleet bond generating significant financing cost savings going forward.”
Third Quarter & First 9 Months 2017 Operational Highlights
The Group continued to focus on improving its customer service through some dedicated programmes such as Customer First and Air Force One (now focused on the Group’s 40 largest airport stations). These efforts have enabled the Group to deliver significant improvements in its net promoter score with an increase of 4.7 points during the last twelve months. Group NPS reached 51.4 points in September 2017 compared to 46.7 points in September 2016.
The Group’s leisure business, responsible for 59% of Group rental revenue in the first nine months of 2017, acted as the main growth engine for the Group as it benefited from a strong market momentum. The Group’s Vans & Trucks division and even more so the Group’s low cost division delivered a solid growth performance across our corporate countries as well as our franchisees, which confirms the Group’s strategy of placing Low Cost at the heart of the Group’s growth strategy.
In the first nine months of 2017, the Group has continued to make progress on two of its key operating metrics: fleet utilization and fleet cost per unit. The Group delivered a good performance in terms of fleet financial utilization with a 30 basis points increase in the first nine months of 2017 reaching 77.7% versus 77.4% in the first nine months of 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 in the first nine months of 2017 at €241 despite the negative impact caused by a temporary damage recovery issue in the UK.
Third Quarter & First 9 Months 2017 Financial Highlights
The Group generated revenues of €1,822 million in the first nine months of 2017, up 11.5% at constant exchange rates compared with the first nine months of 2016. On an organic basis, ie at constant exchange rates, constant perimeter and excluding petrol, the Group revenues grew by 4.0%. In the third quarter, Group revenue growth reached 13.5% and 3.4% on an organic basis.
This significant increase in Group revenues in Q3 was the result of positive growth across all the Group’s key markets with differences in performance between the UK growing mildly and our southern European countries delivering yet again strong double digit growth in volume. All of our three major business units grew over the period with Cars growing by 9.0%, Vans & Trucks growing by 28% and Low Cost growing by yet another impressive 76%.
The number of rental days increased to 52.0 million in the first nine months of 2017, up 13.8% versus the first nine months of 2016. This growth in rental days was spread across all our key divisions with cars growing 9.1%, Vans & Trucks growing 20% and Low Cost growing 62%. On the other hand, Revenue per rental day decreased by 1.9% at Group level, impacted by a 0.8% decline in Cars and a 3.1% decline in Vans & Trucks, which were partially compensated by a 9.6% increase in Low Cost.
Adjusted Corporate EBITDA
Excluding the impact of New Mobility, Adjusted Corporate EBITDA increased by 5.3% at constant exchange rates to €225 million compared to €213 million in the first nine months of 2016. Hence, the Adjusted Corporate EBITDA margin of the Group declined by 60 basis points to 12.4% in the first nine months of 2017 as a result of: (1) a higher than expected pricing competition during the summer across several of our key European markets, which did not enable us to fully offset the anticipated dilutive margin impact of our strong growth in Low Cost, and (2) our poor performance in the UK, which has been impacted by both a weak economic environment as well as the changes implemented to our repairs and damage invoicing process. Both these issues will be dealt with by the end of the year with the closing of the Goldcar transaction and the reboot of the repairs and damage process in the UK.
Corporate Operating Free Cash Flow
First nine months 2017 Corporate Operating Free Cash Flow reached €140 million compared to €167 million in the first nine months of 2016. This decrease was caused by a higher level of non-recurring expenses in 2017 versus the previous year which relate to a downsizing expense at Europcar Germany’s headquarters, an increase of the Group’s consulting fees to accelerate its transformation and significant M&A fees paid following our recent acquisitions.
This strong Corporate Free Cash Flow generation enabled the Group to deliver a strong 65% operating free cash flow conversion rate  over the first nine months of 2017.
Net financing costs
Net financing costs under IFRS amounted to a €89.8 million net expense in the first nine months of 2017, up 2.7% compared to a net expense of €87.5 million incurred in the first nine months of 2016. The main reason for this slight increase is the full effect of the €125 million increase in the Group’s corporate bond issued in June 2016.
In the first nine months of 2017, the Group posted a net income of €78 million, compared to €99 million net profit in the first nine months of 2016. Despite a lower income tax, this is due to the impact of a €42 million charge due to non-recurring expenses mentioned previously.
Corporate net debt increased to reach €200 million as of September 30, 2017 (vs. €155 million as of September 30, 2016) taking into account the Group’s strong free cash flow generation and its recent capital increase in June.
The Group paid out €59 million in dividends in May and spent €200 million for acquisitions and strategic investments over the last twelve months, including a €120 million cash payment for Buchbinder in September.
The fleet net debt was €4,549 million as of September 30, 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 recent acquisitions on the Group’s overall fleet size.
In 2017, the Europcar Group plans to achieve the four following financial targets compared to 2016:
– Accelerating organic revenue growth ie above 3%
– Increase in adjusted corporate EBITDA margin (excluding New Mobility) ie above 11.8%
– A corporate operating free cash flow conversion rate above 50%
– A dividend payout ratio above 30%
The Group reiterates all four of its financial targets for the year 2017.
Financing Events (post-closing)
On 19 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. The new fleet bond now yields 2.375% versus 5.125% for the previous one. Hence 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.
On 20 September 2017, Europcar Group announced the closing of the transaction to acquire Buchbinder, one of the largest car rental companies in Germany and Austria. This acquisition will position the Group as a leader in Germany, the Group’s first market, especially on the Vans&Trucks business. Bunchbinder will also offer a strategic platform to source further into the large pool of German and Austrian travelers and to expand further in Eastern Europe.
Following the signing of an agreement with Investindustrial to acquire Goldcar in June 2017, the acquisition is being reviewed by the European antitrust authorities and the transaction is expected to close before the end of the year 2017.
 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 expressed as a percentage. The calculation is based on the Group’s Corporate EBITDA and Corporate Operating Free Cash Flow.