Free translation of the original report entitled "Rapport de l’expert independant - Projet de restructuration financière d’EUROPCAR MOBILITY GROUP " dated December 28, 2020. In case of discrepancies in translation or interpretation between English and French versions, only the French version shall prevail.
Report of the independent expert
EUROPCAR MOBILITY G ROUP financial restructuring project
28 December 2020
Contents
1. Presentation of the reasons and terms of the Transaction ...... 6 A brief review of recent history ...... 6 Reasons for the Transaction ...... 6 Conditions for carrying out the Transaction ...... 9 Description of the Transaction ...... 10 Prior reduction of the nominal value of the Share ...... 11 Capital increase in cash with preferential subscription rights ...... 11 Capital increase in cash reserved for bondholders ...... 11 Capital increases reserved for bond creditors ...... 12 Cash injection - new financing of the fleet ...... 13 Refinancing the RCF ...... 13 Issuance of Warrants ...... 14 Governance ...... 15 Synthesis ...... 15 2. Tasks assigned to FINEXSI ...... 16 Declaration of independence ...... 17 Work performed ...... 17
3. Presentation of EUROPCAR MOBILITY GROUP ...... 19 Shareholders ...... 19
Organisation chart of the EUROPCAR MOBILITY GROUP ...... 20
Background of EUROPCAR MOBILITY GROUP ...... 20
Presentation of the activities of EUROPCAR MOBILITY GROUP ...... 21 The original Cars business ...... 23 The Low-Cost business ...... 24 The Vans & Trucks (V&T) business ...... 25 The New Mobility business ...... 26 The International Coverage business ...... 27 4. Economic environment of EUROPCAR MOBILITY GROUP ...... 28
EUROPCAR MOBILITY GROUP in the car rental market ...... 28 Players in the Short-Term Rental (STR) market ...... 28 Competitive environment ...... 29 The economic model ...... 31 The situation and trends in the STR market ...... 33
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5. Financial analysis of EUROPCAR MOBILITY GROUP ...... 35 Presentation of the Company's historical results (2015 - 2019) ...... 35 Profit & loss statement ...... 35 Presentation of the Company's historical balance sheet ...... 42 Impact of the economic crisis on the year 2020 ...... 44 Change in of liquidity ...... 51 SWOT Matrix ...... 55
6. Valuation of EUROPCAR MOBILITY GROUP shares ...... 56 Valuation methods ruled out ...... 57 Consolidated net asset value ...... 57 Revalued net asset value ...... 57 Discounting of future dividends ...... 58 Comparable transactions ...... 58 Net Asset Value ...... 58 Methods used for the pre-restructuring valuation approach ...... 58 Methods adopted for the post-restructuring valuation approach ...... 59
Reference data of the EUROPCAR MOBILITY GROUP Company ...... 59 Number of shares used ...... 59 Net corporate financial debt ...... 60
Implementation of the valuation of the EUROPCAR MOBILITY GROUP company prior to restructuring ...... 64 Discounted cash flows (main method) ...... 64 Listed peers (for information purposes only) ...... 68 Reference to the Company's share price (for information) ...... 71 Analysts' price targets (for information) ...... 75 Summary of our pre-restructuring valuation work ...... 77
Implementation of the valuation of the EUROPCAR MOBILITY GROUP company after restructuring ...... 78 Discounting of projected cash flows (main method) ...... 78 Listed peers (for information) ...... 83 Analysts' price targets (for information) ...... 83 Summary of our post-restructuring valuation work ...... 84 7. Financial analysis of the Transaction ...... 85 Analysis of the post-Transaction financial structure ...... 85 Financing of the Company ...... 85 Debt reduction ...... 86
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Analysis of the post-Transaction shareholding structure ...... 87 Analysis of the issue prices of the various capital increases with regard to the dilution / accretion of existing shareholders ...... 89 Analysis of the issue price of capital increases in cash ...... 89 Analysis of the issue price of capital increases by offsetting receivables ...... 90 Analysis of the exercise price of the Warrants granted as compensation for services related to the Transaction ...... 91 Analysis of the impact on the assets of current shareholders ...... 94 8. Related agreements ...... 95 9. Conclusion ...... 96
Appendix 1: Presentation of FINEXSI and the engagement ...... 99
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Context of our engagement
Pursuant to the provisions of Article 261-3 of the General Regulation of the Autorité des Marchés Financiers (hereinafter the "AMF "), the Supervisory Board of EUROPCAR MOBILITY GROUP ("EUROPCAR " or the "Company" or the "Group ") of 16 November 2020 appointed FINEXSI EXPERT & CONSEIL FINANCIER (hereinafter "FINEXSI ") as Independent Expert in connection with the proposed financial restructuring (hereinafter the "Restructuring" or the "Transaction ") agreed with the Coordination Committee (hereinafter the "Committee ") representing some of the Company's major creditors.
As will be discussed in more detail below, the proposed Restructuring is the result of discussions between the Company's Management and its creditors with a view to a Restructuring of its corporate debt and the provision of new liquidity.
The agreements thus concluded with the creditors are formalised by the signature of a lock-up agreement on 25 November 2020 and were publicly announced on 26 November 2020. These agreements were also subject to the signature of an amendment on 6 December 2020. They are detailed in §1.2 of this report.
In this context, the purpose of our assignment is to assess the fairness of the financial terms and conditions of the Restructuring project from the point of view of the EUROPCAR MOBILITY GROUP shareholders. In particular, this involves assessing the value of EUROPCAR MOBILITY GROUP shares before and after the Restructuring, the positioning of the subscription price for the reserved capital increase in relation to these values, as well as in relation to the creditors’ subscription and conversion prices, and more generally the treatment of the various stakeholders.
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1. Presentation of the reasons and terms of the Transaction
A brief review of recent history
On November 14, 2019, EURAZEO , the Company's main shareholder, announced that it would "conduct a strategic review of its options regarding its stake in EUROPCAR MOBILITY GROUP , which could possibly lead to the sale of all or part of its stake".
In this context, the Company was looking at a potential sale of its stake by its main shareholder and a possible takeover bid that could have been initiated by the purchaser of shares in the Company, and in particular the block of shares held by EURAZEO , on the shares of EUROPCAR MOBILITY GROUP , and more generally at discussions by the Supervisory Board and Management on the structuring of the Company's shareholder base. Due to the COVID-19 pandemic, the initial context has changed significantly and EURAZEO has declared that it has suspended its search for a buyer for its block.
Nevertheless, the reflections on the capital and financial structure of the Company remained topical, and became even more relevant in the context of the economic crisis following the first wave of the COVID-19 pandemic. At that time, the Company had to seek alternative solutions for industrial backing or financial restructuring.
This search had not yielded concrete results by the end of the summer of 2020 in the midst of a worsening economic crisis due to the second wave linked to the COVID-19 pandemic.
Reasons for the Transaction
In line with its reflections, EUROPCAR MOBILITY GROUP announced in the press release of 7 September 2020 its intention to enter into discussions with its financial creditors with a view to carrying out a Financial Restructuring. Indeed, since the COVID-19 health crisis, the Company has been strongly impacted by the travel restriction measures implemented across Europe and by the slowdown in the global economy.
This context is reflected in the heavy losses expected for the 2020 financial year 1, despite a significant cost reduction programme of nearly €1 billion, and in an increase in the Company's corporate debt. Corporate debt is expected to reach a level that is too high to allow the Company to continue as a going concern, with no prospect of improvement in the short term.
After obtaining the agreement of the majority of its financial creditors (Holders of 2024 and 2026 Senior Bonds and EC FINANCE PLC 2 Senior Secured Bonds) on 14 October 2020, the Company requested the appointment of a agent in ad hoc proceedings to lead the discussions with the corporate creditors with a view to a financial restructuring. Ms HÉLÈNE BOURBOULOUX was appointed as such on 26 October 2020.
1 Corporate Adjusted EBITDA 2020e of €240 million excluding the impact of IFRS 16. This aggregate corresponds to operating profit from ordinary activities, before depreciation and amortisation not related to the vehicle fleet, and after deducting interest charges related to the debt used to finance the fleet. 2 EC FINANCE PLC, an English company created in 2010, operates as a special purpose vehicle. The company was set up to issue debt securities to repay existing credit facilities, refinance debt and for acquisition purposes.
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The objective is as follows:
• Significantly reducing debt in order to give the Company flexibility in an uncertain context;
• Obtaining the necessary liquidity to finance structural investments and the 2021-2023 3 "Connect" transformation programme and to deal with short-term uncertainties.
Following this appointment, the Company has entered into discussions with some of its major corporate creditors and their respective boards, under the aegis of the agent in ad hoc proceedings . These discussions resulted in an agreement in principle on the financial restructuring plan (hereafter the "Agreement in Principle"), reached in the context of a conciliation procedure , the President of the Paris Commercial Court having appointed Maître HÉLÈNE BOURBOULOUX as mediator ( conciliateur ), as an extension of her assignment as agent in ad hoc proceedings .
To this end, on 25 November 2020, the Company signed a lock up agreement with a significant group of creditors known as "Cross-Holders". These are 5 investment funds: ANCHORAGE CAPITAL GROUP LLC, ATTESTOR LIMITED , DIAMETER CAPITAL PARTNERS LP, KING STREET CAPITAL MANAGEMENT LP and MARATHON ASSET MANAGEMENT LP, grouped in the Coordination Committee. Together, they held, as at 25 November 2020, (i) 51.1% of the 2024 Senior Bonds, (ii) 72.7% of the 2026 Senior Bonds, (iii) 100% of the CREDIT SUISSE Facility (i.e. approximately 62% of the €1,100 million, as detailed later), (iv) 45.7% of the RCF Commitment 4 and (v) 22.2% of the Senior Secured Bonds of EC FINANCE PLC .
On 26 November 2020, the Company issued a press release announcing that it had reached an Agreement in Principle on a refinancing plan with its Cross-Holder creditors.
Under the terms of this "lock up agreement", the parties undertake to take the necessary steps to implement and carry out the Agreement in Principle. The members of the Coordination Committee undertake, in particular, to vote in favour of the implementation of the Agreement in Principle, to sign the documentation required to enable the Restructuring to take place, not to transfer their interest in the Company's corporate debt during the financial restructuring process unless the purchaser adheres to the lock-up agreement or is already a signatory thereto and to guarantee the subscription for the New Liquidities and the refinancing of the RCF (as defined below). Any holder of 2024 Senior Bonds and 2026 Senior Bonds has the possibility to adhere to the lock-up agreement , under the same conditions and with the option to subscribe, under certain terms and conditions, for certain financing and refinancing instruments and/or issues provided for in the Agreement in Principle during a subscription period that initially expired on 10 December 2020 (defined as the "Subscribing Bondholders ") .
This Agreement in Principle was amended 5 to extend the subscription period to 11 December 2020 and to allow any holder of Senior Bonds 2024 and Senior Bonds 2026, while adhering to the lock- up agreement, to undertake to guarantee, during a guarantee commitment period running until 18 December 2020, under the same conditions as those applicable to the Coordination Committee, all financing and refinancing instruments and/or issues, whereas these guarantee commitments, remunerated by the issuance of warrants, were initially reserved solely for the members of the Coordination Committee (the said holders having thus committed themselves being defined as the "Guarantor Bondholders"; this definition includes the members of the Coordination Committee).
3 This programme aims to develop the Group's services and offers in line with the new demands and needs of its customers. 4 Revolving Credit Facilities. 5 Press release of 7 December 2020.
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The Memorandum of Understanding that was approved by the Company's Supervisory Board on 25 November 2020 meets the Company's objectives of achieving a sustainable capital structure adapted to its revenue with reduced corporate debt and an appropriate level of liquidity, enabling it to carry out the "Connect" 2021-2023 transformation programme and to deal with uncertainties over the coming years.
It should be noted that the Company received support for the Agreement in Principle from its main shareholder, EURAZEO , which holds 29.9% of the capital.
This Agreement in Principle provides in particular for:
• A massive debt reduction with a €1,100 million reduction in corporate debt through the conversion into capital of all the 2024 Senior Bonds and 2026 Senior Bonds and the CREDIT SUISSE Facility, based on a conversion price of €0.38 per share.
• An injection of new cash for an amount of €250 million 6 through two capital increase transactions to be carried out on the basis of a price of €0.19 per share. This price has been determined on the basis of a market capitalisation of approximately €600 million after conversion of the bond debt into equity (see above).
• A €225 million injection of new cash as part of a new floating-rate financing package.
The capital contribution and the granting of new financing for the fleet are together referred to as the "New Liquidity".
• The refinancing of the RCF, which amounts to €670 million.
The members of the Coordinating Committee had initially made guarantee commitments alone concerning the subscription of all the New Liquidities and the refinancing of the RCF, i.e., a total guaranteed amount of €1,145 billion in addition to the conversion of the bond debts. These guarantee commitments were then opened to the other holders of the 2024 Senior Bonds and 2026 Senior Bonds under the terms of the amendment to the Agreement in Principle. In consideration for their guarantee commitments, share subscription warrants (French acronym: BSA) will be allocated free of charge to all holders of Senior Bonds acting as guarantors (defined as the "Guarantor Bondholders", this definition including the members of the Coordination Committee), with a subscription price of €0.01.
The €480 million 7 injection of fresh cash and cash equivalents, together with the non-payment of €22 million in interest on the 2024 Senior Bonds and the 2026 Senior Bonds, should cover the Group's cash requirements and structural investments planned as part of the " Connect" transformation plan for 2021 and 2022, as well as additional contingencies of €155 million.
Subject to the completion of the financial restructuring and based on the Company's business plan, the projected liquidity at 31 December 2021 would be approximately €430 million and the Company's corporate debt would return to levels in line with those existing at the time of its IPO.
6 Including a €50 million capital increase with preferential subscription rights and a €200 million reserved capital increase. 7 250 million for capital increases, €225 million for fleet financing and €5 million for the exercise of stock Warrants.
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In order to be able to apply for the opening of an accelerated financial safeguard procedure by the Paris Commercial Court and its recognition in the United States in accordance with Chapter 15 of the Bankruptcy Code, the Company has sought the consent of the bondholders (the 2024 Senior Bonds, the 2026 Senior Bonds and the Senior Secured Bonds of EC Finance Plc). This consent was obtained on 7 December 2020.
With this consent, as well as that of the lenders under the RCF, secured as communicated on 14 December 2020, the Paris Commercial Court opened an accelerated financial safeguard procedure on 14 December 2020 for the benefit of the Company.
Conditions for carrying out the Transaction
The conditions precedent to the implementation of the Agreement in Principle are the usual conditions attached to similar restructuring transactions, and include the following in particular:
• The approval by the Extraordinary General Meeting of the resolutions necessary for its implementation, in particular:
o The reduction of capital by reducing the nominal value of the Company's shares to €0.01 per share;
o Subsequent share issues contemplated; and
o The change in the governance of the Company.
• The effective completion of the aforementioned capital reduction transaction.
• Obtaining the required level of support from creditors and in particular the necessary waiver of any rights they may have in the event of default under the accelerated financial safeguard procedure (including its recognition in the United States under Chapter 15 of the US Bankruptcy Code) 8, in particular on the part of the:
o Holders of the 2024 Senior Bonds;
o Holders of the 2026 Senior Bonds;
o Holders of EC Finance Plc's Senior Secured Bonds;
o RCF lenders.
• Obtaining from the lenders in respect of the State-backed loans of EUROPCAR INTERNATIONAL and EUROPCAR PARTICIPATIONS dated 2 May 2020 the necessary modification of the mandatory early repayment clause in relation to the injection of new liquidity into the capital 9.
• Obtaining all prior governmental authorisations and/or all approvals necessary to implement the Agreement in Principle (including the visa of the Autorité des Marchés Financiers on any prospectus).
• Approval of the accelerated financial safeguard plan by the Paris Commercial Court.
8 This condition has been fulfilled according to the Company's press releases of December 7, 2020 and December 14, 2020. 9 This condition has been fulfilled according to the Company's press release of 7 December 2020.
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• The agreement of SARFA lenders 10 to extend its maturity until January 2023 11 .
In the event that all the conditions are fulfilled or waived, the implementation of the Agreement in Principle should take place no later than 31 March 2021.
Description of the Transaction
The envisaged restructuring project groups together several transactions which are interdependent and indivisible from a legal point of view, which we present below and which are planned to be carried out on the same date in the following order as indicated in the Restructuring Term Sheet, which alone is authentic and to which reference should be made.
• A prior reduction in the nominal value of the EUROPCAR MOBILITY GROUP share from €1.0 to €0.01 (see §1.4.1); • A capital increase in the amount of €50 million, including share premium, with preferential subscription rights, for the benefit of the Company's current shareholders at a subscription price of €0.19 per share, by means of a cash payment (see §1.4.2); • A capital increase of €200 million with cancellation of the preferential subscription right reserved for the Bondholder Creditors at a subscription price of €0.19 per share, by cash payment (see §1.4.3); • A capital increase of €1,133 million (including unpaid accrued interest), with cancellation of preferential subscription rights, at a subscription price of €0.38 per share, reserved for the holders of the 2024 Senior Bonds, the 2026 Senior Bonds and the CREDIT SUISSE Facility by way of set-off against their bond claims (see §1.4.4); • A cash injection of €225 million as part of the new financing of the fleet (see §1.4.5); • Refinancing of the €670 million RCF with a new €500 million term loan and a new €170 million RCF. The overall amount and maturity remain unchanged (see §1.4.6); • The issue of 3 classes of free share subscription warrants: the Guarantee Warrants, the Participation Warrants and the Coordination Warrants. The exercise of these Warrants at a unit price of €0.01 will give the right to 11% of the capital on a diluted basis (see §1.4.7).
We will also analyse the terms and conditions of the Transaction relating to governance (see §1.4.8).
Under the terms of the Agreement in Principle and its amendment, the contributions of new liquidities (capital increase in cash with preferential subscription rights, capital increase in cash reserved for the Bondholders, new financing of the fleet and refinancing of the RCF) are guaranteed by the Guarantor Bondholders. It should be specified that the guarantee commitment undertaken by any Guarantor Bondholder must respect the same proportion for all the above-mentioned financing and refinancing instruments.
10 "SARFA" means the existing senior asset renewal agreement entered into on 30 July 2010 (as may have been amended, the last amendment being dated 14 May 2018) between SECURITIFLEET HOLDING S.A. AS Borrower, EUROPCAR INTERNATIONAL S.A.S. AS Borrower's Agent and CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK as Lending Bank, Transaction Administrator and Common Security Agent. 11 The Members of the Coordination Committee have unanimously waived this condition, according to the Company's press release of 7 December 2020.
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As a last resort, and in any event, the Coordination Committee guarantees the availability to the Company and the other members of the group of all the funds resulting from the new instruments and/or issues provided for in the Agreement in Principle, i.e., a total amount of €1.145 billion.
Prior reduction of the nominal value of the Share
In the context of the Restructuring project, it is planned that a capital reduction 12 motivated by losses will take place beforehand. The purpose of this technical transaction, which will reduce the nominal value of the share to €0.01, is to enable the capital to be paid up, as the subscription price of the envisaged capital increases is lower than the current nominal value of the share (€1.00). The amount of the capital reduction will be allocated to a special unavailable reserve account. The sums in this account may not be used for any purpose other than to offset any losses incurred by the Company.
Capital increase in cash with preferential subscription rights
The first stage of the project consists of a capital increase with preferential subscription rights (PSR) of €50 million at a price of €0.19 per share (hereinafter the "Capital Increase with PSR").
• The beneficiaries are the existing shareholders of the Company who will hold preferential subscription rights (hereafter referred to as "PSR"). They may subscribe on an irreducible and reducible basis. In the event that they do not wish to participate in this capital increase, they may sell their preferential subscription rights. • This capital increase is guaranteed by the Guarantor Bondholders. • As a last resort, and in any event, the members of the Coordination Committee have undertaken to make available to the Company all the funds for the €50 million capital increase. • Subscription to this capital increase is to be by cash payment only. • Subject to changes at the time of implementation of the financial restructuring, the number of shares issued should be approximately 263 million. It is however specified that the number of shares whose issue will be proposed to the Company's general meeting to approve the resolutions relating to the Restructuring should be around 277 million, in order to take into account a possible delay. in the indicative timetable for the implementation of the Restructuring.
Capital increase in cash reserved for bondholders
A capital increase with cancellation of preferential subscription rights is planned for €200 million, at a subscription price of €0.19 per share (hereinafter the "Reserved Capital Increase 1"):
• This issue is reserved for the Subscribing Bondholder Creditors and the Guarantor Bondholder Creditors . • The subscription will be made for the subscription amount received from each Subscribing Bondholder, which is limited in proportion to its holding in the Senior Bonds on the date of subscription.
12 The capital reduction is carried out by allocating the sum of €162,245,435.22 to a reserve account.
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• This capital increase is guaranteed by the Guarantor Bondholders. • As a last resort, and in any event, the members of the Coordination Committee have undertaken to make available to the Company all the funds for the €200 million capital increase. • Subscription to this capital increase is to be by cash payment only. • Subject to changes at the time of the implementation of the financial restructuring, the number of shares issued should be 1,052 million shares. However, it should be noted that the number of shares whose issue will be proposed to the Company's general meeting to approve the resolutions relating to the Restructuring should be around 1,105 million, in order to take into account a possible lag in the indicative timetable for the implementation of the Restructuring.
Capital increases reserved for bond creditors
In the context of reserved capital increases, it is planned to convert all the 2024 Senior Bonds, the 2026 Senior Bonds and the CREDIT SUISSE Facility into equity. The total amount of these capital increases will be at least €1,133 million (including accrued and unpaid interest). They will be carried out on the basis of a price of €0.38 per share (hereinafter the "Reserved Capital Increases 2 and 3") 13 .
• The 2024 Senior Bonds represent a principal amount of €600 million. The amount of unpaid interest due and accrued interest at a rate of 4.125% will be added to this nominal amount. In this respect, the Company has announced that it has not paid the €12 million due date of 16 November 2020. • The 2026 Senior Bonds represent a principal amount of €450 million. The amount of unpaid interest due and accrued interest at a rate of 4% will be added to this nominal amount. In this respect, the Company has announced that it has not made the payment due on 30 October 2020 in the amount of €9 million.
• The CREDIT SUISSE Facility represents a principal amount of €50 million. The amount of unpaid interest due and accrued interest will be added to this nominal amount. • Subscriptions for the capital increases will be made in proportion to the holdings of each creditor. • Subscriptions for these capital increases will only be made by way of set-off against receivables relating to the corresponding bonds which are certain, liquid and due. • At the end of this transaction, the bond debt will be reduced by a principal amount of €1,100 million. • Subject to changes at the time of implementation of the financial restructuring, 2,982 million shares should be issued. However, it is specified that the number of shares whose issue will be proposed to the Company's general meeting to approve the resolutions relating to the Restructuring should be around 3,132 million, in order to take into account a possible lag in the indicative timetable for the implementation of the Restructuring
13 The reserved capital increase 2 will be for the benefit of the Bondholders in proportion to their Bondholders' claims and the capital increase 3 will be for the benefit of the CREDIT SUISSE lenders in proportion to their claims.
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Cash injection - new financing of the fleet
It is planned to provide new financing for the fleet through a cash injection totalling €225 million. This new financing gives the Company seasonal/temporary drawing capacity to finance the fleet's equity requirements.
• This new fleet financing will be open to the Subscribing Bondholders and guaranteed by the Guarantor Bondholders. • The participation in this fleet financing will be carried out for the subscription amount received from each Subscribing Bondholder, which is limited in proportion to its holding in the Senior Bonds at the date of subscription. • This new fleet financing is guaranteed by the Guarantor Bondholders. • As a last resort, and in any event, the members of the Coordination Committee have undertaken to make available to the Company and the other members of the group all of the funds under the new €225 million fleet financing. The lenders will benefit from various guarantees relating in particular to (i) receivables from the Junior loans issued by FCT SINOPLE FINANCE which are dedicated to the acquisition of vehicles , (ii) the intra-group loans granted by ECI 14 and ECP 15 to their local operating subsidiaries " Opcos" following the granting of the new fleet financing, (iii) the shares of the local subsidiaries of ECI which will own the " Fleetco" fleet of vehicles , (iv) the account dedicated to the financing of the fleet of ECI and ECP extended if legally possible to the local companies " Opcos" and " Fleetcos ".
They will also be entitled to a second-rank guarantee on the fleet of vehicles and on the claims resulting from the lease agreements that will be concluded locally between the " Opcos" and the "Fleetcos ".
Refinancing the RCF
The €670 million RCF (Revolving Credit Facilities) agreement dated 13 July 2017 will be refinanced through (i) a new €170 million RCF and (ii) a €500 million term loan, both of which have the same maturity as the existing RCF, i.e., 9 June 2023.
The term loan
• The Term Loan will be subscribed first by the lenders of the existing RCF having opted for it, then by the Subscribing Bondholders to the extent of their subscription commitments and finally guaranteed by the Guarantor Bondholders. • The financing of the term loan is guaranteed by the Guarantor Bondholders. • As a last resort, and in any event, the members of the Coordination Committee have undertaken to make available to the Company and the other members of the group all the funds under the €500 million term loan.
14 Europcar International SASU. 15 Europcar Participations SASU.
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The new RCF • The new RCF will be subscribed for by the Subscribing Bondholders up to the amount of their subscription commitments and finally guaranteed by the Guarantor Bondholders . • The participation in this new RCF may be carried out by holders of the 2024 Bonds and holders of the 2026 Bonds who will not have participated in the new financing of the fleet. • The refinancing of the RCF is guaranteed by the Guarantor Bondholders. • As a last resort, and in any event, the members of the Coordination Committee have undertaken to make available to the Company and the other members of the group all the funds under the new €170 million RCF. The guarantees given to the lenders under the Term Loan and the new FCR are senior in rank and are equivalent to those given under the existing FCR.
Issuance of Warrants
In the context of the Transaction, it is planned to issue three classes of Warrants free of charge, which shall entitle to a total of 11% of the company's share capital on a fully diluted basis. These Warrants have a unit exercise price of €0.01 and a maturity of 6 months.
The Guarantee Warrants:
• If exercised, the Guarantee Warrants (BSA de Garantie ) entitle their holders to 8% of the Company's share capital on a fully diluted basis. • These Warrants will be allocated to the Guarantor Bondholders in respect of their guarantee commitments under (i) the €50 million capital increase with preferential subscription rights (ii) the €200 million capital increase reserved for the bondholders (iii) the new €225 million financing of the fleet and (iv) the refinancing of the RCF. • The Warrants will be allocated in proportion to their guarantee commitments.
The Participation Warrants:
• The Participation Warrants (BSA de Participation ) entitle the holder to 1.5% of the Company's capital on a fully diluted basis if exercised. • These Warrants will be allotted to the subscribers in respect of the refinancing of the RCF, i.e. the lenders of the existing RCF as well as the Subscribing Bondholders and the Guarantor Bondholders having effectively participated in the refinancing of the RCF. • The Warrants will be allocated in proportion to the participation in the refinancing of the RCF.
The Coordination Warrants:
• The Coordination Warrants (BSA de Coordination ) entitle the holder, if exercised, to 1.5% of the Company's capital on a fully diluted basis. • These Warrants will be allocated to the members of the Coordination Committee as remuneration for their role as coordinator of the financial restructuring of the Company.
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Subject to changes at the time of implementation of the financial restructuring, the number of shares issued upon exercise of all the Warrants would be 551 million shares. It is however specified that the number of BSA whose issuance will be proposed to the general meeting of the Company to approve the resolutions relating to the Restructuring should be around 579 million, in order to take into account a possible delay in the indicative timetable for the implementation of the Restructuring.
Governance
The governance of the Company will follow the rules applicable to listed companies and will comply with the AFEP/MEDEF code.
The members of the Coordination Committee who will become shareholders of the Company as a result of the financial restructuring have declared that they will not act in concert vis-à-vis the Company.
Synthesis
In summary, the financial restructuring of the Company can be summarised as follows:
• The completion of all the transactions provided for in the Agreement in Principle is guaranteed by all the Guarantor Bondholders and, as a last resort, the provision of funds is guaranteed by the members of the Coordinating Committee who have subscribed to a guarantee commitment up to the totality of the financing and issues, i.e., for a total amount of €1.145 billion (if applicable). • The restructuring of the bond debt results in a reduction in debt of €1,100 million in principal that will be converted into capital. • Cash will be provided both through capital increases to cover operational and investment needs, as well as through new financing of the fleet covering the needs for the period 2021 - 2024. • Existing shareholders will be strongly diluted. Their level of ownership in the capital after financial restructuring will depend on their participation in the €50 million capital increase with preferential subscription rights. o If no subscription is made, they will hold 3.5% of the capital before the exercise of the Warrants and 3.1% after the exercise of the Warrants;
o In the event of a 100% subscription to this capital increase, they will hold 9.4% of the capital before exercise of the Warrants and 8.4% after the exercise of the Warrants.
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2. Tasks assigned to FINEXSI
The appointment of FINEXSI by the Supervisory Board on 16 November 2020 was motivated by the desire to provide the Company's shareholders with the fullest possible information. It is therefore a voluntary appointment provided for in Article 261-3 of the AMF General Regulation. It is specified that, since the members of the Coordination Committee have declared that they are not acting in concert, none of them should be in a position affording them control of the Company. For this reason, our appointment does not fall within the scope of the provisions of Article 261-2 of the AMF General Regulation.
We have been engaged to assess the fairness of the Restructuring for the Shareholders in the context of the reduction of debt to increase the equity of EUROPCAR MOBILITY GROUP .
This report, which will describe the terms and conditions and the consequences of the Restructuring for the Shareholders, has been prepared in accordance with Article 262-1 of the AMF General Regulation and its Application Instruction 2006-08 of 25 July 2006 as amended on 10 February 2020 relating to the independent expert valuation, itself supplemented by AMF Recommendation 2006-15 as amended on 10 February 2020. Our work is detailed below.
To carry out our engagement, we have used the documents and information provided to us by EUROPCAR MOBILITY GROUP and its financial advisor, ROTHSCHILD & CO. These documents have been considered accurate and exhaustive and have not been subject to any particular verification. We have not attempted to validate the historical and forecast data used, which we have only verified for plausibility and consistency. This assignment did not consist of an audit of the financial statements, contracts, litigation and any other documents communicated to us.
We have carried out due diligence on the legal documentation made available, within the strict limits and for the sole purpose of collecting information useful to our engagement.
We have met on various occasions with the Company's management, in particular Ms CAROLINE PAROT (Chairman of the Management Board), Mr FRANCK ROHARD (General Secretary), Ms AURÉLIA CHEVAL (Strategy Director) and Mr LUC PELIGRY (Chief Financial Officer), as well as ROTHSCHILD & CO, both to understand the context of the Restructuring and to understand the current financial situation, the business prospects and the resulting financial forecasts. These discussions focused mainly on:
• The context and arrangements for the Transaction;
• EUROPCAR MOBILITY GROUP 's business, its evolution and its medium- and long-term development prospects; and
• The resulting business plan.
We assessed the economic assumptions on which the forecast data underlying the EUROPCAR MOBILITY GROUP business plan are based, in order to implement an approach based on the discounting of its cash flows.
Concerning analogous valuation methods (multiples of listed peers and multiples of comparable transactions), we have studied the publicly available information from our financial databases.
We also met with the teams of DARROIS VILLEY MAILLOT BROCHIER AS part of our review of legal documentation.
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A quality review was carried out by Mr. OLIVIER COURAU , Partner of the firm, who did not intervene on the case.
Declaration of independence
The FINEXSI law firm and its partners:
• Are independent within the meaning of Articles 261-1 et seq. of the AMF General Regulation, and as such are able to draw up the declaration of independence provided for in Article 261-4 of the AMF General Regulation, and in particular are not in any of the cases of conflict of interest referred to in Article 1 of AMF Instruction 2006-08 on independent valuations;
• Have the human and material resources necessary to carry out their engagement on a permanent basis, as well as sufficient insurance or financial resources to cover any risks related to this engagement;
• Are members of the Association Professionnelle des Experts Indépendants (APEI), an association recognised by the AMF pursuant to Articles 263-1 et seq. of its General Regulation; one of the signatory partners is also a member of the IVSC's Standard Review Business.
FINEXSI attests to the absence of any past, present or future links known to it with the persons concerned by the Restructuring and their advisors, which may affect its independence and the objectivity of its judgment in the context of this assignment.
Work performed
Our work consisted mainly in:
• Acquiring detailed knowledge of the envisaged Financial Restructuring as it emerges from the Agreements and as it will be presented for approval to the Extraordinary General Meeting, of its terms and conditions and of the specific context in which it takes place:
• Determining and implementing multi-criteria valuation approach for the EUROPCAR MOBILITY GROUP , before and after completion of the Restructuring, which includes in particular:
o An analysis of the risks and opportunities identified for EUROPCAR MOBILITY GROUP that could affect its valuation, which is summarised in the form of a SWOT matrix;
o Analysis of public information, including the review of analysts' notes;
o The reasoned selection of valuation criteria (excluded/retained);
o The analysis of the evolution of the share price over a relevant period to be validated;
o Analysis of the evolution of the Company's listed bond debt;
o A review of EUROPCAR MOBILITY GROUP 's historical financial performance;
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o Analysis of the financial statements and business plan with operational management, including the identification of key assumptions considered and an assessment of their relevance;
o Sensitivity tests on the structuring assumptions considered;
o The identification of listed peers and transaction comparables and the use of available information concerning them.
• On these bases, an examination of how the subscription prices proposed in the context of the various capital increases are positioned, in view of the results of the valuations carried out;
• Analysis of the dilution effects for the Company's current shareholders;
• Review and comparison of the situation before and after Restructuring for the Company's current shareholders;
• Meetings with the Monitoring Committee in charge of supervising the Restructuring project;
• The preparation of this report, the conclusion of which is presented in the form of a fairness opinion, for the attention of the Supervisory Board of EUROPCAR MOBILITY GROUP .
The purpose of our report is not to provide Shareholders with an implicit or explicit recommendation on whether to participate in the Restructuring, but to provide them with information and an opinion on the terms and conditions and implications for them of the Restructuring, in order to enable them to have the necessary information on the Restructuring proposed to them and which will be submitted to a vote at their Shareholders' Meeting.
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3. Presentation of EUROPCAR MOBILITY GROUP
Shareholders
EUROPCAR MOBILITY GROUP S.A. (formerly EUROPCAR GROUPE S.A. or "ECG") was registered on 9 March 2006 with the Paris Trade and Companies Registry under number 489,099,903, with an initial share capital of €235,000. The Company was then transformed into a public limited company (“société anonyme ”) on April 25, 2006, then changed its mode of governance to become a public limited company with a Management Board and Supervisory Board on February 24, 2015.
Its registered office is located at 13 ter boulevard Berthier, 75017 Paris.
The fiscal year consists of the 12 months from 1 January to 31 December.
EUROPCAR MOBILITY GROUP shares were floated on 26 June 2015 and are admitted to trading on compartment A of Euronext Paris with the ISIN code: FR0012789949.
At 30 June 2020, its capital consisted of 163,884,278 shares.
The breakdown of the capital and theoretical voting rights of the EUROPCAR MOBILITY GROUP at 30 June 2020 is summarised as follows:
Table 1- Shareholding structure at 30 June 2020
Capital Theoretical voting rights in thousands of shares Number % Number %
Eurazeo SE 48 988 240 29,9% 48 988 240 29,8% ECIP EC SARL 4 991 697 3,0% 4 991 697 3,0% Morgan Stanley 13 372 152 8,2% 13 372 152 8,1% CIAM 16 368 882 10,0% 16 368 882 10,0% Invesco 8 117 866 5,0% 8 117 866 4,9% Management and employees 4 798 122 2,9% 5 189 410 3,2% Self-detention 8 766 939 5,3% 8 766 939 5,3% Public 58 480 380 35,7% 58 615 941 35,7%
Total 163 884 278 100,0% 164 411 127 100,0%
Source: Company
BANK OF AMERICA CORPORATION declared that on 30 June 2020 it had indirectly exceeded the 5% threshold for capital and voting rights and held 6.31% of the capital and 6.29% of the voting rights. Since then, this company has declared that on 29 July 2020, it indirectly fell below the 5% capital and voting rights thresholds.
CIAM also declared that on 8 September 2020, it had fallen below the threshold of 5% of the share capital and voting rights and held 3.70% of the share capital and 3.69% of the voting rights. This crossing of thresholds resulted from the sale of EUROPCAR MOBILITY GROUP shares on the market.
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Organisation chart of the EUROPCAR MOBILITY GROUP
The organisation chart below shows the Group's legal organisation, as well as the main subsidiaries and holdings held directly and indirectly by EUROPCAR MOBILITY GROUP S.A.:
Figure 1- Simplified organisation chart of the EUROPCAR MOBILITY GROUP
Source: Company
Background of Europcar Mobility Group
Figure 2- History of the EUROPCAR MOBILITY GROUP Company
1949 1988 2014 2020
L’Abonnement Automobile : Europcar International : Europcar Mobility Group : Single-brand group New strategy and International development and and « car-centric » new shareholders external growth
1949 : Creation of l’Abonnement Automobile in Paris by 1988 : Renault sells its stake to Compagnie des Wagons-lits 2014 : Implementation of a new 2020e roadmap with a focus Raoul-Louis Mattei and then to Volkswagen. on new mobilities. Acquisition of Ubeeqo and creation of the Europcar Lab 1988 : Merger of InterRent and Europcar 1951 : Creation of the Europcars brand 2015 : Eurazeo, sole shareholder since 2006, floats more than 1991 : Acquisition of the Compagnie des Wagons-lits by 50% of the shares on the stock market at a price of €12.25 per 1965 : Merger of l'Abonnement Automobile and Europcars to Accor, which thus becomes a 50% shareholder in Europcar share. The portfolio of mobility solutions expands with the create the Compagnie Internationale Europcars International. acquisition of E-Car Club 2003 : Europcar becomes the European leader in car rental 1970 : Raoul-Louis Mattei sells the Compagnie Internationale 2016 : Acquisition of Brunel and Bluemove. Acquisition of the thanks to a strategy based on the increase in the number of Europcars to Renault Europcar franchisee in Ireland. The Group adopts a new operating franchises and the development of numerous organisation in 5 Business Units (Cars, Vans & Trucks, Low commercial partnerships (travel agents, airlines, etc.) 1973 : Subsidiaries founded in Germany, Belgium, the Cost, New Mobility, International Coverage ) Netherlands and Switzerland 2006 : Eurazeo takes control of Europcar, thus becoming 2017 : Strong international development with the acquisition of the sole shareholder of the European leader in car rental 1974 : The brand becomes Europcar and creates Buchbinder (which strengthens the Cars BU) and the Danish subsidiaries in Spain, the United Kingdom, Italy and Portugal Europcar franchisee. Acquisition of Goldcar, the European leader in low-cost car rental 1981 : The brand becomes Europcar International 2019 : Acquisition of Fox Rent A Car in the United States to strengthen the Low-Cost BU. Acquisition of Finnish and Norwegian Europcar franchisees
Sources: 2019 Universal Registration Document and FINEXSI analyses
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The Car Rental Group was created in Paris in 1949 by Raoul-Louis MATTEI , a French entrepreneur and businessman, under the name of l'ABONNEMENT AUTOMOBILE . The latter merged in 1965 with EUROPCARS , a brand created in 1951. The new entity became the COMPAGNIE INTERNATIONALE EUROPCARS .
In 2011, the Group supported by EURAZEO , a major shareholder since 2006, began its development in new mobility solutions by establishing a strategic Joint Venture with DAIMLER AG to launch the CAR 2GO EUROPE GMB H ride-sharing service in Hamburg, Germany.
Two years later, the group rolled out its low-cost car rental brand for the general public INTER RENT in six "country subsidiaries" in Europe and in forty countries through a network of franchisees. INTER RENT offers a competitively priced service without compromising on service quality.
At the end of 2014, the group acquired a 70.6% stake in French startup UBEEQO , a specialist in corporate car-sharing, which is now a wholly-owned subsidiary of EUROPCAR LAB S.A.S.
At the Capital Market Day (CMD) in October 2016, a new organisation was announced with the creation of five Business Units (Cars, Low-Cost, Vans & Trucks, New Mobility, International Coverage). The Group released its outlook for 2020e and announced to the market a revenue target in excess of €3 billion, to be achieved through both organic and external growth. The Company also forecasted an Adjusted Corporate EBITDA margin of over 14% (excluding New Mobility) by 2020e.
One month later, on 25 November 2016, Ms CAROLINE PAROT was appointed Chief Executive Officer and new Chairman of the Group's Management Board.
In line with the strategy announced at the October 2016 CMD, the 2017 financial year was marked by several external growth transactions, in particular the acquisition of BUCHBINDER , the fifth largest German leasing company and a major player in the German and Austrian van & truck markets, as well as Goldcar, the European leader in low-cost vehicles with a strong position in the Mediterranean basin (particularly in Spain and Portugal).
Two months after the June 2019 CMD, which presented the new "SHIFT 2023" strategic plan based on new mobility and the search for profitable growth, the acquisition of FOX RENT A CAR , a player in low-cost car rentals in the United States, was announced.
On November 14, 2019, EURAZEO engaged JP MORGAN to withdraw from EUROPCAR MOBILITY GROUP and to study a total or partial sale of its 29.9% stake.
At 31 December 2019, the EUROPCAR MOBILITY GROUP had an average of 334,000 vehicles and generated revenue of more than €3.0 billion and Adjusted Corporate EBITDA of €278.3 million (excluding the application of IFRS 16), i.e. a margin of 9.2%.
We also recall that the Company announced on 17 September 2020 that it intends to open discussions with its creditors on a financial restructuring plan, thereby ending the process of selling the EURAZEO block of shares.
Presentation of the activities of EUROPCAR MOBILITY GROUP
Today, EUROPCAR MOBILITY GROUP is the European leader in vehicle rentals. The Group offers both leisure and business customers (large groups, intermediate enterprises, SMEs, etc.) short- and medium-term rentals of passenger cars and light commercial vehicles.
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In addition to its historical business as a car rental company, EUROPCAR MOBILITY GROUP has diversified its activities by offering mobility solutions: ride-hailing, car-sharing, electric scooter sharing, car rental between private individuals, car-pooling, research and comparison of means of transport.
At 31 December 2019, the Group was operating internationally in more than 140 countries with more than 3,500 rental agencies (including more than 1,900 directly operated) and more than 50 digital points for nearly 9.5 million customers. Leisure and Business customers accounted for 61% and 39% respectively of consolidated sales in 2019. Business is marked by a strong seasonality in the Leisure segment during weekends and school holidays (particularly during the summer season), and by a certain resilience in the Business segment throughout the year.
The group is the leader in Europe and number 4 internationally, thanks to its network of franchisees, partnerships and sales representation agreements. The agencies operated directly by the Group and the sites operated by its agents are located in 21 country subsidiaries.
Figure 34- Geographical presence of the Group
Source: Universal Registration Document 2019
In 2019, the Group will generate more than 85% of its revenue outside France.
On 31 October 2019, EUROPCAR MOBILITY GROUP acquired FOX RENT A CAR , in order to accelerate the growth of its Low-Cost BU internationally through a direct presence in the United States, the world's largest market. In the same year, the Group acquired its Finnish and Norwegian franchisees.
To distribute its offer, EUROPCAR MOBILITY GROUP uses various distribution channels to increase its visibility among the general public and attract new customers. The chart below shows the breakdown of bookings by distribution channel since 2016.
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Figure 5- Contribution of each distribution channel to vehicle reservations
100%
80% 38% 38% 38% 49%
60% 11% 10% 10% 14% 6% 40% 17% 16% 11%
20% 34% 36% 38% 35%
% of Distribution channel Distribution of % 0% 2016 2017 2018 2019 Websites group Rental agencies Call centers Internet indirect (SMD, partners, etc.) Sources: Universal Registration Document 2019, Reference Documents 2018, 2017 and 2016
Online bookings (the Group's direct websites and indirect internet) accounted for 84% of total bookings in 2019 compared with 72% in 2016, to the detriment of the contribution of rental agencies (from 17% in 2016 to 11% in 2019) and call centres (from 11% in 2016 to 6% in 2019).
Since 2016, EUROPCAR MOBILITY GROUP has adopted an organisation in five Business Units (Cars, Low-Cost, Vans & Trucks, New Mobility, and International Coverage), which we describe below for the purposes of the financial analysis that will be conducted in §5 and which is based on the historical organisation of the Group's activities. The new organisation into three service lines ("Leisure", "Business" and "Local"), announced on 28 July 2020 when the results for the first half of 2020 were published and reiterated on 26 October 2020 when the results for the third quarter of 2020 were published, will be presented in §5.1.4.1.
The original Cars business
The Cars Business Unit is the oldest division of the Group. It targets a "Leisure" (around 60%) rather than "Business" (around 40%) customer base, which is why seasonality is particularly marked. The two brands of this BU are:
• EUROPCAR , the Group's oldest brand; and
• The German company BUCHBINDER , acquired in September 2017.
The numerous commercial partnerships concluded with local players in India (ECO RENT A CAR ), China (SHOUQI CAR RENTAL ), Brazil and Russia also enable the Group to strengthen its international presence.
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Figure 6- Illustrations of the brands of the Cars Business Unit
Source: Companies, websites
At 31 December 2019, this BU had an average of more than 220,000 vehicles (approximately 70% of the Group's total fleet) worldwide with an average fleet holding period of less than one year thanks to the negotiation of "buy-back" contracts 16 with car manufacturers.
The Low-Cost business
The Low-Cost Business Unit offers a fleet of economical vehicles for competitively priced rentals as well as a wide range of additional services (Fast Pick Up, Key&Go, Easy Return, Smart Choice, etc.) adapted to the needs of "Leisure" customers. The three brands of this Business Unit are
• INTER RENT , deployed internally in 2013, is being repositioned as a mid-tier brand since the acquisition of GOLDCAR . The brand's strategy is based on simplifying the car rental process for an exemplary quality/price ratio and a complete digital experience while remaining focused on the "Leisure" customer base;
• GOLDCAR , acquired in December 2017, is the European leader in the low-cost rental market with a strong position in the Mediterranean basin (particularly in Spain and Portugal). GOLDCAR 's added value lies in its know-how in the management of an efficient low-cost operating model with historically strong organic growth, higher than that of the market (2008-2016 CAGR of +17.0%);
• FOX RENT A CAR , acquired in October 2019, is one of the largest independent players in the United States, with a low-cost positioning and more than 18,000 vehicles in some 20 company-owned stations and more than 100 franchised stations, mainly near airports. This acquisition is strategic as the United States is the world's largest market in terms of passenger flows.
16 Document d'Enregistrement Universel 2019: "The Group relies on buyback programs (in which vehicles are bought back by manufacturers or dealers under predefined conditions after a predetermined holding period) to limit the risk on the residual value of resale of vehicles, finance its fleet on the basis of a predetermined buyback price and have more flexibility in managing its fleet. ».
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Figure 7- Illustrations of the Low-Cost Business Unit brands
Source: Companies, websites
The implementation of cost 17 and revenue synergy programmes following these two acquisitions, combined with a leaner cost structure, enables the Low-Cost BU to be the Group's most profitable 18 BU in terms of Adjusted Corporate EBITDA (see §5.1.1).
At 31 December 2019, this BU had more than 60,000 vehicles (approximately 19% of the total fleet), notably through buy-back contracts.
The Vans & Trucks (V&T) business
The Vans & Trucks business aims to become the European leader in the commercial vehicle market by developing a network of branches dedicated to this market segment, restructuring the operational network, increasing revenue per rental day and improving average monthly costs per fleet unit. This BU focuses on "Business" customers (77% of customers at 31 December 2019) and in particular on SMEs with a local commercial approach and longer average lease terms than the rest of the customer base. The two brands of this division are:
• The historic EUROPCAR brand; and
• BUCHBINDER , acquired in September 2017.
Figure 8- Illustrations of the brands of the Vans & Trucks Business Unit
Source: Company, websites
At 31 December 2019, this BU had more than 40,000 vehicles (approximately 10% of the total fleet).
17 30 million of cost synergies per year run-rate until 2020 for GOLDCAR . 18 Although the inclusion of two months of FOX RENT A CAR 's business in the 2019 financial year is dilutive over this period.
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The New Mobility business
This BU develops and deploys new mobility solutions (car-sharing, ride-hailing, private hire vehicle, etc.) using digital platforms specially designed to meet the specific needs of customers.
The ride-sharing business' clientele consists mainly of "Leisure" customers (approximately 70%) and the various ride-sharing brands of EUROPCAR MOBILITY GROUP are:
• UBEEQO , a French technology company present in 8 European cities, which develops ride- sharing services for the general public and companies . In May 2019, following the closure of AUTOLIB IN July 2018 , UBEEQO becomes the leader in ride-sharing in Paris by winning 851 of the 1,213 parking spaces put out to tender by the city council . UBEEQO 's fleet offers more than 1,100 vehicles, 65% of which are rechargeable hybrids ( Toyota Prius, Kia Niro, Hyundai Ioniq ), 20% electric ( Renault Zoé, Nissan Leaf, Smart Fortwo EQ ) and 15% conventional thermal cars;
• E-CAR CLUB , the leading ride-sharing company, offering a fleet of fully electric vehicles in the UK, on a pay-per-use basis;
• BLUEMOVE , acquired by UBEEQO in 2016, is the technological leader in the Spanish ride- sharing market for private individuals and provides a fleet accessible 24/7 thanks to a dedicated application. The brand, established in 2011, enjoys a strong reputation in Spain, with around 47,000 registered customers, and is present in Madrid, Barcelona, Seville and Malaga, and Valencia.
The group’s only ride-hailing brand is the London company BRUNEL , acquired in September 2016 and leader in ride-hailing via a mobile app. BRUNEL mainly targets business customers.
BETTERCAR is the group's brand offering a range of services for drivers of Private Hire Vehicles 19 with average prices below those of the competition and two simple rental formulas (Discovery or Expert). The brand is present in France and the United Kingdom. The group's objective is to roll it out in Europe and then outside Europe.
Figure 9- Illustrations of the main brands of the New Mobility Business Unit
Source: Company, websites
The New Mobility BU is in the midst of a transition phase with the implementation of the Company's new " Connect " strategic plan, which we present below, and in which new mobility and digitalisation are the two main areas of development. In 2019, the fleet of this BU represented approximately 7,000 vehicles (approximately 2% of the total fleet).
19 It should be noted that BETTERCAR does not offer Private Hire Vehicles itself.
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The International Coverage business
To accelerate the international deployment of all the services provided by EUROPCAR MOBILITY GROUP , the Group relies on its network of franchisees, partners and sales representatives.
Franchisees operate approximately 1,600 rental agencies worldwide, including about 670 agencies in Europe and about 965 agencies in the rest of the world.
In addition, it should be noted for information purposes that the Adjusted Corporate EBITDA margin levels of the International Coverage BU are much higher than those observed at group level, since the franchisee royalties, representing a percentage of revenue, are almost equivalent to pure margin.
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4. Economic environment of EUROPCAR MOBILITY GROUP
Our analyses presented below are mainly based on our discussions with management, the XERFI study entitled “ La Location courte durée de véhicules et l’autopartage" ("Short-Term Vehicle Rental and Car Sharing") from January 2020 and October 2020, the EUROMONITOR INTERNATIONAL statistics for 2018, and the IBIS WORLD report "Car Rental Industry in the US " - Market Research Report July 2019.
EUROPCAR MOBILITY GROUP in the car rental market
Players in the Short-Term Rental (STR) market
Although several categories of players (traditional rental companies, ride-sharing specialists, supermarket chains, car manufacturers, etc.) are involved in the STR market, it remains relatively concentrated and dominated by the historical players.
The historical players rely on different distribution methods and in particular on:
• Branches that are wholly owned subsidiary of the parent company. SIXT SE has chosen to use primarily this model as part of its development strategy in France;
• Franchisees, which are independent and manage and finance their own business. They cover the investments concerning premises and vehicles. They have to pay an entry fee to access the network. The entry fee and the amount of revenue paid back to the company as royalties vary according to the location of the business. Large groups such as EUROPCAR MOBILITY GROUP , AVIS BUDGET GROUP or HERTZ often have a fleet of franchisees. ADA, for example, is almost exclusively composed of franchisees;
• Correspondents who rent for short periods as a side activity. They are remunerated on a commission basis and do not bear any investment costs for vehicles and premises. The French group, RENT A CAR , has several correspondents of this type.
The niche ride-sharing market is divided into two major segments: self-service car-sharing (CAR 2G O, COMMUNAUTO , etc.) and peer-to-peer rentals (OUI CAR , DRIVY , etc.). Traditional rental companies have positioned themselves more in self-service rentals, while the various forms of peer-to-peer rentals are still the preserve of start-ups. UBEEQO has been the forerunner in car- sharing for corporate fleets and the general public since 2008. DRIVY or OUICAR also offer car professionals (body repairers, dealers, garages, etc.) the possibility of renting their available vehicles on their platform (replacement, exhibition, second-hand vehicle awaiting sale) in order to make the most of under-utilised assets at a lower cost.
Certain supermarket chains (SYSTÈME U, CARREFOUR , E-LECLERC , INTERMARCHÉ , etc.) offer STR services as loss leaders and are mainly positioned in the commercial vehicle segment.
Several car manufacturers such as PSA, DAIMLER , or TOYOTA are present on the STR market, particularly in the car-sharing sector, allowing them to sell their stock, maximise their sales objectives, and improve the visibility of their new models. For example, PSA has opened a car- sharing platform for individuals, FREE 2M OVE , in September 2016.
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RENAULT launched its first car-sharing service, RENAULT MOBILITY , for businesses in October 2016, then for private individuals in January 2017. In June 2018, RENAULT signed a partnership agreement with IKEA to offer self-service rental of RENAULT vehicles at its sales outlets.
Figure 10- Summary presentation of the categories of players in the STR market
Source: Public data, XERFI study - Short term car rental and car-sharing, January 2020, Company
Two main market segments are to be differentiated:
• “Travel” rentals in continuation of a journey by plane or train, for a business or private trip;
• "Local" rentals which are more aimed at private individuals. Rental agencies are scattered throughout urban areas and often offer rates lower than those of "travel" rentals because of reduced services.
The weight of private hire has increased in recent years, as private owners own fewer and fewer personal vehicles, especially among young people.
Competitive environment
Three American companies (ENTERPRISE HOLDINGS , HERTZ and AVIS BUDGET GROUP ) are present on the European market. It should be noted that the European STR market is estimated at €15,1 billion 20 in 2018, and the American market is estimated at $45.0 billion 21 in 2019. These two markets are radically different in terms of size, business model, cost structure and margins.
The figure below shows the 2019 consolidated revenue of the main players in the French STR market.
20 Source: Statistics EUROMONITOR INTERNATIONAL 2018. Market CAGR 2015-2018 +2.0%. 21 Sources: IBIS WORLD , "Car Rental Industry in the US" - Market Research Report. July 2019. Market CAGR 2014-2019 +2.4%.
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Figure 11- 2019 consolidated revenue of the main players in the French STR market
25 000 22800
20 000
15 000 8735 10 000 8192 3306 3022
Revenues 2019 (M€) 2019 Revenues 5 000 152 35 0 Enterprise Hertz Avis Budget Sixt SE Europcar Rent A Car Ucar Holdings Group Mobility Group
Source: XERFI study, Companies
ENTERPRISE HOLDINGS significantly dominates the US market with a market share of over 44%, having a greater scale effect (€26 billion in revenue in 2019) than its competitors. EUROPCAR MOBILITY GROUP is present in the United States only since the acquisition of FOX RENT A CAR IN 2019, which is positioned in the Low-Cost segment. FOX RENT A CAR generated revenue of €280 million in 2018.
EUROPCAR MOBILITY GROUP is the leader in the STR market in Western Europe 22 with an estimated market share of 24% in 2018. The Group holds the number one position in several of the continent's main markets (France, Spain, Portugal, Belgium, etc.), and ranks second in the United Kingdom and Germany and third in Italy. Its main competitors in Western Europe are AVIS BUDGET GROUP with a 16% market share in 2018, HERTZ (13%), SIXT SE (11%) and ENTERPRISE HOLDINGS (8%).
Figure 12- 2018 market shares of the various players in Western Europe - EUROPCAR MOBILITY GROUP 's 2018 market shares* in Western Europe by country
40% 28% #1 #1 #2 24% #2 #1 #1 30% #1 #1 #3 20% #3 33% 33% 8% 30% 29% 29% #3 27% 26% 24% 10% 20% 16% 12% 11% 16% (%) marché de Parts 0% 13%
Europcar Mobility Group Avis Budget Group Hertz Sixt SE Enterprise Holdings Autres
Source: XERFI study, Statistics 2018 EUROMONITOR INTERNATIONAL , Companies * Franchisee revenue included.
The following figure shows the average annual growth between 2011 and 2019 (2011-2019 CAGR) for the major forces at work prior to the COVID-19 crisis.
22 Except Austria, Slovakia, Hungary and Turkey.
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Figure 13- Change in revenue of EUROPCAR MOBILITY GROUP 's main competitors (base 100 in 2011) before the COVID-19 crisis occurred
CAGR 2011-2019 : +9,8% 200 CAGR 2011-2019 : +8,0% CAGR 2011-2019 : +7,6%
CAGR 2011-2019 : +5,5% 150 CAGR 2011-2019 : +4,0%
100
CAGR 2011-2019 : -3,6%
50 2011 2012 2013 2014 2015 2016 2017 2018 2019 Europcar Mobility Group S.A. Hertz Global Holdings, Inc. Avis Budget Group, Inc. Enterprise Holdings Ucar Sixt SE
Sources: XERFI study, CAPITAL IQ
SIXT SE had the highest compound annual growth rate in revenue in the sample with an increase of +9.8% over the period under review, thanks in particular to the growth in revenue of the "Mobility Business Unit", as well as the growth of the German domestic market combined with continued international expansion, notably in the United States, Italy, France and Spain.
ENTERPRISE HOLDINGS , which is in second place (CAGR 2011-2019 +8.0%), has the world's largest fleet with 2 million vehicles (compared with an average of around 334,000 vehicles for EUROPCAR MOBILITY GROUP ).
Although EUROPCAR MOBILITY GROUP 's external growth strategy is dynamic, the Group is in the middle of the sample (CAGR 2011-2019 +5.5%).
The economic model
STR is a paid service whereby a rental company provides a vehicle for an occasional need. The duration of the rental must be less than one year otherwise the rental is considered to be long term.
The lessor grants the lessee the right to use a vehicle through a rental agreement and defines the general conditions, duration and cost of the rental. The STR is a very different activity from the Long-Term Rental (LTR) which is mainly used by companies as a means of financing and as an outsourcing service for their vehicle fleet. ALD AUTOMOTIVE , a subsidiary of SOCIÉTÉ GÉNÉRALE , ARVAL , a subsidiary of BNP PARIBAS , and LEASE PLAN are the three main players in LTC in France.
The market for pure STR players in France was estimated at around €2 billion 23 in 2018 (excluding supermarket chains).
23 Source: Interview Mr Jean-Philippe Doyen, President of the French subsidiary of SIXT SE - May 2018 (Pro.largus.fr). With 20 million rentals per year and 7.7 million tenants, the STR market is developing rapidly in France.
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It is from 2014 onwards that the STR is tending to establish itself as a real alternative to vehicle ownership. The transition from car rental to shared mobility operators is naturally made by the evolution of a vehicle's consumption patterns. The notion of ownership tends to be gradually replaced by that of use. Moreover, the rise in the cost of owning a vehicle (maintenance, insurance, etc.), the policies of certain municipalities aimed at reducing the space given to vehicles or the urbanisation of the population justify this structural transformation. Technological progress has enabled the very rapid development of new forms of STR (peer-to-peer rentals, car-sharing, self- service, etc.), in a context where households are constantly looking for time savings and low-cost services. However, traditional car rental companies have two competitive advantages that enable them to succeed in car-sharing, namely access to a fleet of recent and easily deployable vehicles, and control over the management of a fleet of vehicles (organisation, maintenance, etc.).
Contrary to the US market, the majority of European STR players opt for a "buy-back" model in which the car manufacturers undertake to take back the vehicles at a price and within a time frame fixed in advance. This buy-back model generally concerns a significant part of the fleet, with the residual part being acquired "at-risk", i.e., the lessor acquires the vehicles directly and resells them, at the end of their period of use, on the second-hand market, thus bearing a price risk. It should be noted that the second-hand vehicle market is historically tighter in Western Europe than in the United States, insofar as the residual values of certain vehicles can prove to be very low, particularly for European diesel vehicles, which are particularly affected by the Worldwide Harmonised Light Vehicles Test Procedure (WLTP 24 ). This is the reason why European rental companies have a more developed "buy-back" model than in the United States, which also enables car manufacturers to manage vehicle prices over a longer period.
Figure 14- Exposure of the fleet of EUROPCAR MOBILITY GROUP 's main competitors in 2019
100% 6% 22% 12% 80% 37% 60% 94% 40% 78% 88% 63% 20% 0% Avis Budget Group Hertz Sixt SE Europcar Mobility Group
Buy-Back At-risk
Source: Company Buy-back contracts offer greater visibility on vehicle prices and resale dates, with an average holding period for passenger vehicles of less than one year at EUROPCAR MOBILITY GROUP . At-risk vehicles may be held for longer periods if the resale conditions on the second-hand market are not favourable to rental companies.
24 "The world harmonized light-duty vehicles test procedure (WLTP) is a vehicle certification test standard that measures fuel consumption, electric range, CO2 and pollutant emissions. WLTP was developed by experts from the European Union, Japan and India under the auspices of the World Forum for Harmonisation of Vehicle Regulations of the United Nations Economic Commission for Europe. WLTP came into force in Europe in September 2017 for new models and in September 2018 for all new vehicles, replacing the New European Driving Cycle (NEDC), which dates back to 1973 and was updated in 1996.
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The situation and trends in the STR market
4.1.4.1 Market conditions
The STR market is particularly linked to air traffic. As a result, many rental agencies of traditional rental companies are located close to airports. Moreover, the stays of private individuals for personal reasons and the number of foreign tourists are to be seen through the lens of the macroeconomic and social climate, as well as more or less favourable weather conditions.
Figure 15- Air traffic of local and transit passengers, including overseas, in France
250000 214271 206443 197081 200000 180840 186392 169736 175288 159411 164185 150000
100000
In thousands of passengers thousands In 50000
0 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: XERFI study
In France, air traffic grew at a compound annual rate of 3.8% between 2011 and 2019, and at a compound annual rate of 6.5% at the European level between 2016 and 2018.
Thus, prior to the crisis linked to the COVID-19 pandemic, the STR market existed in a dynamic environment as global air traffic grew.
4.1.4.2 The decline in activity linked to the pandemic should affect the sector in the long term.
The STR sector was strongly affected by the health crisis linked to the COVID-19 pandemic, with revenue particularly hard hit by the lockdowns from March to April 2020, when the few agencies still open experienced a collapse of nearly 90% in the number of bookings. The number of bookings picked up again during the summer season as restrictions were eased, without however returning to the volumes of previous years (around 50% lower for most lessors). The effects of the health crisis are also being widely felt at the level of business travel and international tourism, which remain almost at a standstill. The return to a normal level of activity will depend in part on the evolution of the pandemic, which remains uncertain to date. Users’ new habits, such as the increased use of videoconferencing, could also have an impact on activity in the years to come. In any case, it is currently very difficult to predict when the activity of rental companies will return to pre-crisis levels, in a context where the second wave of the pandemic is once again limiting travel.
4.1.4.3 A sectoral trend towards cost cutting
Faced with the scale of the health crisis, the major players in the short-term rental sector have all deployed major cost-cutting plans. In particular, they have reduced the size of their vehicle fleets in order to adapt their offer to the decline in overall demand.
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4.1.4.4 Traditional rental companies rely on services
Traditional rental companies, faced with increased competition in the STR market, are enriching their service offering to differentiate themselves and adapt to their customers' changing expectations. As pressure on prices, particularly due to the growth of the Internet, becomes increasingly strong, a significant portion of the margin of traditional lessors comes from services purchased in-store (insurance, etc.).
For example, HERTZ GLOBAL HOLDINGS , INC . and AIR FRANCE have partnered to offer passengers a private chauffeured transfer service. This HERTZ DRIVE U offer, presented in November 2019, covers more than 300 airports in nearly 70 countries.
4.1.4.5 Digitisation and the customer journey
The emergence of start-ups offering fully digitised rental processes, particularly in car-sharing, has forced traditional rental companies to adapt to improve driver satisfaction and limit waiting times in agencies. In this respect, AVIS BUDGET GROUP has negotiated a partnership with FORD to deploy a fleet of 14,000 vehicles equipped with telematics units on the European market by the end of 2020, enabling customers to extend the rental period directly from the mobile application. For EUROPCAR MOBILITY GROUP , the "Click&Go" customer journey became a reality with the launch of a mobile application in 2019. The app allows customers to manage their reservations remotely if they wish and simplify their in-store experience. The Group has also deployed self-service kiosks for key distribution for its INTER RENT brand.
Although the digitalisation of the customer route is strategic, agencies are still essential for the delivery and parking of vehicles.
Investments undertaken by pure players to revisit the digital customer experience or to optimise fleet management will create value in the medium term.
4.1.4.6 Intensified competition with car manufacturers
The activity of short-term rental specialists is subject to competition from non-specialist players such as supermarkets, car dealers and car repairers. Despite the current crisis, car manufacturers have continued to broaden their offering with, for example, the announcement by South Korea's KIA in September 2020 of its intention to position itself on the French market with the deployment of its new STR service "KIA MOBILITY ". The car manufacturer FIAT CHRYSLER AUTOMOBILES also affirmed its interest in the sector with the presentation of its car-sharing platform, UG O by LEASYS , in June 2020.
In addition, RENAULT and VOLKSWAGEN had also announced earlier in the year the deployment of their respective car-sharing services in Paris, RENAULT ZILTY and WESHARE .
Car manufacturers have thus taken notice of the stakes involved in this sector, which offers them a commercial showcase likely to win over new customers, all while increasing the number of registrations.
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5. Financial analysis of EUROPCAR MOBILITY GROUP
The consolidated financial statements summarised below for the years 2015 to 2019 have been certified without reservation by PRICEWATERHOUSE COOPERS AUDIT and MAZARS , statutory auditors of EUROPCAR MOBILITY GROUP .
Observation on going concern
The interim financial statements at 30 June 2019 and 2020 have been subject to a limited review by the statutory auditors. In their report on the interim financial information at 30 June 2020, the Statutory Auditors draw the reader's attention to the note to the financial statements that sets out the impacts of the COVID-19 health crisis and in particular the paragraph on the Group's going concern and liquidity management.
Presentation of the Company's historical results (2015 - 2019)
Profit & loss statement
Changes in the EUROPCAR MOBILITY GROUP income statement before application of IFRS 16 25 are summarised below:
25 We present the income statement before application of IFRS 16 in order to assess the margin levels externalized in the management's business plan, established before application of this standard.
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Table 23- Consolidated summary profit & loss statement
Historical results At 12/31 - In €M 2015R 2016R 2017R 2018R 2019R* H1 2019R* H1 2020R*
Total revenues 2 141,9 2 150,8 2 411,7 2 929,3 3 022,4 1 306,5 814,8 Growth % n/a 0,4% 12,1% 21,5% 3,2% n/a -37,6% Fleet holding costs** (491,9) (488,8) (558,1) (707,8) (753,8) (338,8) (335,1) Operating costs*** (727,0) (753,3) (841,9) (990,3) (1 044,8) (461,8) (334,4) Margin After Variable Costs (MAVC) 923,0 908,7 1 011,7 1 231,1 1 223,8 505,9 145,3 % of revenues 43,1% 42,2% 41,9% 42,0% 40,5% 38,7% 17,8% Personnel costs (347,4) (339,2) (404,7) (500,3) (522,3) (264,6) (204,7) Netw ork and headquarters overhead costs (218,5) (215,9) (250,0) (294,3) (315,0) (157,0) (145,3) Other income 14,2 9,7 14,2 11,8 12,0 4,1 0,7 Net fleet financing expenses (65,5) (62,0) (59,9) (65,8) (67,9) (31,7) (38,3) Estimated interest included in operating leases (55,3) (47,5) (47,3) (55,2) (52,4) (25,2) (19,2) Adjusted Corporate EBITDA 250,5 253,8 264,0 327,3 278,3 31,5 (261,4) % of revenues 11,7% 11,8% 10,9% 11,2% 9,2% 2,4% -32,1%
Depreciation, amortization and impairment expense (32,8) (32,3) (29,9) (44,4) (48,0) (22,2) (27,4) Other non-recurring expenses and income (61,8) (20,7) (70,7) 20,4 (58,2) (26,0) (20,4) Other financial income/expense not related to the fleet (162,1) (59,1) (80,7) (110,6) (101,2) (66,2) (50,4) Profit (loss) before tax (6,2) 141,7 82,7 192,7 70,8 (82,9) (359,6) % of revenues -0,3% 6,6% 3,4% 6,6% 2,3% -6,3% -44,1% Income tax benefit (expense) (37,6) (6,6) (13,4) (52,0) (32,9) 20,6 76,3 Implicit rate 606,5% -4,7% -16,2% -27,0% -46,4% -24,8% -21,2% Share of net profit (loss) in companies accounted for under the equity method (12,1) (15,8) (8,1) (1,3) -- (0,1) -- Net profit (loss) (55,9) 119,3 61,2 139,4 38,0 (62,4) (283,3) % of revenues -2,6% 5,5% 2,5% 4,8% 1,3% -4,8% -34,8% Sources: 2019 Universal Registration Document, 2018, 2017, 2016 and 2015 Registration Documents, H1 2020 and H1 2019 interim financial statements and FINEXSI analyses. * Before application of IFRS 16. ** Excluding estimated interest included in operating leases included in Adjusted Corporate EBITDA. *** In addition to the costs related to the rental and revenue from the ordinary activities of the vehicle fleet.
Revenue:
Since EUROPCAR MOBILITY GROUP was floated on the stock exchange in 2015, revenue has increased by 9.0% annually on average 26 thanks to growth in the activity of all the Company's Business Units. The increase in revenue should be viewed in particular in the light of the change in the average fleet over the period, as presented below.
26 For information, organic growth averaged +3.0% over the same period.
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Figure 16- Change in revenue and average fleet 27 size between 2015 and 2019
328 4 000 316 350
3 500 300 249 3 000 +3,2% 205 214 250 2 500 +21,5% +12,1% 200 2 000 +0,4% 150 1 500 2 929 3 022 2 412 100 1 000 2 142 2 151 500 50 - - 2015 2016 2017 2018 2019
Revenues (in M€) - left-hand scale Average fleet size (in thousands) - right-hand scale
Sources: Universal Registration Document 2019, Reference Documents 2015 to 2018
The average size of the fleet increased by 60% over the period, while revenue grew by 41%. The widening gap between fleet growth and revenue growth is due to the growth of the Low-Cost BU (from €81 million in revenue in 2016 to €411 million in 2019 as described below) with lower revenue per day 28 . The controlled management of the fleet, which benefits in particular from buy-back programmes for the majority of vehicles, enables the size of the fleet to be adjusted to demand. The fleet utilisation rate remains stable at around 76% between 2015 and 2019.
In addition, the contribution of the Cars BU to the group's total revenue gradually declined from 84.1% in 2016 to 71.4% in 2019, in line with the growth of the Vans & Trucks (contribution rising from 9.8% in 2016 to 12.1% in 2019) and Low-Cost (contribution rising from 3.8% in 2016 to 13.6% in 2019) BUs following the acquisitions of BUCHBINDER and GOLDCAR , which specialise in Vans & Trucks and Low-Cost.
Figure 17- Contribution of each Business Unit to total revenue since 2016
100% 9,8% 11,1% 11,8% 12,1% 3,8% 5,4% 80% 13,3% 13,6% 60%
40% 84,1% 80,4% 72,4% 71,4% 20% total revenues total
0%
Contribution of each BU to BU each of Contribution 2016 2017 2018 2019* Cars Low Cost Vans & Trucks Urban Mobility International Coverage (ICOV)
Sources: Universal Registration Document 2019, Reference Documents 2018, 2017 and 2016
* The Low-Cost BU's revenue increased by 5.8% in 2019, notably due to the acquisition of FOX RENT A CAR at the end of October 2019 (impact on 2019 of €37.0 million).
27 The average rental fleet corresponds to the number of vehicles in the fleet during the period, multiplied by the number of days in the period during which the fleet is in service, divided by the total number of days in the same period. At 31 December 2019, the fleet (excluding Urban Mobility) comprised 328,016 vehicles. 28 Acronym: RPD.
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Change in the revenue of the Cars Business Unit
Figure 18- Change in the revenue of the Cars BU
2500 +1,7% 2000 +9,4% +7,2% 1500 2122 2157 1000 1809 1939 500
0 2016 2017 2018 2019 Cars revenues (in M€) Sources: Universal Registration Document 2019, Reference Documents 2018, 2017 and 2016
The Cars BU's sales increased by an average of 6.1% 29 per year between 2016 and 2019, from €1,809 million to €2,157 million. The slowdown in growth in 2019 (+1.7%) should be seen in the context of the global economic slowdown and the uncertainties related to Brexit, in addition to increased pricing pressure.
Change in the revenue of the Low-Cost Business Unit
Figure 19- Change in the revenue of the Low-Cost BU
400 +5,8% 300
200 388 411 +197,9% 100 +61,2% 131 81 - 2016 2017 2018 2019 Low-Cost revenues (in M€)
Sources: Universal Registration Document 2019, Reference Documents 2018, 2017 and 2016
The Low-Cost BU recorded compound annual growth of 71.8% between 2016 and 2019. This sharp increase in revenue was due in particular to the integration of GOLDCAR IN 2018, with revenue of more than €250 million.
The BU's sales amounted to €411 million in 2019, up 5.8% compared with 2018, due in particular to the integration of two months of business from FOX RENT A CAR , acquired at the end of October 2019 (€37 million impact over two months). Excluding the integration of FOX RENT A CAR , organic revenue declined 4.0% in 2019 due to a particularly difficult competitive environment in Spain.
29 Average Annual Growth Rate (AAGR) between 2016 and 2019.
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Change in the revenue of the Vans & Trucks Business Unit
Figure 20- Change the revenue of the Vans & Trucks BU
400 +6,2%
300 +28,8% +26,7% 200 344 366 267 100 211
0 2016 2017 2018 2019
V&T revenues (in M€)
Sources: Universal Registration Document 2019, Reference Documents 2018, 2017 and 2016
The Vans & Trucks BU's sales grew at a compound annual rate 20.1% per year between 2016 and 2019, from €211 million to €366 million. The integration of Buchbinder 's Vans & Trucks business IN 2018 explains the strong growth of +28.8% that year. The Group recorded more moderate growth of +6.2% in 2019, with an increase in sales in most of the countries in which it operates.
Change in the revenue of the New Mobility Business Unit
Figure 21- Change in the revenue of the New Mobility BU
50
40 +36,8% 30 +44,1% 49 20 36 25 10 5 +394,0% 0 2016 2017 2018 2019 New Mobility revenues (in €M)
Sources: Universal Registration Document 2019, Reference Documents 2018, 2017 and 2016
Revenue of the New Mobility BU increased strongly, at a compound annual rate 113.6% between 2016 and 2019, with a significant base effect, rising from €5 million in 2016 to €49 million in 2019. Growth was sustained in all three segments, with the main car-sharing business recording the strongest growth in the BU's sales in 2019 (over +50%).
UBEEQO is already profitable in two out of eight cities and is developing a franchise model.
BRUNEL , based in the United Kingdom, suffered from the depressed business-to-business environment related to Brexit, but still recorded double-digit growth in revenue compared with 2018 (+19.8%).
The PHV business enjoyed strong momentum in 2019, with around 2,000 vehicles on lease in the United Kingdom and France, confirming significant growth potential in both Europe and the United States for the coming years.
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Change in the revenue of the International Coverage Business Unit
Figure 22- Change in the revenue of the International Coverage BU
50 -21,4% 40 +12,2% +0,1% 30 51 45 20 40 40
10
0 2016 2017 2018 2019
International Coverage revenues (in M€)
Source: Reference documents 2018, 2017 and 2016.
The International Coverage BU's revenue fell at a compound rate of -4.1% per year between 2016 and 2019, from €45 million to €40 million.
The 21.4% decline in revenue in 2018 is explained by the recognition, as from that year, of royalties paid by franchisees of country subsidiaries directly to the Cars and Vans & Trucks BUs. On a like- for-like basis, royalties increased by 5.4% in 2018, mainly due to the increase in revenue generated by franchisees, while the number of franchisees remained broadly stable.
Adjusted Corporate EBITDA margin:
Given the debt structure of players in the Short-Term Leasing (STL) market, they report Adjusted Corporate EBITDA, which corresponds to current operating income before depreciation and amortisation not related to the vehicle fleet, and after deducting depreciation and the interest expenses related to the debt used to finance the fleet.
Figure 23- Change in Adjusted Corporate EBITDA (in €M) and margin (in %) since 2015 500 14 % 11,7% 11,8% 10,9% 11,2% 12 % 400 327 9,2% 10 % 280 300 264 278 251 254 247 8 % 199 207 191 6 % 200
4 % 100 60 55 56 47 32 2 %
- 0 % 2015 2016 2017 2018 2019
Annual First Semester Second Semester Annual Margin
Source: Universal Registration Document 2019, reference documents from 2015 to 2018, half-yearly financial reports from H1 2015 to 2020, and press releases from Q3 2015 to 2020.
The Adjusted Corporate EBITDA margin rate evolved between 9.2% and 11.8% over the period 2015 - 2019. It includes the following main elements
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• Fleet ownership costs 30 , which, expressed as a proportion of revenue, increased between 2015 (23.0%) and 2019 (24.9%), it being specified that these represent 42% of the variable cost base at 31 December 2019. On the other hand, operating costs increased by 70 basis points between 2015 and 2019 (from 33.9% of revenue in 2015 to 34.6% in 2019);
• Personnel costs, which have risen by more than one point since 2015 (from 16.2% of sales in 2015 to 17.3% in 2019) due in particular to the acquisitions of BUCHBINDER and GOLDCAR ;
• The network's overheads, which include rental and parking costs, rental charges inherent in the operation of branches and uniform costs, have remained stable overall since 2015, fluctuating between 10.0% and 10.4% of revenue;
• The financial expenses relating to the financing of the fleet as well as the estimated interest relating to operating leases, which in 2019 are at a level equivalent to that of 2015.
The full-year integration of BUCHBINDER and GOLDCAR , which have higher margins than the Group, explains the 24.0% growth in value of Adjusted Corporate EBITDA in 2018.
In 2019, the Adjusted Corporate EBITDA margin was down 2 points (to 9.2% of sales before application of IFRS 16) compared with 2018, mainly due to the increased economic uncertainties related to the situation around Brexit 31 , in addition to strong pressure on prices. This situation led the Company to issue a profit warning 32 when publishing its third quarter 2019 results.
30 Fleet ownership costs include depreciation expenses relating to vehicles acquired under buyback contracts or relating to vehicles at risk, costs relating to vehicle leases, costs relating to the purchase and sale of vehicles and vehicle taxes. 31 We would point out that activities in the United Kingdom and Ireland have suffered particularly badly as a result. 32 On 23 October 2019.
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Presentation of the Company's historical balance sheet
Table 45- Summary consolidated balance sheet
Historical Balance Sheet At 12/31 - In €M 2015R 2016R 2017R 2018R 2019R* H1 2019R* H1 2020R* Intangible assets 1 170,2 1 174,7 1 997,1 2 015,9 2 187,3 2 029,3 2 189,3 Goodwill 457,1 459,5 1 031,7 1 029,8 1 162,3 1 029,7 1 158,7 Others 713,1 715,2 965,4 986,0 1 025,0 999,7 1 030,6 Property, plant and equipment 89,2 84,1 114,9 159,2 518,3 511,8 470,9 Financial assets 116,6 158,9 95,6 79,5 88,7 114,3 82,1 Inventory 15,1 16,8 24,3 26,5 29,6 32,6 25,5 Rental fleet recorded on the balance sheet 1 664,9 1 640,3 2 339,3 2 434,4 3 210,1 3 447,1 2 518,8 Rental fleet and related receivables 574,7 720,6 700,1 753,4 966,4 831,4 611,4 Trade and other receivables 357,2 365,2 456,7 481,3 487,6 513,2 387,5 Others** 89,2 94,3 103,0 95,8 153,9 150,5 251,4 Cash and cash equivalents restricted cash 243,4 259,8 345,6 448,6 643,5 430,6 489,2 Total Assets 4 320,6 4 514,8 6 176,7 6 494,6 8 285,5 8 060,8 7 026,2 Equity attributable to the owners of the Group 561,4 630,5 836,5 889,2 836,5 707,9 536,0 Non-controlling interests 1,0 0,7 0,8 0,7 0,6 0,7 0,6 Financial liabilities 2 065,0 2 177,7 3 520,4 3 747,2 4 806,7 4 202,1 4 332,4 Current and non-current liabilities related to leases ------484,6 510,7 399,5 Non-current employee benefit liabilities 119,3 139,9 134,0 142,4 161,9 158,3 160,9 Deferred tax liabilities 131,1 107,8 169,0 173,8 213,8 166,2 213,3 Current tax liabilities 24,5 39,2 31,6 23,0 46,5 54,8 67,5 Others*** 330,6 299,1 275,3 287,6 292,8 305,5 283,8 Rental fleet related payables 662,7 679,7 604,2 644,2 813,1 1 265,8 487,6 Trade payables and other liabilities 425,0 440,1 604,9 586,6 628,9 688,9 544,6
Total Liabilities 4 320,6 4 514,8 6 176,7 6 494,6 8 285,5 8 060,8 7 026,2
Total net debt (including rental fleet) 3 056,0 3 265,0 4 888,0 5 125,0 4 239,0 3 871,0 3 874,0 Net Corporate debt recognized on statement of financial position 235,0 220,0 827,0 795,0 880,0 937,0 1 251,0 Fleet net debt on balance sheet 1 498,0 1 584,0 2 287,0 2 447,0 3 227,0 2 780,0 2 539,0 Fleet-related rental debt ------132,0 154,0 84,0 Estimated value of operating leases outstanding 1 323,0 1 461,0 1 774,0 1 883,0 ------Source: Universal Registration Document 2019, registration documents from 2015 to 2018, half-yearly financial reports for H1 2019 and 2020, FINEXSI analyses. * After application of IFRS 16. The opening amounts have been restated as of 31 December 2019 and no longer correspond to the data in the 2019 financial statements since adjustments were made to the valuation of the 2019 acquisitions in the 2020 financial year. ** Including deferred tax assets and current tax assets. *** Including non-current financial instruments, current and non-current provisions, other non-current liabilities and employee benefits.
Fixed assets:
Intangible assets (€2,185.8 million at 31 December 2019) comprise purchased goodwill and other items mainly corresponding to brands and licences, contractual relationships with customers and capitalised development projects, whose balance sheet value complies with accounting rules (see §6.1.1).
Property, plant and equipment is relatively low (€171.5 million at 31 December 2019 before application of IFRS 16). The increase in this item at 31 December 2019 (+€359 million) is due to the application of IFRS 16, which aims to recognise rights of use relating to lease contracts as assets and to recognise a rental liability corresponding to the present value of the remaining rental payments over the term of the contract.
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Working Capital Requirement (WCR):
A distinction must be made between WCR linked to the vehicle fleet and WCR that is not linked to the vehicle fleet.
WCR linked to the vehicle fleet
At 31 December 2019, the change in working capital requirement relating to the vehicle fleet was €(28) million, compared with €(51) million a year earlier, it being specified that the two largest months of fleet sales are in October and November, which explains the peak in working capital requirement to be financed in the fourth quarter.
The working capital requirement related to the fleet of vehicles should be compared with the fleet owned. The nature of the fleet's ownership, i.e., "at risk" or with buy-back contracts, is not likely to have a material impact on the level of working capital requirement related to the fleet insofar as it is entirely financed by the financing lines provided for this purpose. The fleet WCR is therefore in this case also financed by debt.
WCR not linked to the vehicle fleet
EUROPCAR MOBILITY GROUP 's business is highly seasonal, with a significant increase in activity during the summer period (from June to September), particularly in the "Leisure" segment of the Cars and Low-Cost BUs, which is characterised by higher demand during the summer and school holidays and at weekends. As an example, the Company generated 72% of its annual Adjusted Corporate EBITDA (excluding mobility and 2019 acquisitions) during the third quarter of the 2019 financial year.
Conversely, demand from the business segment is relatively stable during the year, with a slight decrease during the summer months and a concentration of rental periods on midweek (Tuesday to Thursday).
WCR not related to the vehicle fleet is mainly concentrated in the operating entities in the main European countries, with a low point in the summer related to the slight increase in supplier debts. At 31 December 2019, the change in working capital not related to the vehicle fleet was €10 million, compared with a decrease of €16 million a year earlier. This favourable change was due in particular to the cash collection efforts made by the Company during the second half of 2019 and to the factoring programme signed in December enabling the financing of €21 million in trade receivables.
As a result of the COVID-19 crisis, an increase in customer and supplier payment times was observed in the second quarter of 2020.
Financial structure:
EUROPCAR MOBILITY GROUP 's debt consists of debt dedicated to financing the fleet and so-called corporate debt used mainly to finance the external growth transactions carried out in recent years, its current activity and part of the requirements relating to the fleet of vehicles reclassified as fleet debt.
Several credit facilities are available for the fleet as indicated below, including for example the Senior Asset Revolving Facility (SARF), FCT Junior Bonds, EC Finance and operating leases.
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Figure 24- Change in net fleet debt (€ millions) since 2015
Historical net fleet debt At 12/31 - In €M 2015R 2016R 2017R 2018R 2019R H1 2020R Secured Senior Notes 350,0 350,0 350,0 500,0 500,0 500,0 Senior Asset Revolving Facility/FCT Senior Notes 658,0 693,0 739,0 557,0 1 134,0 589,0 FCT Junior Notes 142,0 200,0 260,0 252,0 253,0 307,0 Fleet financing facilities 509,0 491,0 1 081,0 1 265,0 1 575,0 1 222,0 Gross financial fleet debt recognized on statement of financial position 1 659,0 1 734,0 2 430,0 2 574,0 3 462,0 2 618,0 Short-term fleet investments (161,0) (150,0) (143,0) (127,0) (235,0) (79,0) Fleet net debt on balance sheet 1 498,0 1 584,0 2 287,0 2 447,0 3 227,0 2 539,0 Fleet-related rental debt ------132,0 84,0 Vehicles financed through operating leases* 1 323,0 1 461,0 1 774,0 1 883,0 -- -- Total net fleet debt** 2 821,0 3 045,0 4 061,0 4 330,0 3 359,0 2 623,0 Source: Universal Registration Document 2019, reference documents from 2015 to 2018, H1 2020 half-year financial reports, FINEXSI analyses. * Estimated value of outstanding amounts related to vehicles financed through operating leases (off-balance sheet commitments). ** Including leased fleet or off-balance sheet commitments related to the fleet
At 31 December 2019, gross debt amounted to €3,462 million, for a net debt relating to the fleet of 33 €3,359 million compared with €4,330 million 34 a year earlier. At 30 June 2020, gross debt amounted to €2,618 million, it being specified that approximately €1.1 billion 35 has not yet been drawn down in respect of the SARF.
Net corporate debt, which is detailed in section 55.1.3.1 , increased by 10.7% year-on-year to €880 million (see Table 4), while Adjusted Corporate EBITDA decreased by 15.0% (before application of IFRS 16) over the same period. Financial leverage 36 stood at 3.2x before application of IFRS 16 at 31 December 2019 (compared with 2.4x in 2018).
We remind you that the bank covenants tested at December 31, 2019 have been complied with.
Impact of the economic crisis on the year 2020
First half of 2020
The impact of the economic crisis linked to the COVID-19 pandemic began to strongly materialise on the travel and leisure market environment as soon as the first lockdown measures announced from March 2020 were implemented in France and several other European countries. The level of activity reached a historically low level in April. The months of May and June saw an extremely slow recovery in activity due to travel restrictions in most countries, the gradual reopening of borders and the still extremely low level of international air traffic.
Revenue for the first half of 2020 amounted to €815 million, down 38% on a reported basis and down 43% on a pro forma basis 37 compared with the first half of 2019. This decline was particularly marked in the second quarter (-69%), particularly for the Cars and Low-Cost BUs , reflecting the full impact of the lockdown measures.
33 Including rights to use the vehicle fleet in application of IFRS 16. 34 It should be noted that the €4,330 million in 2018 includes the fleet's off-balance sheet commitments in respect of vehicles financed by operating leases, while the €3,359 million in 2019 includes future lease payments in application of IFRS 16, which limits the comparability of two financial years. 35 The maximum amount of senior bonds that can be issued by the FCT issuer is €1.7 billion (SARF). On the balance sheet at 30 June 2020, €589 million has been drawn down. The remaining amount (approximately €1,111 million) that can be drawn down is reserved solely for financing the acquisition and maintenance of the vehicle fleet in France, Italy, Germany, Spain and through other companies. 36 Corresponding to the ratio of Net corporate debt to Adjusted Corporate EBITDA. 37 On a pro forma basis of the acquisitions of Fox and the franchisees in Finland and Norway.
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Adjusted Corporate EBITDA was €(261) million in the first half of 2020 before application of IFRS 16 (compared with €32 million in the first half of 2019), with a more pronounced loss in the second quarter. This result takes into account the implementation, as of March 2020, of a cost adaptation plan, which generated savings of around €370 million over the period (€280 million due to all the measures and initiatives launched to reduce the fleet and €90 million in fixed and semi-fixed costs through network and head office costs).
Third quarter 2020
As anticipated, the Company was impacted by travel restrictions in the Leisure and Business rental segments, with revenue down 47% compared with the third quarter of 2019 to €537 million.
38 Intensified cost adaptation measures in response to the current economic environment enabled the Company to generate positive Adjusted Corporate EBITDA (before application of IFRS 16) of €26 million, compared with €218 million a year ago, representing a negative €235 million for the first nine months of the year compared with a positive €249 million a year earlier.
Figure 25- Evolution of Adjusted Corporate EBITDA for the first half and third quarter of each year since 2015
288 242 249 250 214 214 217 218 154 159 161 150 60 55 56 47 32 50 26
( 50)
( 150)
( 250) -235 -261 ( 350) 2015 2016 2017 2018 2019 2020
First semester Third quarter Cumulative first nine months
Source: Universal Registration Document 2019, reference documents from 2015 to 2018, H1 2020 half-yearly financial reports, and Q3 2015 to 2020 press releases
38 This amounts to €736 million for the first nine months of 2020, of which approximately €363 million in the third quarter of 2020 compared with the cost base of €3 billion projected before the COVID-19 pandemic.
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5.1.3.1 Change in the Group's net corporate debt
Figure 26- Change in net corporate debt since 2015
In €M 31/12/2015 31/12/2016 31/12/2017 31/12/2018 31/12/2019 30/06/2020 30/09/2020 Debt rate Maturity High Yield Senior Notes 600 5,125% 2021 High Yield Senior Notes 475 600 600 5,75% 2022
High Yield Senior Notes 600 600 600 600 600 4,125% 2024
High Yield Senior Notes 450 450 450 4,00% 2026
French PGE: 1 year w ith State guaranteed Loans (French and Spanish 281 285 option to extend up to 5 governments and US PPP) years (May 2026) Spanish PGE: 3 years
EURIBOR + margin of : 225bp if Corporate Senior Revolving Facility 81 13 160 230 518 632 633 2023 Leverage Ratio (R) < 2x 250bp if R > 2x
Crédit Suisse Facility 50 50 2020
FCT Junior Notes, accrued interest not yet due, (150) (203) (270) (257) (227) (311) (247) capitalized financing costs and other
Gross Corporate debt 406 410 1 090 1 173 1 341 1 703 1 771 Short-term Investments and Cash in operating (171) (189) (263) (377) (461) (452) (449) and holding entities Corporate net debt 235 220 827 796 880 1 251 1 322
Sources: Universal Registration Document 2019, reference documents from 2015 to 2018, H1 2020 half-yearly financial reports, press releases from 2015 to 2020, FINEXSI analyses
Since 2016, the Group's net corporate debt has continued to increase. From a level of €220 million at 31 December 2016, it increased significantly to €827 million at 31 December 2017. This increase is due in particular to the subscription of a second senior corporate bond issue for €600 million maturing in 2024 to finance the acquisitions of GOLDCAR and BUCHBINDER .
On 27 December 2019, the Group also entered into a €50 million loan agreement with CRÉDIT SUISSE INTERNATIONAL , this loan being backed by a CDS (Credit Default Swap).
Net corporate debt then remained relatively stable, before increasing significantly at the end of the first half of 2020 to €1,251 million (before application of IFRS 16). This was due to the implementation in May 2020 of a financing plan designed not only to secure the Group's liquidity to deal with the COVID-19 crisis, but also to meet the anticipated financing needs of its fleet and the Group's requirements for a rapid restart of its activities. In this context, the Company has taken out the following new financing arrangements:
• A €220 million loan with the Company's main French and international banks, backed by a 90% guarantee from the French State via BPIFRANCE . This new financing, with an initial term of one year with an option to extend it to 5 years, is conditional on the non-distribution of dividends in 2020 and 2021 or a corporate debt leverage of less than 3x;
• New financing lines for the Company's Spanish subsidiaries totalling €101 million, with a 70% backing by the Spanish State (hereafter, taken together with the loan guaranteed by the French State, the " SBLs " [State-backed Loans] for a total amount of €321 million at 30 June 2020, of which €274 million is considered Corporate and €47 million is for fleet financing). These new financing lines have a 3-year term and will finance both the fleet and the current needs of the Group's subsidiaries in Spain;
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• An additional RCF tranche of €20 million (to increase this financing line from €650 million to €670 million) set up by French banks with the guarantee of EURAZEO through a risk underwriting, being specified that EURAZEO is no longer guarantor as of guarantee today. 633 million is drawn down on the balance sheet as indicated in section 66.4.2 39 ;
• A $9.5 million "Paycheck Protection Program" in the United States, set up by the US government to support the employment of FOX RENT A CAR employees. This financing matures in May 2022 with a 5-year extension option. At 30 June 2020, the Group recognised an amount of $1.9 million in accrued income corresponding to eligible personnel costs incurred by the US entities.
At 30 September 2020, Net corporate debt continued to rise to €1Group's strict cost control policy.
The existing bond issues at that date are composed of:
• Unsecured subordinated bonds at a rate of 4.125%, maturing in 2024. The €600 million Senior Bonds were issued on 2 November 2017;
• Unsecured subordinated bonds at a rate of 4%, maturing in 2026. These €450 million Senior Bonds were issued on 24 April 2019 .
As regards the Senior Revolving Credit Facility (RCF), it was almost fully drawn down at 30 September 2020, i.e. €633 million out of the €670 million available.
The Company's level of net corporate debt at the end of September 2020 increased sharply compared with December 2019 (+€442 million) as a result of the COVID-19 crisis, which had a significant impact on the business. The level of net corporate debt now appears to be too high in relation to the Company's financial capacity (insufficient cash generation) and unsustainable in the long term.
5.1.3.2 Change in bond prices
The bonds are listed on the Luxembourg markets under ISIN codes XS1706202758 for the 2024 issue and XS1983376176 for the 2026 issue.
The change in the price of the 2024 bond issue is presented below.
39 The RCF will be refinanced in its entirety as part of the Transaction and is fully guaranteed and underwritten by creditors.
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Figure 27- Change in the price of the 2024 bond issue between 25 October 2017 and 1 December 2020
120% Announcement of the first lockdown 100% Release of H1 results 80% 63% 60%
40%
The Company announces 20% its willingness to discuss with creditors
0% Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20
Source: CAPITAL IQ
Between October 2017, when it was issued, and January 2020, the price of the 2024 issue remained relatively stable at a level close to its nominal value (between 94% and 105%).
The price fell sharply from mid-February 2020, when the COVID-19 crisis began to impact the financial markets (the price reached a low point on 1 October 2020 at 39% of its nominal value). This development illustrates the market's serious doubts about EUROPCAR MOBILITY GROUP 's ability to meet its future obligations.
After a gradual increase between April and July 2020, the share price fell sharply again at the end of July 2020 (-37% between 27 July 2020 and 30 July 2020) following the publication by the Company on 28 July 2020 of its results for the first half of 2020.
Between 15 February 2020 and 25 November 2020 (the day before the Restructuring was announced), the 2024 issue was quoted on average at 59% of its nominal value (with a low point on 1 October 2020 when it was quoted at 39% of its nominal value). Over a period of one month prior to the announcement of the terms and conditions of the Restructuring (26 November 2020), the 2024 issue was quoted on average at 52% of its nominal value.
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The 2026 issue of April 2019 has generally followed the same trend as the 2024 issue.
Figure 28- Change in the price of the 2026 bond issue between 25 April 2019 and 1 December 2020 120% Announcement of the first lockdown 100% Release of H1 results
80% 65% 60%
40%
The Company announces 20% its willingness to discuss with creditors
0% Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20
Source: CAPITAL IQ
Over the period between 15 February 2020 and 25 November 2020, the 2026 issue was quoted on average at 58% of its nominal value, and at 52% of its nominal value in the month preceding the announcement of the terms and conditions of the Restructuring.
The change in the price of the 2024 and 2026 bond issues since February 2020 reflects the market's clear concern about EUROPCAR MOBILITY GROUP 's ability to repay its debt, which is consequently heavily discounted.
We remind you that the Company would not pay the €22 million in interest on these corporate bonds, as set out above in the terms and conditions of the Restructuring.
5.1.3.3 Changes in bond debt ratings since the beginning of 2020
EUROPCAR MOBILITY GROUP 'S debt is monitored by STANDARD & POOR 'S and MOODY 'S.
At the beginning of 2020, EUROPCAR MOBILITY GROUP 'S debt was rated B1 by MOODY 'S and BB- by STANDARD & POOR 'S. It then suffered successive downgrades by each of the agencies, reflecting an increase in the Company's default risk. These downgrades are notably justified by:
• The rapid spread of the COVID-19 pandemic, which has had a major impact on the Company's business, particularly by putting strong pressure on its revenue and solvency levels;
• EUROPCAR MOBILITY GROUP 's low liquidity profile, given that the Company consumed more than €440 million in cash in the first nine months of 2020;
• The debt burden is too high in relation to the Group's Corporate EBITDA level.
• The resurgence of the pandemic, which will have a negative impact on the Group's liquidity at least until 2021.
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Figure 29- Changes in bond debt ratings
Upgrade / Date Rating Comments Downgrade
Standard & Poor's
This downgrade in EMG’s rating is explained by the difficulties faced by the Group due to the Covid-19 04/03/20 BB- to B- pandemic, with cash frequently at its lowest seasonal level in the first quarter, with negative revenues and cash flow. The downgrade of EMG's rating is justified by the possible worsening of the macroeconomic situation 05/28/20 B- to CCC+ linked to Covid-19, particularly in the short-term vehicle rental sector. The downgrade of EMG's rating is explained by the uncertain economic conditions and the Group's 09/15/20 CCC+ to CC currently unsustainable capital structure. S&P Global Ratings views this as an unavoidable financial restructuring, the terms of which are currently unknown, suggesting a high risk of default. S&P confirms its "CC" rating with a negative outlook. The negative outlook indicates that the rating could 11/03/20 n.a CC be downgraded if interest are not paid at maturity. Europcar has not paid the €9 million in interest on the 2026 Bonds and will not pay the €12 million in interest on the 2024 Bonds. The downgrade of EMG's rating to "Selective Default" is explained by the non-payment of interest at 12/02/20 CC to SD* maturity, announced by the Company on 26 November.
Moody's
The downgrade of EMG's rating comes as a result of the rapid spread of the coronavirus outbreak across many regions and key car rental markets, which will exert severe pressure on EMG's earnings and on its 03/31/20 B1 to B2 credit metrics. Moody's estimates that Moody's-adjusted (gross) debt/EBITDA could temporarily increase towards 8.0x in 2020 from 5.0x in 2019. The rating downgrade reflects the longer lasting effect that the coronavirus outbreak will have on car rental demand. Moody's expects air passenger demand to remain severely depressed in 2021 with passenger 06/10/20 B2 to Caa1 volumes only recovering to 35%-55% of 2019 levels. The rating agency expects an adjusted debt/EBITDA peaking at c.10x in 2020 from 5.1x (post IFRS16) in 2019, before reducing to c.6.0x in 2021. The Company would therefore report low solvency levels at least until 2021. The Group's intention to restructure its corporate debt could lead to a substantial debt impairment. In 09/10/20 Caa1 to Caa2 addition, the upsurge in Covid-19 cases is leading to a slower than expected recovery, which would pressure the company's liquidity in 2021 without additional support or debt relief. Moody's estimates that the recovery rate on the consolidated debt will be around 80-90%, while the recovery rate on the Bonds will be between 35 and 65%. The possibility that EMG does not reach a 10/13/20 n.a Caa2 consensus agreement with its creditors regarding its restructuring is also a risk. The rating agency forecasts a net debt level that will remain above 5x EBITDA until 2023. Moody’s added "limited default" (LD) to EMG’s Probability of Default (PDR) rating. This follows the Group's 12/02/20 n.a Caa2 announcement that it will not pay interest at maturity, which Moody's considers to be a limited default.
Sources: STANDARD & POOR 'S AND Moody'S Reports, Media
* Selective Default (SD) 40 ".
These ratings, from both agencies, correspond to the highly speculative grade.
40 S&P GLOBAL RATINGS issues an "SD" rating if the rating agency considers that there is a default on one or more of the financial obligations, whether long or short term, including both rated and unrated obligations but excluding hybrid instruments classified as regulatory capital or in default under the terms.
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Change in of liquidity
Figure 30- Consolidated cash flow statement from 2015 to the first nine months of 2020
In €M 12/31/2015* 12/31/2016* 12/31/2017* 12/31/2018* 12/31/2019 06/30/2020 09/30/2020 Profit/(loss) before tax (6) 142 83 193 62 (363) (394) Net financing costs 227 106 117 154 171 84 125 Net cash from operations before changes in working capital 266 257 217 327 382 (213) (166) Cash generated from operations 11 114 99 156 33 487 775 Net cash generated from (used by) operating activities (166) (7) (47) (28) (132) 419 673 Net cash used by investing activities (55) (104) (772) (17) (181) (22) (33) Net cash generated from (used by) financing activities 243 131 889 159 515 (545) (788) Net increase/(decrease) in cash and cash equivalents 22 19 70 113 201 (148) (148)
Cash and cash equivalent at beginning of period 206 229 249 313 425 628 628 Cash and cash equivalents at end of period 229 249 313 425 628 477 477 Sources: Universal Registration Document 2019, registration documents from 2015 to 2018, H1 2020 half-year financial reports, and Q3 2020 press release * Consolidated figures as they appear in the 2016, 2017 and 2018 Registration Documents (not restated notably for the impact of IFRS 16).
As the change in cash and cash equivalents in the third quarter of 2020 was virtually nil, the level of cash and cash equivalents at the end of September 2020 was identical to that observed at the end of June 2020 (€477 million).
The total cash position at Group level at 30 June 2020 was €531 million. This amount corresponds, on the one hand, to €452 million in corporate cash and, on the other hand, €79 million in cash used for fleet financing.
The reconciliation between the global cash position at Group level at 30 June 2020 (€531 million), the cash and cash equivalents presented above on the balance sheet (€489 million, see Table 3) and the cash flow statement (€477 million) is shown below:
Figure 31- Breakdown of cash and cash equivalents at Group level at 30 June 2020 (€M)
600
500 79 -51 Fleet -4 12 -12
400 Fleet 300 489 477 200 452 Corporate 100 0 Cash and cash Financial assets Short-term Bank overdraft Cash and cash Repayment of Cash and cash equivalents covering deposits and equivalents on bank overdraft equivalents at available at liabilities related related accrued the balance CFS Group level to the captive interest sheet insurance structure
Sources: Company, FINEXSI analysis
The Corporate cash and cash equivalents at 30 June 2020, amounting to €452 million, breaks down as follows between trapped cash, which cannot be used by the Group, cash held in operating entities, not available for corporate use, and cash held in cash pooling, available to finance corporate needs.
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Figure 32- Transition from corporate cash (€ millions) at Group level at 30 June 2020 to available cash at cash pooling level
500
400 -90
300 -177 452 200 7
100 192
- Corporate liquidity at Restricted cash Cash in operating entities Undrawn facilities Corporate cash position Group level not available at Group (available at cash pooling level for Corporate level) as at 30 June 2020 purposes
Sources: Company, FINEXSI analysis
At 30 June 2020, €90 million is considered to be trapped cash (see §6.4.2.1 i.e., not available to cover the financing needs of the business or investments. The cash in operating entities, amounting to €177 million, cannot be used to finance corporate needs, but is used to finance the business activities of subsidiaries.
At the end of June 2020, cash available at the cash pooling level to finance the corporate needs amounted to €192 million.
We present hereafter the expected evolution of the available corporate cash at the cash pooling level between 30 June 2020 and 31 March 2021, it being specified that these forecasts are understood to exclude the implementation of the Restructuring (with the exception of the coupons due and unpaid on October 30, 2020 and November 16, 2020 in respect of the Senior Notes 2024 and Senior Notes 2026 for a total of €22 million, in connection with the Restructuring, and which are not taken into account in the Corporate cash burn below):
Figure 33- Corporate cash flow (€ millions) available at the cash pooling level from 30 June 2020 to the end of March 2021
250 Cash consumption up to March 2021
200 (56) 150
100 192 (73)
50 (46) - (49) (32) ( 50) june-20 HY2 2020 dec.-20 jan.-20 feb.-20 march-20
Sources: Company, FINEXSI analysis
Management anticipates a significant consumption of cash during the first quarter of 2021, leading to a cash shortfall from March 2021 (negative cash position of €(32) million). We note that management expects this cash position to continue to deteriorate beyond March 2021, reaching a low point of around €300 million in the first quarter of 2022.
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Under these conditions, and in the absence of implementation of the Restructuring, the Company could find itself in a potential situation of cessation of payments as from the end of the first quarter of 2021.
It should also be noted that the level of cash at 31 December 2020 presented above (€136 million) corresponds solely to the amount of corporate cash available at the cash pooling level. If we consider the cash available in the operating entities (excluding cash pooling) on the same date as well as the restricted cash (related to the captive insurance structure and the Junior Bonds FCT), this amount amounts to approximately €320 million as at 31 December 2020 as communicated by the Company in its press release of 26 November 2020 on the terms and conditions of the Restructuring.
5.1.4.1 Response to the COVID-19 crisis
In response to the crisis, the Company has set up two adaptation and transformation programmes, "Reboot" and "Connect". The aim of the first is to relaunch activity in 2020 and the second to rethink the business and the entire organisation from 2021 onwards, in a context where the recovery of the travel and leisure sector will be gradual and take time. According to European Commission forecasts, travel to Europe is expected to return to 2019 levels by 2023.
"Reboot", a short term (2020) adaptation and transformation programme
As indicated above, the Group was severely affected by the COVID-19 health crisis. In response, EUROPCAR MOBILITY GROUP implemented an ambitious cost-cutting plan in March as part of the "Reboot" 41 programme, with the aim of mitigating the impact of the crisis by resizing its cost base to adapt it as much as possible to the Company's reduced level of activity. These cost reductions, initially estimated at €850 million, were revised upwards in July 2020 to €890 million, and again in October 2020 when the third quarter 2020 results were published, to almost €1 billion, and mainly concern:
• The fleet by adapting supply to reduced demand thanks to the "buy back" model. The Group has considerably reduced its average fleet (excluding FOX RENT A CAR ) by 5% in March and by around 37% in June;
• The reduction of variable operating costs in the ordinary course of business:
o Renegotiation of the commitment to fixed charges and minimum charges with airports and stations;
o Suspension of temporary agency workers and subcontracting activity;
o Renegotiation of commissions paid to brokers and travel agencies, for example;
o E-commerce expenses reduced to a minimum.
• Overheads with (i) the introduction, at the peak of the epidemic in the second quarter of 2020, of short-time working for 80% of the workforce in all countries, (ii) the closure or practice of reduced hours in 88% of stations and (iii) negotiations with owners for the reduction or postponement of rents;
41 The "Reboot" plan also includes adapting products and services to new customer needs by launching B2C offers in the various markets, as well as adapting B2B solutions, with an emphasis on the "medium term" dimension.
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• Headquarters costs with (i) the reduction of support functions and external advice, (ii) short- time working measures, (iii) negotiations with the owners of the headquarters and (iv) a massive reduction in IT projects, limited to essential projects only.
In addition to these cost-cutting measures for fiscal 2020, the Company announced on 3 May 2020 the implementation of a financing plan as described below.
In this context and in order to preserve its liquidity, the Group has also cancelled the distribution of the dividend initially proposed for €13 million. Finally, a reduction in the base pay of the Management Board (-25% 42 ) and of the Group's senior executives was also adopted 43 .
"Connect", a medium-term adaptation and transformation programme (2021-2023)
The "Connect" plan has been designed to respond to new customer needs and expectations, in particular the strengthening of digital uses, new security and contactless standards, the need for flexible services and new means of travel. The vectors of adaptation and transformation concern:
• The fleet (simplified composition, 100% of the fleet connected in 2023, 100% direct access to vehicles in airports in 2023, etc.);
• The network (new organisation based on use cases: airports, city hubs, regions, etc.);
• Technology (single customer base, generalised direct access to vehicles, connected fleet platform, etc.);
• Organisation (new composition of the Group's Executive Committee, simplification of the organisation, further rationalisation at the level of the various headquarters, etc.).
In the interests of simplification, the five former historical BUs are being discontinued to make way for a new organisation of the Group based on three business lines that address cases of mobility use:
• Leisure: planned and occasional mobility with price as a particularly important factor, a low loyalty rate, and a high attrition rate;
• Professional: planned and contractual mobility with the importance of price and service reliability, a high loyalty rate, and long cycles;
• Proximity: on-demand mobility with pay-per-use billing, importance of accessibility and flexibility factors, high frequency and average loyalty rate.
42 From 1 April to 31 December 2020. 43 Discount from 10% to 25% for a minimum of three months.
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SWOT Matrix
The Company's strengths and weaknesses, as well as the threats and opportunities it faces in its markets, are summarised in the matrix below:
Figure 34- SWOT matrix
Source: FINEXSI analysis, Company
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6. Valuation of EUROPCAR MOBILITY GROUP shares
In accordance with the provisions of Article 262-1 of the AMF's General Regulation, we conducted our own multi-criteria assessment of EUROPCAR MOBILITY GROUP , the implementation and results of which are set out below. The economic crisis related to COVID-19 has had a very significant impact on the Company's operating performance, with in particular an expected decline in sales of around 40% 44 in 2020e compared to 2019 (to €1.9 billion compared to €3.2 billion pro forma in 2019), and a negative Adjusted Corporate EBITDA of around €(270) million, compared to +€258 million pro forma a year earlier, despite massive cost reduction measures (nearly €1 billion in cost reductions expected for the full year 2020e, against the €3bn total cost base initially planned for the full year 2020e). The result is very high cash consumption, estimated at €383 million in the 2020 financial year, and an increase in the group's debt (gross corporate debt is expected to reach around €2.0 billion at the end of 2020), with no prospect of improvement in the short term, in a context of falling tourism and business travel caused by the COVID-19 crisis and the resulting lockdown measures. The extent of the disruption to the travel and leisure sector caused by COVID-19 is unprecedented in the history of the industry. Under these conditions, the Company's financial position at the end of November 2020 and the short-term cash flow forecasts (see §5.1.4) give rise to a going concern risk, with a potential situation of cessation of payments as of the end of the first quarter of 2021, according to management's forecasts. In this context and following the failure of attempts to find a new reference shareholder, the Company has entered into discussions with its creditors with a view to restructuring its debt and achieving a sustainable financial structure in the long term, in particular through massive debt reduction and the injection of new cash to meet the financing requirements needed to continue operations and finance the investments required to adapt to the changes underway.
Following the agreement of the required majority of the holders of the Senior Bonds and EC FINANCE PLC Senior Secured Bonds, as communicated on 14 October 2020, an agent in ad hoc proceedings was appointed to lead the discussions with the creditors. On 26 November 2020, the Company announced that it had reached an agreement in principle with its creditors on a restructuring plan, the terms of which have been described above (see §1.2). In order to facilitate the finalisation of discussions on the agreement in principle with all the stakeholders concerned and its implementation through an accelerated financial safeguard procedure by the Paris Commercial Court, EUROPCAR MOBILITY GROUP filed a request on 17 November 2020 to end the appointment of the agent in ad hoc proceedings and simultaneously appoint a mediator. On 19 November 2020, the President of the Paris Commercial Court announced the opening of conciliation proceedings with Maître HÉLÈNE BOURBOULOUX as mediator.
44 As described in the press release dated November 26, 2020.
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In addition, following the approval of the requisite majority of the holders of the Senior Bonds and Senior Secured Bonds EC FINANCE PLC , as communicated on 7 December 2020, as well as of the lenders under the RCF, as communicated on 14 December 2020, the Paris Commercial Court opened an accelerated financial safeguard procedure on 14 December 2020 for the benefit of EUROPCAR MOBILITY GROUP .
To keep shareholders fully informed, we have carried out a multi-criteria valuation of the Company, including the reasoning before and after implementation of the restructuring. The valuation of the Company before taking into account the terms and conditions of the restructuring enables to assess the value of the EUROPCAR MOBILITY GROUP share in its current situation (see §6.5). The valuation of the Company after taking into account these terms and conditions (see §6.6) makes it possible to assess the financial impact of this transaction for shareholders and creditors (see §7).
Valuation methods ruled out
Our work has led us to rule out the following methods:
Consolidated net asset value
Consolidated net asset value is generally not considered to be representative of the intrinsic value of the Company. It does not take into account the prospects for positive or negative growth and profitability, nor any possible capital gains on assets.
For information, consolidated net asset value (group share) at 30 June 2020 amounted to €536 millions, meaning €3.46 per share excluding treasury stock. This amount does not include expected losses for the second half of 2020 and 2021. It is also specified that tangible equity is negative.
In addition, consolidated net asset value is notably conditioned by the results of impairment tests , which were notably carried out using assumptions regarding the cost of debt and gearing that do not reflect the Company's risk situation with regards to the debt at that date . In addition, the situation since 30 June 2020, the date of the last impairment tests carried out, has evolved negatively, in particular with the second wave of COVID-19 and the new lockdown measures in several European countries.
Revalued net asset value
The revalued net asset value method consists of correcting the net asset value for unrealised capital gains or losses identified in the assets, liabilities, or off-balance sheet. This method, which is often used to value companies in certain sectors (holding companies, real estate), is particularly suitable for companies whose main assets have a market value and whose acquisitions and disposals of such assets constitute its operating process, which is not the case for EUROPCAR MOBILITY GROUP .
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Discounting of future dividends
This method, which consists of discounting future dividends, is dependent on the distribution policy decided by management and has the bias of better valuing companies with the highest distribution rates, without taking into account the medium-term impact of trade-offs between distribution, self- financing and investment.
As the Company has not announced to the market a distribution forecast and is, moreover, unable to make dividend distributions in 2020 and 2021 in relation to its results and the SBL (State-Backed Loans) in place, this method will not be used.
Comparable transactions
The comparable transactions method is based on the analysis of external multiples for total or partial buyouts of companies in the business sector of the entity being valued. This approach is limited by the difficulty in identifying transactions that are fully comparable in terms of size, product mix and geographical positioning, as well as the difficulty in obtaining complete information on the targets and terms and conditions of the transactions.
Furthermore, given the period of economic crisis related to COVID-19, we do not consider it relevant to apply a multiple to the Company's historical aggregates (2018 and 2019) insofar as these do not include the effects of the current crisis on the operating performance of EUROPCAR MOBILITY GROUP (see §5.1.3). Accordingly, the comparable transactions identified are prior to 2020 and therefore do not reflect the current market environment.
For these reasons, this method was not chosen. However, in the context of an alternative scenario to the DCF (see §6.6.1.3), we applied the average multiple externalized by the comparable transactions identified over the last six years as exit multiple at the end of the explicit horizon of the business plan.
Net Asset Value
Even though the Company is facing a going concern problem, we did not consider using this method as it is irrelevant to the restructuring of the Company's debt, which should specifically allow it to continue as a going concern.
Furthermore, as all of the Company's activities have been affected by the crisis, we cannot identify any assets likely to generate significant capital gains in the event of a disposal, not to mention the need to take into account the high restructuring costs under this approach and the real difficulty in implementing a quantified liquidation scenario.
Methods used for the pre-restructuring valuation approach
We have implemented a multi-criteria pre-restructuring approach which includes the following references and valuation methods:
• The intrinsic valuation method using discounted cash flows based on the 2020e - 2023e business plan presented in §6.5.1 (as the main method);
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• The analogical valuation method based on multiples observed on listed peers (for information purposes);
It is specified that for these two methods, the net corporate financial debt used is that of the Group at 30 June 2020 (see §6.4.2).
• Analysis of the EUROPCAR MOBILITY GROUP share price prior to the announcement of the terms of the restructuring (for information purposes only);
• Analysis of the price targets of financial analysts published prior to the announcement of the terms and conditions of the restructuring (for information purposes only).
Methods adopted for the post-restructuring valuation approach
We have implemented a multi-criteria post-restructuring approach which includes the following references and valuation methods:
• The intrinsic valuation method using discounted cash flows based on the same business plan for 2020e - 2023e presented in §6.6.1 (as the main method);
• The analogical valuation method based on multiples observed on listed peers (for information purposes);
It is specified that for these two methods, the net corporate financial debt used is that of the Group at 30 June 2020 after taking into account the consequences of the Restructuring (see §6.4.2).
• Analysis of the price targets of financial analysts published after the announcement of the terms and conditions of the restructuring (for information purposes only).
Reference data of the EUROPCAR MOBILITY GROUP Company
Number of shares used
6.4.1.1 Before restructuring
Before restructuring, our calculations are based on the number of shares comprising the share capital at 30 June 2020 (163,884,278 shares), less the number of treasury shares (8,766,939 shares) at that date.
In addition, it is specified that no dilution is used in respect of the free share plans (2018 and 2019) in their vesting period, insofar as the performance conditions will not be met with regards to the 2020e - 2023e business plan communicated.
The number of shares thus retained before restructuring amounts to 155,117,339.
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6.4.1.2 After restructuring
In view of the various stages of the restructuring described above (see §1.4):
• 2,982,397,304 shares will be issued as part of the capital increase by offsetting a debt of €1,100 million, reserved for holders of the corporate bond debt and the CREDIT SUISSE facility;
• 263,710,341 shares will be issued as part of the €50 million capital increase with preferential subscription rights;
• 1,052,631,578 shares will be issued as part of the €200 million capital increase reserved for holders of the corporate bond;
• 551,560,206 Warrants, giving the right to 551,560,206 shares, will be issued to the benefit of corporate bondholders and lenders under the RCF.
On this basis, the number of new shares to be issued amounts to 4,850,299,429. Taking into account the number of shares before restructuring, the number of diluted shares is 5,005,423,168 shares after restructuring.
Net corporate financial debt
6.4.2.1 Before restructuring
Before restructuring, the adjustments allowing for the transition from enterprise value to equity value were determined on the basis of the cash and corporate financial debt items of EUROPCAR MOBILITY GROUP as shown in the Group's consolidated financial statements at 30 June 2020, it being specified that the debt related to the fleet 45 is not taken into account in our calculation.
45 Fleet debt is mainly composed of SARF, Senior Secured Bonds, operating lease facilities and financing facilities for the local fleet.
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Figure 35- Bridge from enterprise value to equity value as of 30 June 2020 before restructuring
in k€ 30/06/2020
2024 Senior subordinated notes (600) 2026 Senior subordinated notes (450) Senior subordinated notes (1 050) Revolving Credit Facility (RCF) (625) NEU commercial papers (8) RCF and NEU Commercial Papers (632) Loans guaranteed by States (274) US PPP (8) Credit Suisse credit facility (50) Other Corporate loans (331) Cash in operating entities 126 Drawings to fleet - Junior Titles / Loan to Fox 177 Corporate cash used for the fleet 304 Other non-cash items (transaction costs, accrued interests) 7 Corporate gross debt before restructuring (1 703)
Cash & cash equivalents before restructuring 452
Corporate net debt before restructuring (1 251)
Restricted cash (90) Pension provisions net of deferred tax assets (151) Other provisions (litigation, restructuring, etc.) (83) Others 50 Adjustments (274)
Bridge from EV to EqV before restructuring (1 524)
Source: Half-year report H1 2020, FINEXSI analysis
Net corporate debt before restructuring, as published by the Company and presented above in §5.1.2 to €1,251 million at 30 June 2020. We have also included the following main items in our transition from enterprise value to equity value:
• The €90 million cash outflow includes in particular restricted cash used to cover future claims compensation and financial assets covering liabilities related to the captive insurance structure, mainly comprising bonds accounted for at amortised cost. We therefore understand that this cash is destined to remain permanently unavailable because it is blocked for recurring operational reasons.
Cash in operating entities amounting to €177 million at 30 June 2020 is not considered as restricted cash as it is used to finance the activities of the subsidiaries included in the business plan;
• Provisions for retirement commitments net of recognised deferred tax assets totalled €(151) million;
• Other provisions of €(83) million, mainly related to provisions for litigation, restructuring costs and for risks and liabilities related to damaged vehicles financed through operating leases;
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• Other items include minority interests, other current and non-current financial assets, earnouts and tax loss carry forwards. Management has confirmed to us that the tax loss carry forwards activated at December 31, 2019 were included in the calculation of the business plan's tax charge. We therefore considered the tax loss carry forwards not capitalised at December 31, 2019 as well as the tax loss carry forwards generated in 2020 (provisional amount at the date of this report) and simulated their use beyond the explicit horizon of the business plan. These tax losses were then updated according to their consumption horizon and included in our calculation of adjusted net debt.
Before restructuring, adjusted net corporate financial debt was €1,524 million.
It should also be noted that, for our various calculations and analyses, we considered aggregates that do not take into account the application of IFRS 16 insofar as (i) these aggregates before IFRS 16 restatements better reflect the Company's assets and liabilities and actual financial performance, and (ii) the impact of this standard is not taken into account in the management business plan on which our analyses are based. As a result, the net financial debt presented above does not include debt relating to rental income of €400 million at 30 June 2020.
6.4.2.2 After restructuring
The net corporate financial debt at 30 June 2020 presented below takes into account the consequences of the Restructuring, i.e. a reduction in gross corporate debt of €1,100 million and an increase in cash and cash equivalents of €255 million (including the exercise of Warrants).
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Figure 36- Bridge from enterprise value to equity value at 30 June 2020 after restructuring
in k€ 30/06/2020
Revolving credit facility (€170m of which €133m drawn on the balance sheet) (133) New term loan (500) Refinanced Revolving Credit Facility (633) Loans guaranteed by States (274) US PPP (8) Other Corporate loans (281) Cash in operating entities 126 Drawings to fleet - Junior Titles / Loan to Fox 177 Corporate cash used for the fleet 304 Other non-cash items (transaction costs, accrued interests) 7 Corporate gross debt after restructuring (603)
Cash & cash equivalents before restructuring 452 Capital increase reserved to existing shareholders (fully backstopped) 50 Reserved capital increase open to all bondholders (pro rata basis) 200 Exercice of penny w arrants 5 Cash & cash equivalents after restructuring 707
Corporate net debt after restructuring 104
Restricted cash (90) Pension provisions net of deferred tax assets (151) Other provisions (litigation, restructuring, etc.) (83) Others 50 Adjustments (274)
Bridge from EV to EqV after restructuring (170)
Source: Half-yearly report S1 2020, Term Sheet, FINEXSI analyses
After taking into account the reserved capital increase by capitalisation of bond debt (€1,050 million) and the CRÉDIT SUISSE credit facility (€50 million), gross corporate debt46 after restructuring amounted to €603 million.
The cash and cash equivalents position of €452 million before restructuring is adjusted for the injection of new cash, i.e., €50 million related to the capital increase with preferential subscription rights, €200 million related to the capital increase reserved for holders of the bond debt and €5 million related to the exercise of the share Warrants, i.e., a balance after Restructuring of €707 million.
Thus, after implementation of the restructuring, net corporate cash stands at €104m (net of the cash position).
Apart from these adjustments, the other items included in our transition from enterprise value to equity value are identical to those retained before restructuring.
After restatements, adjusted net corporate financial debt after restructuring amounted to (€170) million. As before, this amount does not include debt relating to rental income in accordance with IFRS 16.
46 The €225 million loan relating to the financing of the fleet is not taken into account in the calculation of the net corporate debt because it is dedicated to the financing of the fleet.
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Implementation of the valuation of the EUROPCAR MOBILITY GROUP company prior to restructuring
Discounted cash flows (main method)
This method consists of determining the intrinsic value of a company by discounting the cash flows from its business plan at a rate that reflects the market's demand for profitability for the company, taking into account an exit value at the horizon of this plan.
This method makes it possible to recognise the value attributable to the Company's development prospects and seems to us to be appropriate for the situation of EUROPCAR MOBILITY GROUP in the context of the financial restructuring. It is also representative of the full value of the Company insofar as it implies having access to and control over the flows generated by the Company.
6.5.1.1 Presentation of the management's business plan
We conducted our work on the basis of the "standalone" business plan 2020e-2023e, communicated by the Company's management and validated by the Supervisory Board. This business plan was prepared following a "bottom-up" approach, with several iterations between group subsidiaries and management, before consolidation at group level. This business plan was initially prepared in June 2020 and then updated in October 2020, although it should be noted that it was drawn up before the new lockdown measures in France, which it does not take into account.
This business plan is an offshoot of the "Connect" medium-term transformation plan, designed to refocus the Group around new customer needs and expectations, including the strengthening of digital uses, new security and contactless standards, the need for flexible services and new modes of travel. It also incorporates the effects of the short-term (2020) "Reboot" plan, whose objective is to adapt products and services, rationalise the cost base (reduction of fixed and variable costs of nearly €1 billion by the end of 2020) and preserve cash.
The "Connect" plan includes offering attractive alternatives to owning a personal vehicle, productivity gains through a redesigned network model and locations, and a new technology platform to digitise the customer experience.
As indicated above, this plan also provides for a reorganisation of the group around three business lines addressing cases of mobility usage:
• Leisure: planned and occasional mobility with price as a particularly important factor , a low loyalty rate, and a high attrition rate;
• Professional: planned and contractual mobility with the importance of price and service reliability, a high loyalty rate, and long cycles.
• Proximity: on-demand mobility with pay-per-use billing, importance of accessibility and flexibility factors, high frequency and average loyalty rate.
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The impact of the economic crisis related to COVID-19 is expected to result in a decline in sales of approximately €1.3 billion in 2020 and a negative Adjusted Corporate EBITDA of approximately €270 million (compared with a published positive Adjusted Corporate EBITDA of €27847 million in 2019), including cost reductions of nearly €1 billion in 2020 (against the €3bn total cost base initially planned for the full year 2020e) implemented under the "Reboot" plan.
Management expects a gradual recovery in business from 2021e to reach a higher level of sales in 2023e than in 2019 (approximately €3.3 billion compared with published sales of €3 billion in 2019 48 ). Achievement of these objectives by 2023e is based on the assumption of a rapid recovery in business activity and a growing contribution from the "Proximity" and "Professional" business lines, which are more resilient and less cyclical than the "Leisure" business line, as well as steady growth in the Vans & Trucks segment and stable prices .
The business plan does not include the effects of the application of IFRS 16 or any assumptions regarding external growth or asset disposals.
The main structural assumptions of this business plan are as follows:
• Revenue of around €3.3 billion by 2023e, higher than the published 2019 figure. As a result of the crisis, revenue reaches a low point in 2020e, around €1.9 billion, and then increases significantly (€2.5 billion in 2021e and €2.9 billion in 2022e) until the target set in 2023e;
• A change in the business mix with an increase in the weight of the relatively resilient "Business" and "Local" activities, to the detriment of the "Leisure" activity, which is highly seasonal with a very marked peak during the summer season 49 ;
• An average annual growth rate in Adjusted Corporate EBITDA of around 9.7% between 2019 and 2023e to reach €375 million at the end of the plan (before application of IFRS 16). The margin rate falls sharply in 2020e due to the crisis (negative margin rate), then recovers from 2021e to reach 11.3% in 2023e, close to the historical highs (11.8% in 2016), but significantly higher than that achieved in 2019 (published margin rate of 9.2% 50 );
• Capital expenditure (hereinafter "CAPEX") not related to the fleet of an amount representing on average 2.5% of revenue, the majority of which corresponds to digital investments (a single information system, reengineering of invoicing and financial systems, digitalisation, etc.). The other investments concern network transformation (creation of hubs, super sites, etc.), maintenance (renovations, service improvements, etc.) and process unification;
• A modelling of corporate tax integrating the economy linked to the consumption of tax losses carried forward;
47 Pro forma 2019 Adjusted Corporate EBITDA from the acquisition of FOX RENT -A-CAR and the Finnish and Norwegian franchisees amounted to €258 million. 48 Pro forma 2019 sales from the acquisition of FOX RENT -A-CAR and the Finnish and Norwegian franchisees amounted to €3.2 billion. 49 Summer peaks are present in all geographical areas, but the difference between the lowest and highest points varies significantly from one country to another. 50 The 2019 pro forma margin rate for the acquisition of Fox Rent-a-Car and the Finnish and Norwegian franchisees was 8.0%, excluding IFRS 16.
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• A significant improvement in working capital requirements not linked to the fleet, with a variation representing -0.7% of revenue in 2021e compared with +0.1% in 2023e;
• Contingencies totalling €210 million, corresponding to a prudence factor to take into account uncertainties related to the business, mainly in 2021e, as well as other risks related to the financing of the fleet.
Achievement of the forecasts for 2023e is conditional on the assumption of a rapid recovery in activity from 2021e. The level of revenue appears to be the key success factor and we believe that there are significant uncertainties regarding the achievement of the 2023rd objectives (i.e., a higher level of revenue than that published for 2019) given the market environment and the uncertainty regarding the pace of recovery in tourist and business travel due to the economic slowdown, changes in behaviour and the boom in videoconferencing in particular. The Adjusted Corporate EBITDA margin rate over the plan horizon is expected to be 11.3% (close to the historical high of 11.8% reached in 2016), or €375 million. This level of margin results in particular from the significant cost savings achieved in 2020 (lower operating and network costs) and appears achievable, subject to the achievement of revenue targets.
This plan reflects the ambitions of the management and appears, in our opinion, optimistic in view of the current context marked by strong uncertainties, with an end to the crisis which, in the best case scenario, should not occur before the summer of 2021. In our opinion, it enables to assess the potential value of the Company given the short-term consequences of the crisis and assuming that management's ambitious objectives are achieved by 2023e.
Determination of cash flows
IFRS 16
Management's business plan does not include the effects of the application of IFRS 16, which means that non fleet rental expenses are taken into account in the determination of cash flows. As a result, we have not retained the lease debt as recognised by IFRS 16 in the calculation of net financial debt used for the implementation of the DCF method.
Flows in the second half of 2020
For the financial year 2020, and in order to be consistent with the net debt determined at 30 June 2020, we have used the cash flow corresponding to the second half of the year.
However, as almost all of the cash flow for the second half of 2020 had been acquired at the date of this report, it has not been discounted. We have therefore discounted cash flows at mid-year from 1 January 2021.
Furthermore, management has confirmed that the performance at the end of November 2020 was not such as to call into question the forecast landing at the end of 2020.
Normative flow
A perpetual growth rate of 1.5% has been applied to the normative flow, which appears to be in line with the expected long-term inflation rate. This average rate is understood after taking into account a high growth rate over the years of the plan. Moreover, in our opinion, it does not necessarily take into account the effect of changes in behaviour induced by the crisis, which could limit certain travel, particularly business travel.
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The normative flow has been constructed on the basis of an Adjusted Corporate EBITDA margin (before application of IFRS 16) corresponding to that expected in 2023e (11.3%).
No restructuring costs have been retained in the terminal flow.
Depreciation charges were set at the level of investments (2.6% of revenue for CAPEX not related to the fleet) and the change in WCR not related to the fleet was considered to be zero.
A standard tax rate of 25.83% has been retained at infinity, in connection with the Finance Act.
Discount rate
Given the Company's particularly high corporate debt prior to the implementation of the Restructuring and a relatively low market capitalisation based on the closing price on 25 November 2020 (prior to the announcement of the terms of the Restructuring), EUROPCAR MOBILITY GROUP 's market corporate gearing (excluding debt relating to the financing of the fleet) is very high (approximately 700% 51 ).
The construction of a weighted average cost of capital according to the CAPM formula, usual for indebted companies, would in this case have the effect of overweighting too significantly the cost component of the debt, to the detriment of the cost component of equity capital, in the discount rate. This approach, which consists in allowing the Company to benefit from the leverage conferred by its debt, does not seem to us consistent in the case of EUROPCAR MOBILITY GROUP which is, prior to the implementation of the Restructuring, in a distress situation (see §5.1.3 and §5.1.4), i.e. the debt no longer contributes to the creation of value but constitutes a major risk factor.
For this reason, we use a direct approach to calculating the cost of capital to discount cash flows.
This was estimated at 13.8% on the basis of:
• A risk-free rate of -0.12% corresponding to the average rate of the 10-year OAT (average 1 year calculated at the end of November 2020 - Source: Banque de France);
• An equity market risk premium of 8.91% (one-year average of the ASSOCIES EN FINANCE risk premiums at the end of November 2020);
• A deleveraged beta of 1.19 52 corresponding to the 5-year average of the betas of the listed peers 53 presented below, it being noted that the use of the 5-year average does not penalise the shareholder by smoothing the measurement of the risk of the asset over a relatively long period (the impact of the economic crisis on the beta of the asset is thus under-weighted compared to a beta determined over a shorter period);
• A specific risk premium of 3.4% estimated on the basis of a size premium (Source: DUFF & PHELPS - "31/12/2018 Valuation Handbook - Guide to Cost of Capital" and Finexsi analysis) calculated by reference to the Company's market capitalisation prior to the announcement of the terms of the Restructuring.
51 Corresponding to the ratio between net corporate debt of €1,251 million at 30 June 2020 and market capitalisation of €178 million at the close of 25 November 2020. 52 Source: CAPITAL IQ as of December 14, 2020. 53 AVIS BUDGET HOLDINGS , INC and SIXT SE.
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This cost of capital appears relatively low in view of the very deteriorated financial situation in which EUROPCAR MOBILITY GROUP finds itself prior to the financial restructuring.
In view of the major risks to the Company's going concern, this level of discount rate is, in our opinion, a floor. Indeed, such a rate is lower than the return that would be required by a shareholder investing in a distressed company .
As a reminder, the latest ratings of EUROPCAR 'S bond debt issued by MOODY 'S and S&P are respectively Caa2 (on 02/12/2020) and SD (on 02/12/2020) following the deterioration of the Company's financial situation and the non-payment of interest on the 2024 and 2026 bond issues at the deadline for payment (with the creditors’ consent). We have analysed the evolution of the yield curve for corporate bonds with a rating of CCC or below. External spreads have been between 11% and 24% since the beginning of the financial market crisis at the end of February 2020. The discount rate used, 13.8%, therefore appears at the lower end of the range of rates that would be required by a creditor, which is likely to confirm that this is a minimum rate.
Results of the valuation
The enterprise value, which is essentially based on the terminal value, does not cover the adjusted net corporate financial debt and the losses to be financed over the explicit horizon, according to the various assumptions considered. Consequently, the intrinsic value per EUROPCAR MOBILITY GROUP share before implementation of the Restructuring is negative. The central value is (€2.51) per share based on the assumptions presented above and based on management's business plan, being specified that the various sensitivity analyses carried out all confirm a negative value. We will therefore consider a value of zero.
The implementation, as an alternative, of a DCF approach based on the consensus of analysts and an unadjusted net corporate financial debt as used by most analysts in their calculations (i.e., €1,251 million at 30 June 2020 - see §5.1.2), corroborates our analyses and also leads to a negative value of the Company prior to the implementation of the Restructuring. We do not, however, have sufficient detail to link this consensus with the share price targets that result in higher values.
In our opinion, this nil value is representative of the intrinsic value of the Company before the implementation of the financial restructuring, in a context of an unprecedented drop-in business activity, a very significant level of Company indebtedness, and a potential situation of cessation of payments from the end of the first quarter of 2021 (see §5.1.4).
It should be noted that, according to our analyses, a nil value appears to be consistent with a level of discount on the obligations of around 40% as can be seen from the Company's bond price (see §5.1.3.2), as this is the level of discount that reduces the value of the Company's shareholders’ equity to zero.
Listed peers (for information purposes only)
The listed peers method consists in determining the value of a company by applying multiples observed on a sample of other listed companies in the same sector of activity to the aggregates deemed relevant.
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Given the specific characteristics of EUROPCAR MOBILITY GROUP , we have not identified any listed companies that are fully comparable to it, due in particular to its geographical location, size and margin levels. For this reason, we present this method for information purposes.
However, we have identified five companies operating in the same sector of activity as EUROPCAR MOBILITY GROUP . It should be pointed out that these companies faced the COVID-19 crisis in a heterogeneous way:
• HERTZ GLOBAL HOLDINGS , INC . filed for Chapter 11 bankruptcy protection in the United States in May 2020, following a sharp decline in revenue due to the COVID-19 crisis. The listing of HERTZ GLOBAL HOLDINGS , INC . on the New York Stock Exchange (NYSE) was suspended on 30 October 2020 due to its bankruptcy and the stock is now only listed on the OTC (Over the Counter) market;
• AVIS BUDGET HOLDINGS , INC . also suffered a 42% decline in revenue in the first nine months of 2020 with a negative Adjusted Corporate EBITDA of $(249) million (versus a positive €645 million a year earlier). The company has implemented significant cost reductions with more than $2 billion in savings achieved since the beginning of the year, against a target of $2.5 billion, and has adapted the size of its fleet to demand. The cash reserve of $2.4 billion at the end of the third quarter of 2020 will be used to finance the purchase of the 2021 fleet;
• SIXT SE has been the most resilient player, thanks in particular to cost reduction measures of more than €200 million in the first nine months of the 2020 financial year (thus exceeding the target of €150 million for the full year), although the company's management expects revenue to fall by 39.8% over the 2020e financial year. The cash reserve at the end of the third quarter of 2020 stands at around €500 million, to which other financing has been added, including a syndicated credit facility concluded with a consortium of banks including the German State for a maximum amount of €1.5 billion, which has not yet been drawn down. It should be noted that SIXT SE sold in July 2020 its entire stake in its subsidiary SIXT LEASING SE, i.e. 41.9%, to HYUNDAI CAPITAL BANK EUROPE (for a total amount of approximately €156 million);
• UCAR recorded consolidated revenue of €10.7 million at 30 June 2020, down 45% compared with H1 2019. Thanks to its positioning as a "local rental company", the group was less affected by the health crisis than its main competitors, many of whose stations are located close to railway stations and airports. At the end of the first half of 2020, UCAR had a liquidity position of €20.3 million, including a SBL of €8.7 million;
• ADA , which experienced a measured decline in consolidated sales (down 11% in the first half of 2020 to €42.9 million), was also resilient in the face of the COVID-19 pandemic, as the majority of the group's network of franchisees and brand licensees continued to operate during the lockdown period. However, at 30 June 2020, ADA posted a 67% drop in its operating profit 54 compared with the same period the previous year.
54 ADA , like UCAR , does not report Adjusted Corporate EBITDA as does EUROPCAR MOBILITY GROUP .
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HERTZ GLOBAL HOLDINGS , INC . was not included in our sample given the company’s situation described above. Moreover, in view of the consensus and the limited forecasts that result from this, the multiples provided by HERTZ GLOBAL HOLDINGS , INC . are not usable in this case, particularly in 2021e.
We also did not use SIXT SE as it does not publish an Adjusted Corporate EBITDA, or equivalent aggregate, enabling us to determine the multiples on a basis consistent with the EUROPCAR MOBILITY GROUP aggregates used for the implementation of this method.
Given the small market capitalisations of UCAR and ADA and the resulting low levels of liquidity of their shares, we have not retained these two French players, it being specified that we do not have a consensus on the Adjusted Corporate EBITDA for these two companies in our databases.
AVIS BUDGET HOLDINGS , INC . is comparable to EUROPCAR MOBILITY GROUP in terms of business activity but generates more than two-thirds of its revenue in the United States, a country in which EUROPCAR has a relatively limited presence, with a vehicle ownership model that is mainly “at risk” and therefore exposed to residual values, which is less the case for EUROPCAR MOBILITY GROUP , which acquires the majority of its fleet through buy-back contracts with manufacturers.
Our sample is therefore limited to only AVIS BUDGET HOLDINGS , INC . for which analyst consensus forecast data was available.
We present below the growth and margin outlook for Adjusted Corporate EBITDA expected in 2020e and 2021e by the consensus of analysts following the AVIS BUDGET GROUP .
Figure 37- Outlook for revenue growth and Adjusted Corporate EBITDA margin rate expected by analyst consensus Adjusted Corporate EBITDA Revenue EV* Revenue grow th Peers Country margin (mEUR) (mEUR) 2021e 2022e 2020e 2021e 2022e
Europcar Mobility Group S.A.** France 3 022 1 391 31,5% 13,7% -12,3% 5,7% 9,2% Avis Budget Group, Inc. United States 8 173 4 620 30,4% 20,3% -2,8% 6,8% 9,1%
Source: CAPITAL IQ * Enterprise value calculated on the basis of the three-month CMPV as at 14 December 2020. ** Management's business plan.
The growth profile and Adjusted Corporate EBITDA margin rates resulting from the management business plan are broadly in line with those expected by the consensus of AVIS BUDGET GROUP , INC .
The Adjusted Corporate EBITDA multiples for 2021e and 2022e for AVIS BUDGET HOLDINGS , INC . are as follows, it being specified that we have not used the 2020 financial year as it is too heavily impacted by the COVID-19 crisis and is therefore not representative of the Company's operating performance.
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Figure 38- Multiples* observed on peers
Adjusted CEBITDA xAdjusted Corporate Revenue EV Peers Country margin EBITDA* (mEUR) (m) ** 2021e 2022e 2021e 2022e
Avis Budget Group, Inc. United States 8 173 4 620 6,8 % 9,1 % 10,3x 6,4x
Source: CAPITAL IQ
*Multiples induced by (i) an Enterprise Value calculated on the basis of the three-month WACC at 14 December 2020 and an average number of shares over three months. ** Enterprise value calculated on the basis of the three-month WACC as at 14 December 2020.
We have applied the 2021e and 2022e multiple to the Adjusted Corporate EBITDA forecasts for the same years from the EUROPCAR MOBILITY GROUP business plan.
It should be noted that EUROPCAR MOBILITY GROUP 's Adjusted Corporate EBITDA , like that of AVIS BUDGET GROUP , does not include the effects of the application of IFRS 16 or equivalent standards.
Given the net corporate financial debt before restructuring, applying the multiples observed on AVIS BUDGET GROUP to EUROPCAR MOBILITY GROUP 's 2021e and 2022e Adjusted Corporate EBITDA would result in a negative value per share before restructuring. We have therefore considered a nil value of the Company's share.
Reference to the Company's share price (for information)
The market price is the price of the Company's shares freely traded subject to sufficient free float and liquidity.
The Company has been listed on compartment A of EURONEXT PARIS since 26 June 2015 (ISIN code: FR0012789949)
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Analysis of the evolution of the EUROPCAR MOBILITY GROUP 's share price
We have analysed the evolution of the EUROPCAR MOBILITY GROUP share price over the 24 months prior to the announcement of the terms and conditions of the Restructuring, i.e., prior to 26 November 2020:
Figure 39- Evolution of the EUROPCAR MOBILITY GROUP share price over the two years before 25 November 2020
Evolution of the EUROPCAR MOBILITY GROUP share price since 25 November 2018 Stock price Volume (in (in EUR) I II III thousands)
5 10/23/2019 : Publication 11 16 1 05/03/2020 : New loan guaranteed 09/11/2020 : CIAM under 5%. 02/21/2019 : Publication of FY 2018. of Q3 2019. by the States. 09/15/2020 : S&P downgrades its 12,0 6 rating from CCC+ to CC with a 40 000 2 11/14/2019 : Eurazeo plans to 12 06/10/2020: Moody's negative outlook . 05/14/2019 : Publication of Q1 2019. sell its stake in the company downgrades its outlook from B2 to Caa1 with a stable 14 35 000 10,0 outlook. 07/28/2020 : H1 2020 results.
7 30 000 01/21/2020: 10 03/23/2020 : 8,0 Moody's Cancellation of 2020 downgrades its targets and 2019 17 10/14/2020 : 25 000 outlook to dividend. negative (B1). Appointment of an ad hoc representative. 6,0 9 20 000 02/25/2020 : Results of FY 2019. 3 15 06/25/2019 : Presentation 13 06/24/2020 : Market 09/07/2020 : The Group discusses of the new SHIFT 2023 rumours about a a restructuring process. 15 000 4,0 strategic plan. possible takeover by Volkswagen. 4 8 18 10 000 07/25/2019 : Publication 02/2020: Beginning 10/26/2020 : Q3 2,0 of H1 2019. of Covid-19's 2020 results. impact on the 5 000 financial markets. Source : Capital IQ 0,0 0 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
Volume (in thousands) Closing price Europcar Mobility Group SBF 120 rebased EURO STOXX Travel & Leisure rebased
Sources: CAPITAL IQ, FINEXSI analysis
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Since the end of November 2018 and until the day before the announcement of the terms and conditions of the Restructuring, the performance of EUROPCAR MOBILITY GROUP shares has been - 86.7%, compared with 4.6% for EURO STOXX TRAVEL & LEISURE . Over this period, the EUROPCAR MOBILITY GROUP share price fluctuated between €8.74 and €0.50, reached respectively on 27 November 2018 and 25 September 2020, meaning the share's value has been cut by a factor of 17 over the period.
We distinguish three phases in the evolution of the price over the period analysed. The first phase runs from the end of November 2018 to mid-November 2019. A second phase runs from mid- November 2019 to the end of June 2020. Finally, a third phase extends from the latter date to the day before the restructuring arrangements are announced on 25 November 2020:
I. The share price trend over this period was driven by the publication of the 2018 annual results (No. 1) , the presentation of the "SHIFT 2023" strategic plan (No. 3) and the results for the first half of 2019 (No. 4) . The downward trend observed is explained in particular by the economic environment facing EUROPCAR MOBILITY GROUP , which suffered in 2019 from the "deterioration of the environment in Europe, in particular the situation around Brexit and the global economic slowdown", which led it to revise downwards its revenue and profitability forecasts for the 2019 financial year in the third quarter 2019 results announced on 23 October 2019 (No. 5) (-37.1% on the share price at the close of the following trading session). EUROPCAR MOBILITY GROUP 'S share price declined by 59.5% during this phase (compared with +6.1% for EURO STOXX TRAVEL & LEISURE );
II. From this second phase onwards, we consider that the share price is affected in particular by the announcement on November 14, 2019 (No. 6) by EURAZEO , the Company's main shareholder, to "conduct a strategic review of its options regarding its stake in EUROPCAR MOBILITY GROUP that could possibly lead to the sale of all or part of its stake". Since this announcement, various events have accentuated the decline in the share price, and in particular the economic crisis linked to COVID-19 (No. 8), which has had a significant impact on the EUROPCAR MOBILITY GROUP share. It should be noted that the Company was faced with a sudden halt in its business activity at the end of the first quarter of 2020 (share price decline of -71.0% between 18 February and 23 March 2020 compared to -40.9% for EURO STOXX TRAVEL & LEISURE ). Furthermore, short positions, representing around 15% of the Company's capital in February 2020, also accentuated the downward pressure on the share. In this second phase, the EUROPCAR MOBILITY GROUP share price fell by 31.9% (compared with -18.5% for EURO STOXX TRAVEL & LEISURE );
III. At the end of June 2020, market rumours, which in the end resulted in nothing, mentioned a possible takeover of EUROPCAR MOBILITY GROUP by VOLKSWAGEN AG (No. 13) . On 7 September 2020, the Company announced that it intended to enter into discussions with its creditors with a view to restructuring the Group's corporate debt (No. 15) (-39.4% at the close of 8 September 2020), following which S&P downgraded its rating from CCC+ to CC with a negative outlook (No. 16). On 14 October 2020 (No. 17), EUROPCAR MOBILITY GROUP announced that it had obtained the agreement of the majority of its senior bond holders, thus allowing the appointment of an agent in ad hoc proceedings without this procedure being considered as a default. Finally, the Company published its results for the third quarter of 2020 on 26 October 2020 (No. 18), confirming that the Group's activities continued to be impacted by the COVID-19 crisis. The Group believes that it is no longer possible to set financial targets.
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Over the latter period, EUROPCAR MOBILITY GROUP 's share price fell by 51.8%, significantly underperforming the EURO STOXX TRAVEL & LEISURE INDEX (+20.9% over the period analysed).
We remind you that only BANK OF AMERICA CORPORATION has declared that on 30 June 2020 it indirectly exceeded the 5% threshold of capital and voting rights and held 6.31% of the capital and 6.29% of the voting rights. Since then, this company has declared that on 29 July 2020, it indirectly fell below the 5% capital and voting rights thresholds downwards.
CIAM also declared that on 8 September 2020, it had fallen below the threshold of 5% of the share capital and voting rights and held 3.70% of the share capital and 3.69% of the voting rights.
No other shareholder has exceeded or fallen below a threshold since the latter date.
Analysis of the liquidity of EUROPCAR MOBILITY GROUP shares
It should be noted that the proportion of free float was 35.7% at 30 June 2020, as indicated in section 3.1 above.
On the basis of the last share price prior to the announcement of the Restructuring, i.e., on 25 November 2020, the volume-weighted average price (hereinafter referred to as the "VWAP"), the volumes traded in the share and the resulting turnover rates over a 24-month period are as follows
Figure 40- Analysis of the VWAPs and liquidity of the EUROPCAR MOBILITY GROUP 's shares
Volume traded (in K) Capital traded (in K) % of capital % of free float Volume-weighted average price (VWAP) in €/share Average Average Capital Free float Average Cumulative Average Cumulative volume volume traded rotation rotation traded Spot (12/15/2020) 0,840 2 417 2 417 2 043 2 043 1,6 % 1,6 % 2,9 % 2,9 % VWAP 1 month 1,066 11 675 256 860 12 445 273 779 7,5 % 165,6 % 13,8 % 303,1 % VWAP 60 days 0,921 6 767 405 993 6 233 373 962 4,4 % 261,7 % 8,0 % 479,0 % VWAP 3 months 0,907 6 515 423 467 5 908 384 033 4,2 % 273,0 % 7,7 % 499,6 % VWAP 6 months 1,119 4 597 602 195 5 143 673 703 3,0 % 388,2 % 5,4 % 708,5 % VWAP 12 months 1,464 3 312 847 923 4 848 1 241 165 2,1 % 546,6 % 3,7 % 950,1 % VWAP 24 months 2,066 1 979 1 011 423 4 090 2 089 835 1,3 % 652,0 % 2,1 % 1077,1 % Highest 12 months (01/09/2020) 4,66 Low est 12 months (09/25/2020) 0,50 Highest 24 months (01/09/2019) 8,36 Low est 24 months (09/25/2020) 0,50
Source: CAPITAL IQ, FINEXSI analysis
Over the last 60 trading days (prior to 25 November 2020), the cumulative volume of EUROPCAR MOBILITY GROUP shares traded was 386.1 million shares (i.e., approximately 6.4 million shares per trading day). Over the same period, capital turnover was 248.9% and free float turnover was 697.3%.
Over the last six months (prior to 25 November 2020), the cumulative volume of EUROPCAR MOBILITY GROUP shares traded was 587.2 million shares (i.e., approximately 4.4 million shares per trading day). Over the same period, the turnover of the free float amounted to 1063.9%.
An analysis of the volumes traded in the share prior to the announcement of the Restructuring shows particularly high levels of capital turnover, which demonstrates the high liquidity of this share on the stock market, but also the very high volatility surrounding the Company's share price 55 .
55 The volatility of the Company's share price on the stock exchange was 124% (calculated over one year) compared with 33% for the EURO STOXX TRAVEL & LEISURE sector index.
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Indeed, since November 14, 2019 and EURAZEO 's announcement of a possible sale of its stake in EUROPCAR MOBILITY GROUP , numerous events (COVID-19, market rumours about potential buyers, opening of discussions with creditors with a view to restructuring debt) have affected the share price of EUROPCAR MOBILITY GROUP .
In addition, we note that since the announcement of the terms of the Restructuring on 26 November 2020, the share price has remained at relatively high levels, i.e. between €0.74 and €1.17. This means that the share price does not appear to have incorporated the consequences of the Company's financial situation (with a potential situation of cessation of payments during the first quarter of 2021 in the absence of the Restructuring). In addition, the share price includes a proportion, which is not measurable, of the value of the PSR.
We would like to point out that despite the very high volumes, no thresholds have been crossed upward between 30 June 2020 and the date of this report.
For all these reasons, we consider that the share price does not reflect the fundamental value of the Company, and as such we present this reference for information purposes only.
Analysts' price targets (for information)
The analysis of financial analysts' price targets is not a valuation method as such, but rather a summary of opinions. This reference consists of observing the value of a company on the basis of price targets published by financial analysts.
EUROPCAR MOBILITY GROUP is monitored by eight analysts 56 . However, certain share price targets do not seem to reflect the full extent of the financial difficulties currently facing the Company, in particular the potential suspension of payments at the end of the first quarter of 2021 in the absence of restructuring. Moreover, the objectives do not appear to be convergent, as they fall within a wide range, reflecting a ratio of almost four times between the lowest and highest. For these reasons, we present this reference for information purposes only.
The following are the latest price targets published by analysts prior to the announcement of the terms of the restructuring, i.e., prior to 26 November 2020.
56 JP MORGAN , KEPLER CHEUVREUX , ODDO BHF, CM-CIC SECURITIES , GOLDMAN SACHS , MORGAN STANLEY , SOCIÉTÉ GÉNÉRALE , EXANE BNP PARIBAS and HSBC
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Figure 41- Analysts' last published price targets before the restructuring was announced
Date Analyst Target Price Recommandation
10/27/2020 JP Morgan 1,60 € Neutral
10/26/2020 Kepler Cheuvreux 1,50 € Hold 10/26/2020 Oddo BHF 2,20 € Neutral
11/20/2020 CM-CIC Securities 1,00 € N/A 20/27/2020 Morgan Stanley N/A Equal-Weight
10/27/2020 Société Générale 0,58 € Hold
10/20/2020 Exane BNP Paribas 0,68 € Neutral 11/06/2020 HSBC 0,60 € Hold
Mean 1,17 € Median 1,00 € Source: CAPITAL IQ, analyst notes
Since the COVID-19 health crisis, visibility on the evolution of the economic environment has been reduced in the short and medium term and the consensus is that the effects on the company's fundamentals are considerable and that this situation should continue.
• JP MORGAN further states that "the Company will only be able to finance its transformation plan by making the structural investments planned for the medium term through the raising of new funds".
• The financial restructuring, as envisaged by KEPLER CHEUVREUX , aimed at reducing the Company's financial indebtedness, which has increased following the sharp decline in activity, and would be based on "capital increases in order to re-establish a level of corporate gearing that would enable the Company to ensure its financing for the coming years until a return to normal activity".
• ODDO BHF expects a classic scenario of debt-to-equity conversion in addition to the provision of new liquidity. "Such a transaction would naturally lead to very significant dilution for current shareholders, as the market capitalisation is currently around €100 million" (26 October 2020).
• CM-CIC SECURITIES expects "a takeover of 92% to 97% of Europcar's share capital by its creditors" for "the conversion of €1 billion of debt" in order to meet the Company's two objectives, namely "to significantly reduce corporate leverage to close to the post-IPO level (0.9x by the end of 2015), and to raise sufficient funds to finance the Connect transformation plan and get through the period of uncertainty".
• As for MORGAN STANLEY , the analyst points out that the Company's objectives are to ensure a sustainable capital structure adapted to its level of revenue with reduced corporate debt and appropriate liquidity. To achieve this, "a net financial debt at the level observed after the IPO 57 (before acquisitions) would improve flexibility as well as a better conversion of EBITDA to Free Cash Flow and a raising of new funds would ensure the financing of the Connect transformation plan".
57 An Initial Public Offering (IPO) is a financial operation conducted by a company and its various boards that allows the listing of equity securities of that company on a stock market.
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MORGAN STANLEY recalls that "the previous target of 3x Adjusted Corporate EBITDA for debt would suggest a debt target of only €600 million, or approximately half of the level of debt that the Company could publish for the 2020e fiscal year. A debt reduction of this magnitude would likely result in very significant dilution for shareholders". Given the uncertainties that followed the start of negotiations on the restructuring of the Company's debt, MORGAN STANLEY has upgraded its rating to "Equal-Weight" without publishing a target price.
• SOCIETE GENERALE expects the same scenario as ODDO BHF, and estimates that "the Company will need to reduce its net debt by €1.1bn based on (i) a target gearing ratio after financial restructuring of 1x, and an Adjusted Corporate EBITDA target for 2023e before IFRS 16 of €370 million communicated by Management, it being specified that to calculate dilution, SOCIETE GENERALE takes "an assumption of a EUROPCAR MOBILITY GROUP share price of €0.5 (i.e. a 15% discount to the current share price)". For these reasons, SOCIETE GENERALE maintains its "Hold" recommendation by adjusting its 12-month share price target from €1.50 to €0.58.
• EXANE BNP PARIBAS anticipates "a scenario assuming a 2022e Adjusted Corporate EBITDA before IFRS 16 at 75% of the 2018 level (€245 million), which would require a €700 million haircut on debt in exchange for the issuance of approximately €1 billion in new shares". The analyst maintains its "Neutral" recommendation by adjusting its share price target from €2.30 to €0.68.
• HSBC points out that EUROPCAR MOBILITY GROUP "has sufficient cash (€230 million) to meet short-term cash flow constraints". However, "a financial restructuring would aim to reduce its net debt to IPO levels (<1x) and raise sufficient funds to finance its "Connect" transformation plan. A fund raising of €1.1 billion or a debt-to-equity swap of this amount would reduce its net financial debt / Adjusted Corporate EBITDA from 2022e to <1x". The analyst maintains its "Hold" recommendation by adjusting its share price target from €2.30 to €0.60.
The average of analysts' price targets published before the terms of the restructuring were announced was in a wide range between €0.58 and €2.20. Under these conditions, the average price target of €1.17 per share of the Company is not representative due to a significant standard deviation and is far from the fundamental value based on the management's business plan, which appears to be zero. In our opinion, the lack of consensus on this matter illustrates the difficulty of the market in assessing the value of the share in the context.
Summary of our pre-restructuring valuation work
The value obtained using the DCF method is negative, as is the value obtained using the peer group method.
The share price and analysts' price targets do not, for the reasons set out above, reflect the fundamental value of the Company.
In the light of the analyses presented above, we therefore consider that the fundamental value of the Company prior to the implementation of its restructuring is nil, it being recalled that this value includes the ambitions reflected in the management's business plan, even if these are not financed in this hypothesis in the absence of new capital raising.
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Implementation of the valuation of the EUROPCAR MOBILITY GROUP company after restructuring
In order to provide a complete picture of the situation, we also carried out a post-financial restructuring valuation. This approach therefore takes for granted the restructuring transactions that have resulted in a very significant reduction in the Company's net corporate financial debt. As a result, the financial structure has been restructured, leading in particular to the determination of a financing cost improved by the new funds provided in particular by new investors.
Discounting of projected cash flows (main method)
The assumptions in the business plan and the methods used to determine cash flows are identical to those presented in §66.5.1. to which we refer.
Only the assumptions relating to the discount rate, net financial debt and the number of shares (see §66.4.1have been modified to take into account the restructuring of the Company's financial position following the implementation of the Restructuring.
6.6.1.1 Discount rate
The cost of capital after financial restructuring has been estimated at 10.7% based on:
• A risk-free rate of -0.12% corresponding to the average rate of the 10-year OAT (average 1 year calculated at the end of November 2020 - Source: BANQUE DE FRANCE );
• An equity market risk premium of 8.91% (one-year average of the ASSOCIATED Risk Premiums IN FINANCE at the end of November 2020);
• A deleveraged beta of 1.19 58 , corresponding to the 5-year average of the listed peers presented below, it being noted that the use of the 5-year average does not penalise the shareholder by smoothing the measurement of the asset's risk over a relatively long period (the impact of the economic crisis on the asset's beta is thus under-weighted compared to a beta determined over a shorter period);
• A reduced size premium of 0.3% 59 to take into account the significant recapitalisation.
We would like to point out that this rate seems very reasonable to us given the Company's profile and the major uncertainties that weigh on the level and pace of recovery of activity, even after the implementation of the Restructuring, as the Company remains exposed to a significant risk of realisation of its business plan in the current context.
It is notably lower than the rate used by the analyst CM-CIC in its note of 27 November 2020, i.e., 12.5%.
58 Source: CAPITAL IQ as of December 14, 2020. 59 We would like to point out that the size premium has been reduced compared to the one retained before restructuring. Although the operational size of the Company is identical before and after restructuring, the Company benefits mechanically from the impact of the operations on the value of its equity after restructuring (i.e. € 1,355 million), which is such as to reduce the size premium according to the IBBOTSON table.
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6.6.1.2 Results of the valuation
On this basis, the enterprise value according to the DCF method after implementation of the restructuring amounts to €1,744 million, of which more than 100% result from the terminal value beyond the explicit horizon (the flows over the explicit horizon of the business plan being negative).
Taking into account the adjusted net corporate financial debt after restructuring, the Company's equity value is €1,574 million and the value per share is €0.31.
The sensitivities of the EUROPCAR MOBILITY GROUP 'S value per share to a combined change in the discount rate (from -0.5 point to +0.5 point) and the perpetual growth rate (from -0.5 point to +0.5 point) are presented below.
Figure 42- Sensitivity analysis for a combined change in the perpetual growth rate and discount rate
0,0 Discount rate (%) 0 10,2% 10,5% 10,7% 11,0% 11,2% 2,0% 0,37 0,35 0,34 0,33 0,31 1,8% 0,36 0,34 0,33 0,31 0,30
(%) 1,5% 0,34 0,33 0,31 0,30 0,29 1,3% 0,33 0,32 0,30 0,29 0,28 Perpetual Perpetual growth rate 1,0% 0,32 0,30 0,29 0,28 0,27 Source: FINEXSI analyses
The sensitivities of the EUROPCAR MOBILITY GROUP 's value per share to a combined change in the discount rate (from -0.5 point to +0.5 point) and the normative adjusted Corporate EBITDA margin rate (before IFRS 16) (from -0.5 point to +0.5 point) are presented below.
Figure 43- Sensitivity analysis for a combined variation in the adjusted normative Corporate EBITDA margin rate and discount rate
31,4% Discount rate (%) 31,4% 10,2% 10,5% 10,7% 11,0% 11,2% 11,8% 0,36 0,35 0,34 0,32 0,31 11,6% 0,35 0,34 0,33 0,31 0,30
(%) 11,3% 0,34 0,33 0,31 0,30 0,29 Adjusted
Normative Corporate 11,1% 0,33 0,32 0,30 0,29 0,28
EBITDA marginEBITDA 10,8% 0,32 0,31 0,29 0,28 0,27 Source: FINEXSI analyses
6.6.1.3 Alternative scenarios
Other sensitivity analyses
We have conducted alternative sensitivity analyses by simulating a 10% variation, both up and down, in the sales target reached in 2023e, bearing in mind that reaching this target seems to us to be the most uncertain execution factor in view of the current crisis.
For the scenario with a decline in revenue of -10%, the sensitivities of the EUROPCAR MOBILITY GROUP 'S value per share to a combined change in the discount rate (from -0.5 point to +0.5 point) and the perpetual growth rate (from -0.5 point to +0.5 point) are presented below.
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Figure 44- Sensitivity analysis for a combined variation in the growth rate to infinity and the discount rate (downward scenario: -10%)
0,0 Discount rate (%) 0 10,2% 10,5% 10,7% 11,0% 11,2% 2,0% 0,32 0,31 0,29 0,28 0,27 1,8% 0,31 0,30 0,28 0,27 0,26
(%) 1,5% 0,30 0,28 0,27 0,26 0,25 1,3% 0,29 0,27 0,26 0,25 0,24 Perpetual Perpetual growth rate 1,0% 0,27 0,26 0,25 0,24 0,23
Source: FINEXSI analyses
The sensitivities of the EUROPCAR MOBILITY GROUP 's value per share to a combined change in the discount rate (from -0.5 point to +0.5 point) and the normative adjusted Corporate EBITDA margin rate (before IFRS 16) (from -0.5 point to +0.5 point) are presented below.
Figure 45- Sensitivity analysis for a combined variation in the Adjusted Corporate EBITDA margin rate and discount rate (downward sales scenario: -10%)
27,2% Discount rate (%) 27,2% 10,2% 10,5% 10,7% 11,0% 11,2% 11,8% 0,32 0,30 0,29 0,28 0,27 11,6% 0,31 0,29 0,28 0,27 0,26
(%) 11,3% 0,30 0,28 0,27 0,26 0,25 Adjusted
Normative Corporate 11,1% 0,29 0,27 0,26 0,25 0,24 EBITDA margin 10,8% 0,28 0,26 0,25 0,24 0,23
Source: FINEXSI analyses
With regards to the +10% revenue growth scenario, the sensitivities of the EUROPCAR MOBILITY GROUP 'S value per share to a combined change in the discount rate (from -0.5 point to +0.5 point) and the perpetual growth rate (from -0.5 point to +0.5 point) are presented below.
Figure 46- Sensitivity analysis for a combined variation in the growth rate to infinity and the discount rate (revenue upward scenario: +10%)
0,0 Discount rate (%) 0 10,2% 10,5% 10,7% 11,0% 11,2% 2,0% 0,42 0,40 0,38 0,37 0,35 1,8% 0,40 0,39 0,37 0,36 0,34
(%) 1,5% 0,39 0,37 0,36 0,34 0,33 1,3% 0,37 0,36 0,34 0,33 0,32 Perpetual Perpetual growth rate 1,0% 0,36 0,35 0,33 0,32 0,31
Source: FINEXSI analyses
The sensitivities of the EUROPCAR MOBILITY GROUP 's value per share to a combined change in the discount rate (from -0.5 point to +0.5 point) and the normative adjusted Corporate EBITDA margin rate (before IFRS 16) (from -0.5 point to +0.5 point) are presented below.
Figure 47- Sensitivity analysis for a combined variation in the Adjusted Corporate EBITDA margin rate and discount rate (upward sales scenario: +10%)
35,7% Discount rate (%) 35,7% 10,2% 10,5% 10,7% 11,0% 11,2% 11,8% 0,41 0,40 0,38 0,37 0,35 11,6% 0,40 0,38 0,37 0,35 0,34
(%) 11,3% 0,39 0,37 0,36 0,34 0,33 Adjusted
Normative Corporate 11,1% 0,38 0,36 0,35 0,33 0,32 EBITDA margin 10,8% 0,36 0,35 0,33 0,32 0,31
Source: FINEXSI analyses
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One year's delay in business plan flows
We have simulated a slower business recovery scenario than the one forecasted in management's business plan, by shifting flows by one year from 2022e and assuming zero Corporate Free Cash- Flows in 2022e. In this scenario, the last year of the business plan is therefore 2024e.
For this scenario, the sensitivities of the EUROPCAR MOBILITY GROUP 'S value per share to a combined variation in the discount rate (from -0.5 point to +0.5 point) and the perpetual growth rate (from -0.5 point to +0.5 point) are presented below.
Figure 48- Sensitivity analysis for a combined change in the perpetual growth rate and discount rate
0,0 Discount rate (%) 0 10,2% 10,5% 10,7% 11,0% 11,2% 2,0% 0,30 0,28 0,27 0,26 0,24 1,8% 0,28 0,27 0,26 0,25 0,24
(%) 1,5% 0,27 0,26 0,25 0,24 0,23 1,3% 0,26 0,25 0,24 0,23 0,22 Perpetual Perpetual growth rate 1,0% 0,25 0,24 0,23 0,22 0,21
Source: FINEXSI analyses
Exit multiple
We have implemented an alternative scenario in which the terminal value is based on an exit multiple resulting from a sample of comparable transactions observed before the crisis.
However, due to limited information on these transactions, we are not in a position to ensure that all multiples externalized by the sample are determined on the basis of Adjusted Corporate EBITDA, which is the figure of the Company to which the average multiple is applied. In these circumstances, we present this alternative scenario for corroborative purposes only.
We have established a sample of comparable transactions since 2014 on targets belonging to the sector in which EUROPCAR MOBILITY GROUP operates. The transactions selected relate to a significant share of the capital (more than 50%) and therefore include a control premium and, where applicable, the estimated value of the synergies by the acquirer.
We have identified the following transactions for which information was available:
• The acquisition in November 2019 by the French company EUROPCAR MOBILITY GROUP S.A. of FOX RENT A CAR , an American low-cost car rental company;
• The acquisition in June 2019 by the French company EUROPCAR MOBILITY GROUP S.A. of EUROPCAR FINLAND /N ORWAY , EUROPCAR MOBILITY GROUP S.A.' S franchised car rental companies in Finland and Norway;
• The takeover in May 2019 by the Polish finance and leasing company PKO LEASING S.A. of PRIME CAR MANAGEMENT S.A. a Polish company specialising in car fleet leasing and management services;
• The acquisition in March 2018 by the US company AVIS BUDGET GROUP , INC . of OLYMPIC COMMERCIAL AND TOURIST ENTERPRISES S.A. a Greek company providing short and long term car rental services;
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• The acquisition in December 2017 of GOLDCAR SPAIN S.L. by the French company EUROPCAR MOBILITY GROUP S.A. a Spanish company that offers car rental services near airports and in tourist locations in Spain, Italy, Portugal, Malta, Morocco and Andorra;
• The acquisition in September 2017 by the French company EUROPCAR MOBILITY GROUP S.A. of BUCHBINDER GROUP , a German company that is one of the largest car rental companies in Germany and Austria;
• The acquisition in May 2017 by the French company EUROPCAR MOBILITY GROUP S.A. OF its Danish franchisee EUROPCAR DENMARK ;
• The acquisition in December 2016 by the French company EUROPCAR MOBILITY GROUP S.A. OF its Irish franchisee EUROPCAR CAR RENTAL IRELAND ;
• The takeover in November 2015 of JUPOL -CAR SP. Z.O.O. by the British car rental company AVIS BUDGET EMEA LIMITED . a Polish company offering car rental services;
• The acquisition in April 2015, by the US car rental and ride-sharing company AVIS BUDGET GROUP , INC ., of MAGGIORE GROUP , an Italian company providing car and commercial vehicle rental services in Italy and abroad;
• The December 2014 takeover of GOLDCAR SPAIN S.L. by the British private equity firm INVEST INDUSTRIAL . a Spanish company providing car rental services at airports and tourist locations in Spain, Italy, Portugal, Malta, Morocco and Andorra.
For confidentiality reasons related to certain transaction multiples that have not been made public, we do not present the details of the multiples externalized by our sample.
We have applied the average multiple of 6.5x to the Normative Adjusted Corporate EBITDA as derived from the terminal flow. This terminal value was then discounted.
On this basis, the enterprise value after restructuring amounts to €1,666 million.
Taking into account the adjusted net corporate financial debt after restructuring, the Company's equity value is €1,496 million and the value per share is €0.30.
The sensitivities of the EUROPCAR MOBILITY GROUP 's share price to a combined change in the exit multiple (from -0.5x to +0.5x) and in the normative (before IFRS 16) Adjusted Corporate EBITDA margin (from -0.5 point to +0.5 point) are presented below.
Figure 49- Sensitivity analysis for a combined variation in the exit multiple and the Normative Adjusted Corporate EBITDA margin rate
0,3 Exit Multiple (xCorporate Adjusted EBITDA) 0 6,0x 6,2x 6,5x 6,7x 7,0x 11,8% 0,28 0,30 0,32 0,33 0,35 11,6% 0,28 0,29 0,31 0,32 0,34
(%) 11,3% 0,27 0,28 0,30 0,31 0,33 Adjusted
Normative Corporate 11,1% 0,26 0,28 0,29 0,30 0,32
EBITDA marginEBITDA 10,8% 0,25 0,27 0,28 0,30 0,31
Source: FINEXSI analyses
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On these bases, we will use a wide range of values per EUROPCAR MOBILITY GROUP share between €0.24 and €0.37, with a central value of €0.31 after the Restructuring . These values correspond to the values attributable to the management's business plan, which in our opinion appears to be voluntarist, bearing in mind that the Company's business remains exposed to numerous uncertainties.
Listed peers (for information)
As previously, we have retained AVIS BUDGET HOLDINGS , INC . as our sole peer company.
Applying the multiples observed on AVIS BUDGET HOLDINGS , INC . to the 2021e and 2022e Adjusted Corporate EBITDA shows a range of enterprise values between €1,193 million and €1,699 million.
After taking into account the adjusted net corporate financial debt as determined after Restructuring (see §66.4.2.2), the value of EUROPCAR MOBILITY GROUP 's shareholders' equity is between €1,023 million and €1,529 million, i.e. values per share between €0.20 and €0.31 after Restructuring.
We would like to point out that the value of €0.20 expressed by applying the 2021e multiple does not seem to us to be representative of the Company's value, as the 2021e financial year is still significantly affected by the COVID-19 crisis, with revenue of €2.5 billion and an Adjusted Corporate EBITDA margin of 5.7%, which is significantly lower than the normative rate expected by the Company.
Analysts' price targets (for information)
As of the date of this report, only two analysts have published price targets following the announcement of the terms of the Restructuring on 26 November 2020.
ODDO BHF and CM-CIC SECURITIES have lowered their share price targets from €2.20 to €0.45 and €1.00 to €0.64 respectively (including the value attributable to the PSR for the latter).
It should be noted that CM-CIC SECURITIES ' share price target of €0.64 breaks down between, on the one hand, the intrinsic value of the Company estimated at €0.36 and, on the other hand, the value attributable to the preferential subscription right, i.e., €0.28.
As regards ODDO BHF, the latter applies a multiple of 6.5x, observed on average over 10 years at the peer AVIS BUDGET GROUP INC ., to the Adjusted Corporate EBITDA estimated by the Company's management in 2023e (€375 million before application of IFRS 16), i.e. an enterprise value of approximately €2.5 billion, from which is subtracted approximately €300 million related to the bridge from enterprise value to equity value. On this basis, the value of shareholders' equity is approximately €2.2 billion, or approximately €0.45 per share after the Restructuring.
For these reasons, we will use a value range of between €0.36 and €0.45 for these two analysts (excluding the value attributable to the PSR). The analysts' price targets published after the announcement of the Restructuring have been revised downwards to levels that converge towards the intrinsic value resulting from our valuation work, the price target of €0.36 per share being at the upper end of the range of the DCF, which is likely to corroborate this.
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Summary of our post-restructuring valuation work
It should be recalled that given the weight of debt, losses to be financed and investments to be made, as shown in the management business plan, the value of the Company appears to be zero prior to the Restructuring, not to mention that, according to the same forecasts, the Company would no longer be in a position to meet its financial commitments by the end of the first quarter of 2021.
After taking into account the Restructuring, the value per share is as follows according to the valuation methods and references studied:
Figure 50- Summary of EUROPCAR MOBILITY GROUP 'S values per share after restructuring
Valuation methods and references
Subscription price per share
0,19€ 0,38€
0,31
DCF 0,30 0,33 Central case Main method used DCF 0,24 0,37 Alternative scenarios
Stock market 0,20 0,31 peers Indicative methods used Analysts' target 0,36 0,45 prices
Source: FINEXSI analyses
In this context, we consider the DCF approach to be the most appropriate for estimating the value of the EUROPCAR share. On the basis of the management's business plan, this criterion shows a post-restructuring value per share of between €0.24 and €0.37, with a central value of €0.31.
This range is corroborated by the results of listed peers used for information and is not called into question, in our opinion, by the analysts' price targets, also presented for information purposes, whose lower range, which corresponds to a value excluding PSR, is very close to the upper range of the DCF.
It should be stressed that these values are based on activity and margin forecasts, the realisation of which is by definition uncertain, particularly in the case of an activity hit hard by the current health and economic crisis.
In all cases, the valuations carried out show that the Restructuring will restore value to the Company and consequently to the shareholder. It is on the basis of these values that the consequences of the Restructuring for the shareholders will be assessed.
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7. Financial analysis of the Transaction
The financial analysis of the Transaction aims to assess the impact of the Restructuring for the Company (§ 7.1) and the existing Shareholders, in particular in terms of dilution (§7.2), which must be assessed in particular in light of the issue prices of the various stakeholders (§7.3).
Analysis of the post-Transaction financial structure
The main features of the Transaction detailed above are outlined below:
Table 6- Reminder of the main characteristics of the Transaction
Equitization of 1 100 M€ of Corporate debt, of w ich : Conversion of Corporate bonds 1 050 M € of Corporate bond 2024/2026 and 50 M € of Credit Suisse facility
Equity injection of 250 M € through 2 capital increase :
50M € rights issue open to existing shareholders and fully backstopped by bondholders New Money Financial injection 200M € reserved capital increase in cash open to all corporate bondholders on a pro rata contribution of basis and fully backstopped by bondholders Cocom and other 225M € new fleet financing debt facility and fully backstopped by Bond holders bondholders Conversion of unpaid Interests and Forbearance of 22M € interests on corporate bonds and new money exercise of penny injection linked to the exercise of penny warrants (5M €) warrants
Le RCF Corporate est refinancé à hauteur de 670 M € à travers un prêt à terme de Refinancing of RCF 500 M € et un RCF de 170 M €
P GE No change to the existing P GE financing Other Debt Fleet Debt Extension of the SARF to January 2023 (fleet financing)
11.0% penny warrants (on a fully diluted basis) distributed to Bond holders as fees
Bond holders fees P enny warrants Cocom coordination fee: 1.5% Backstop fee : 8.0% P articipation fee : 1,5%
Source: Company, FINEXSI analysis
Financing of the Company
The injection of new liquidity
As we have seen previously, if nothing is done, the Company will no longer be able to meet its financial commitments from March 2021 according to management's short-term cash monitoring and forecasts.
In addition, in order to achieve its Connect transformation plan, the Company must make significant investments over the next few years, which are not financed in its current situation.
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In this context, the injection of €475 million of New Liquidity provided for in the Restructuring, of which €250 million in the form of a capital increase and €225 million in the form of a loan to finance the fleet, should make it possible not only to ensure the Company's continuity of operations by financing the estimated losses resulting from the current crisis, but also to continue its development and transformation by financing the investments provided for in management's business plan.
The conditions for capital increases in cash are discussed in §7.3.1.
We have examined the terms of the new €225 million fleet financing and the €670 million refinancing of the RCF, the interest rates of which appear to be lower than those observed on bond issues with a comparable rating and the actuarial rate of return on the Company's bond debt. The terms of these financings do not call for any further comment on our part.
Debt reduction
The Transaction also has the effect of completely deleveraging the Group at a corporate level.
As a reminder, the Company has a corporate gearing 60 of around 700%, which no longer appears sustainable in the current crisis context.
By providing for the bond debt conversion of €1,100 million and the €50 million CREDIT SUISSE credit facility, the Transaction should enable the Company to strengthen its equity by massively reducing its gross debt from €1,703 million to €603 million, reduce its financial expenses and give it financial flexibility. After the contribution of €255 million in cash from the cash capital increases and the exercise of the Warrants, corporate gearing would become close to zero if we look ahead to the end of December 2020, taking into account the financing requirement for the second half of the year.
Table 7- Changes in the Company's financial structure
Projection - In M€ 30/06/2020 Post Operation 31/12/20
Corporate Bonds 1 050 RCF and NEU Commercial Papers 632 633 633 Other Corporate loans (dont Credit Suisse) 331 281 281 Fleet Corporate Cash (304) (304) (304) Other non cash elements (transaction costs, interest) (7) (7) (7) Corporate debt before restructuring 1 703 603 603
Cash & cash equivalents before restructuring (452) (452) (452) Capital Increase - Rights issue (50) (50) Reserved Capital Increase 1 (200) (200) Penny warrants issue (5) (5) Estimated corporate FCF H2 2020 (negative) 113
Corporate Net Debt 1 251 (104) 9 Market capitalization - 25th november 2020 178 Financial Corporate gearing 703%
Source: Company, FINEXSI analysis
60 The corporate gearing, or corporate financial leverage calculated before and after restructuring corresponds to the ratio of unadjusted net debt before (as of 30 June 2020) and after restructuring to the company's market capitalization before announcement of the terms of the restructuring on 25 November 2020.
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Analysis of the post-Transaction shareholding structure
However, this new financial situation will lead to a strong dilution for existing shareholders.
The level of their post-transaction dilution will depend on:
i. the level of their subscription in the €50 million capital increase proposed for them,
In order to illustrate the different situations, we present below the post-Transaction shareholder situation according to 3 scenarios: depending on whether no existing shareholder, half of the existing shareholders or all of the existing shareholders subscribe to this capital increase.
ii. the level of exercise of the Warrants.
As we will come back to this in detail with the analysis of the Warrants in §7.3.3, their exercise appears very likely and we assume that they will all be exercised, which means maximum dilution for existing shareholders.
On these bases and taking into account the guarantee and participation commitments given by the bond holders and members of the Coordination Committee, as well as the distribution of the bond debt among the bond holders, the post-Restructuring shareholding structure may be as follows:
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Table 8- Potential shareholders of the Company after Restructuring 61
% of subscription of existing shareholders 0% 50% 100% Number of shares held pre Operation - M 155 155 155 % held by existing shareholders 100% 100% 100%
Capital Increase - Rigth Issue Number of shares issued (M) 264 100% 264 100% 264 100% CoCom 234 89% 117 44% - 0% other Bond holders 30 11% 15 6% - 0% existing shareholders - 132 50% 264 100% Issue Price 0,19 € 0,19 € 0,19 €
Reserved Capital Increase 1 Number of shares issued (M) 1 053 100% 1 053 100% 1 053 100% CoCom 834 79% 834 79% 834 79% other Bond holders 108 10% 108 10% 108 10% other participating Bond holders 111 11% 111 11% 111 11% Issue Price 0,19 € 0,19 € 0,19 €
Reserved Capital Increase (2 & 3) Number of shares issued (M) 2 982 100% 2 982 100% 2 982 100% CoCom 1 853 62% 1 853 62% 1 853 62% other Bond holders 1 130 38% 1 130 38% 1 130 38% Issue Price 0,38 € 0,38 € 0,38 €
Penny Warrants Issue 552 100% 552 100% 552 100% CoCom 494 90% 494 90% 494 90% other Bond holders 57 10% 57 10% 57 10% Issue Price 0,01 € 0,01 € 0,01 €
Shares Outstanding post Opération (w ithout T.shares) 5 005 100% 5 005 100% 5 005 100% CoCom 3 414 68,2% 3 298 65,9% 3 181 63,5% other Bond holders 1 436 28,7% 1 421 28,4% 1 406 28,1% existing shareholders 155 3,1% 287 5,7% 419 8,4%
Sources: Company, FINEXSI analysis 62
Thus, the Coordination Committee would hold an overall percentage of the Company's capital of between 63.5% and 68.2%, it being recalled that the members of the Coordination Committee do not operate in concert and that a take-over of the Company is not intended. The other bondholders would hold approximately 28% of the Company's share capital and existing shareholders would hold between 3.1% and 8.4%, after exercise of the Warrants and depending on the level of participation in the open capital increase.
This dilution in capital ownership must be assessed in the light of the different issue prices provided for.
61 The Coordination Committee's combined holding of the bond debt and the Credit Suisse credit facility amounts to 62% and that of the other bond creditors 38%. These proportions are 60% and 40% respectively if we consider only the 2024 and 2026 bonds as a whole. 62 The analysis presented above takes into account the guarantee and participation commitments made by certain bondholders and members of the Coordination Committee. The members of the Coordination Committee act as guarantors for 89% of new financing and for 85% of the refinancing of the RCF. Some of the other bondholders guarantee the balance.
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Analysis of the issue prices of the various capital increases with regard to the dilution / accretion of existing shareholders
We present and analyse below the average issue prices for the various parties involved in the capital increases, in particular by reference to the theoretical post-transaction value per share of the Company, as shown in the valuation presented above.
Analysis of the issue price of capital increases in cash
Capital increases proposed to existing shareholders Existing shareholders will be granted a preferential subscription right (PSR) allowing them to subscribe to new shares at a price of €0.19 63 per share, on a reducible and irreducible basis.
In the Company's current situation, this issue price is not detrimental to existing Shareholders who would not subscribe to the reserved capital increase as it is higher than the zero value of the Company prior to the implementation of the Restructuring.
For shareholders who decide to subscribe, this issue price is slightly below the lower end of the range of post-Restructuring values as expressed by the DCF based on management forecasts, it being recalled that these forecasts are by nature uncertain.
Analysis of Preferential Subscription Rights Taking into account the range of values of the DCF, i.e., between €0.24 and €0.37 per share, and subject to the reservations mentioned above, and an issue price of €0.19, the unit PSR would have a positive intrinsic value of between €0.05 and €0.18.
Each shareholder who does not wish to subscribe to the capital increase with preferential subscription rights will have the possibility to sell on the market the preferential subscription rights that will have been allocated to them in proportion to the amount of shares he holds (on the basis of a parity of 10 old shares giving the right to subscribe to 17 new shares) 64 .
The PSR will therefore also have a theoretical market value which will depend both on the number of shares issued, the number of existing shares, the issue price and the Company's share price.
As an illustration, on the basis of the share price on 17 December 2020, the theoretical value of the PSR can be approached as follows.
63 It should be noted that the rights may only be exercised up to a number of rights which allows the subscription of a whole number of New Shares. Shareholders or transferees of PSR who do not hold, by way of irreducible subscription, a sufficient number of PSR to obtain a whole number of New Shares, will have to acquire on the market the number of PSR necessary to subscribe for a whole number of New Shares. They may also meet to exercise their rights, without this resulting in an undivided subscription, as the Company only recognises one owner for each share. Preferential subscription rights forming fractional shares may be sold on the market during the period of trading of the preferential subscription rights. 64 It should be noted that the preferential subscription rights may only be exercised up to a number of preferential subscription rights that allows the subscription of a whole number of New Shares. Shareholders or transferees of PSR who do not hold, by way of irreducible subscription, a sufficient number of PSR to obtain a whole number of New Shares, will have to acquire on the market the number of PSR necessary to subscribe for a whole number of New Shares.
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Table 9- Theoretical value of the preferential subscription right 65
Number of shares issued (M) 264 Issue Price (€) 0,19 € Number of shares outstanding (M) 155 Share Price 0,74 € TERP (Theoritical Ex-Right Price) 0,39 €
Theoretical market value of DPS - 17th december 2020 0,35 €
Sources: Company, FINEXSI analysis
However, the price at which shareholders will be able to transfer their rights is difficult to determine since the price at which the rights will be transferred will depend essentially on the attractiveness of the capital increase with PSR to existing shareholders. A low subscription demand would result in a potentially significant willingness to sell the rights, and would therefore exert downward pressure on the price of the rights depending on the relationship between supply and demand. It will also be highly dependent on the evolution of the share price, which cannot be anticipated, and it being observed that the share price seems to follow a downward trend since the announcement of the Restructuring, theoretically transposable to the PSR.
Capital increase reserved for bondholders Bondholders also have the possibility of subscribing to a reserved capital increase in cash (the reserved capital increase 1) at a price of €0.19 up to the amount of their share in the 2024 and 2026 bonds. Consequently, as far as capital increases in cash are concerned, existing shareholders may subscribe on the same terms as creditors, which does not call for comment since both capital increases are intended to bring new cash to the company.
Analysis of the issue price of capital increases by offsetting receivables
Analysis in relation to the nominal value of the Company's commitment.
All bondholders will subscribe to two reserved capital increases (reserved capital increases 2 and 3) on a pro rata basis by way of offsetting claims at par. The conversion of the debt will give access to 95% of the Company's shares before injection of the new cash and exercise of the Warrants, and to 59.5%66 of the capital after injection of the new cash and exercise of the Warrants. The issue price for these transactions is set at €0.38 (€0.37 nominal value plus accrued interest of approximately €0.01). This price corresponds to the nominal value of the debt to which the Company is committed, without any premium or discount in this respect. It is very slightly higher than the range of intrinsic values resulting from our work. On this basis, the subscription price of €0.38 is therefore not dilutive to shareholders.
65 TERP = ((0,74€ *155)+(0,19€*264)/(264+155)) Theoretical value of the PSR: 0.74€-0.39€. 66 i.e. 2,982 shares out of a total number of 5,005 shares after the Restructuring (excluding treasury shares).
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Compared to the current shareholders' subscription price of €0.19, the conversion price of €0.38 per share reflects a discount of around 50% representing the implicit write-off granted by the bondholders who subscribed to the bond issue or at a value close to the nominal value.
Observation on the acquisition price for bondholders
The issue price for these transactions is established on the basis of the nominal value of the bond debt, i.e., the Company's commitments.
However, although the subscription price for all the bondholders is identical, the terms and conditions under which they acquire the bonds may be significantly different depending on whether it was acquired at a value close to its nominal value, as is the case for creditors who subscribed to the issue, or at a significantly discounted value subsequently due to the Company's difficulties. For the sake of transparency, this situation leads to an implicit cost price of the EUROPCAR shares issued in the context of the capital increase by offsetting claims that is different for each current bondholder.
As we have seen previously, for bondholders who have subscribed at the issuance date or purchased at a price close to the nominal value, the subscription price of €0.38 per share corresponds to an implicit write-off of 50% of their claim as compared to the subscription price of the current shareholders.
Subsequently, the market value of the bonds fell sharply. The average discount observed on the nominal value of the Company's 2024 and 2026 bonds between 17 March 2020 and 7 September 2020 was 40%.
On this basis, and by way of example, considering that the bonds could be acquired by certain bondholders at a nominal value discounted by 40%, the acquisition price of the shares issued in the context of the capital increase by offsetting claims would correspond by transparency to the subscription price of €0.38 discounted by 40%, i.e. an implicit subscription price of €0.23, close to the lower end of the range of values obtained by the DCF and the subscription price of the current shareholders 67 .
Analysis of the exercise price of the Warrants granted as compensation for services related to the Transaction
The other bondholders may, alongside the Coordination Committee, guarantee the capital increase with PSR proposed to the existing shareholders, the capital increase reserved for them as an injection of new liquidity (the Reserved Capital Increase 1), with the new liquidity intended for the fleet financing and the refinancing of the RCF. In this respect, they will be awarded Guarantee Warrants ( BSA de Garantie ) free of charge with an exercise price of €0.01 in remuneration of their commitments 68 and representing 8% of the fully diluted capital, i.e., after the Restructuring. Bondholders participating effectively in the refinancing of the RCF and in the subscription to the New Liquidities will also be awarded Participation Warrants (BSA de Participation ) free of charge with an exercise price of €0.01 in remuneration of their participation in this refinancing; these Warrants represent 1.5% of the fully diluted capital.
67 It should be noted that the intrinsic value of the bond debt could be less than its market value in the event of default by the Company. 68 this guarantee commitment may be given by any holder of Senior Bonds in proportion to its respective interest in the Senior Bonds as at 25 November 2020 (calculated on the basis of the aggregate interests held in the Senior Bonds by all holders of Senior Bonds acting as guarantors, including the members of the Coordination Committee).
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The members of the Coordination Committee will be awarded Coordination Warrants ( BSA de Coordination ) free of charge with an exercise price of €0.01 as remuneration for their coordinating role of the Transaction and representing 1.5% of the fully diluted share capital. The Warrants will therefore be largely issued in the money 69 and will therefore enable shares to be acquired at a symbolic price of €0.01 per share, well below the other subscription prices, and in particular that of existing shareholders (€0.19 per share); they will result in a maximum dilution of 11% of the post-Transaction capital. These Warrants also have an exercise period of 6 months, a period which to date seems insufficient to confirm the recovery of the Company's business. Under these conditions, bond creditors will fully bear their shareholder risk when exercising these Warrants. However, it should be noted that the subscriptions that will be made by exercising these warrants are not directly comparable as they are in the nature of remuneration, among other things, for the role of coordinating the Operation and/or guaranteeing the financing required to maintain the Company's continuity of operations. It is difficult to accurately assess the levels of remuneration for these services in a restructuring context, which makes it particularly difficult to find new investors, and since they are negotiated on a case-by-case basis. In these circumstances, we have analysed several recent transactions of a similar nature (restructuring of SOLOCAL GROUP in July 2020, TECHNICOLOR in July 2020 and CGG in June 2017) in order to assess certain characteristics of the Transaction, in particular the extent of the restructured debt, the dilution of existing shareholders, and the total remuneration proposed to the Coordination Committee and to creditors as a whole for their services. It should be noted that the scale of this Transaction allows for a significantly greater reduction in financial leverage than in the other three cases presented. On the other hand, given the amount of the restructured corporate debt (€1,100 million), the dilution suffered by existing shareholders proves to be greater than in the other three transactions.
However, the remuneration in the form of warrants offered to the Coordination Committee and other bondholders in connection with the coordination of the Transaction and the commitments to guarantee the injection of new liquidity and the refinancing of the RCF is at the lower end of the range of remuneration observed 70 in transactions of the same nature, even if each has its own specific characteristics.
In addition, it should be noted that this method of remuneration, in the form of dilution of shareholders, enables the Company to save on financial expenses and their disbursement, which will benefit current and future shareholders overall.
Analysis of average subscription prices
As bondholders have the possibility to subscribe at different prices depending on the nature of the capital increase under consideration, we also analysed their average subscription prices in order to compare them with those of existing shareholders.
69 The price of €0.01 is much lower than the intrinsic values resulting from our valuation work. 70 In particular, the remuneration received by creditors amounts to 11% of the Company's share capital on a fully diluted basis, and represents approximately 552 million shares once the Warrants have been exercised. Taking into account new financing and the €1,145 million in RCF, and based on the Company's intrinsic value (€0.31), this remuneration represents approximately 15% of the financing provided. Remuneration observed in comparable transactions is between 16% and 19%.
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Taking into account the guarantee and participation commitments given by the bondholders and members of the Coordination Committee, at the end of the Transaction, they could hold 71 :
For the Coordination Committee:
1,853 million 72 shares subscribed for at a price of €0.38; 1,068 million 73 shares subscribed for at a price of €0.19; 494 million 74 shares subscribed for at a price of €0.01 and resulting from the exercise of the warrants. A total of 2,920 million shares were subscribed for at an average price of €0.31 (excluding remuneration received in warrants). After taking into account the exercise of the warrants, the other guarantor creditors and participants would hold a total number of 3,414 million shares subscribed at an average price of €0.27.
For other bondholders (guarantor and participants):
1,130 million 75 shares subscribed for at a price of €0.38; 249 million 76 shares subscribed for at a price of €0.19; 57 million 77 shares subscribed for at a price of €0.01 and resulting from the exercise of the warrants. A total of 1,379 million shares were subscribed for at an average price of €0.35 (excluding remuneration received in warrants). After taking into account the exercise of the warrants, the Coordination Committee would hold a total number of 1,436 million shares subscribed at an average price of €0.33.
In the event that a bondholder does not undertake to guarantee the new financing and does not subscribe to it, its subscription price would correspond to that of the €0.38 capital increase by debt conversion.
Thus, the average subscription price (including the subscription to shares resulting from the exercise of the warrants) of the Company shares of the Coordination Committee members, taking into account the guarantee and subscription commitments, would be €0.27 and that of the other bondholders may be between €0.33 and €0.38 depending on whether or not they commit to subscribe and/or guarantee the new financing. Existing shareholders who subscribe will do so at a price of €0.19.
71 In the event that existing shareholders do not subscribe to the capital increase open to them. 72 1853 M = 0.62% * 2982 million (number of securities issued for debt conversion) 73 1068 M = 834 million +234 million. The Coordination Committee guaranteed approximately 79% of the reserved capital increase 1 and 89% of the capital increase with PSR. (834 million = 0.79* 1,053 million shares issued during the reserved capital increase 1) and (234 million = 0.89%*264 million shares issued during the capital increase with PSR). 74 Either, in accordance with the guarantee and subscription commitments, 89% of the Guarantee Warrants, 85% of the Participation Warrants and 100% of the Coordination Warrants. 75 1,130 million = 0.38% * 2,982 million (number of securities issued for debt conversion) 76 The other bondholders guarantee 11% of the capital increase with PSR and 10% of the reserved capital increase 1 and undertake to subscribe 10% of the reserved capital increase 1. 77 Either, in accordance with the guarantee and subscription commitments, 11% of the Guarantee Warrants, 15% of the Participation Warrants.
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The average subscription prices of the various bondholders are, therefore, whatever the scenario adopted, higher than the subscription price of the existing shareholders and within the valuation range resulting from our work (i.e., between €0.24 and €0.37), and higher than our estimated values prior to the Restructuring (nil value).
Analysis of the impact on the assets of current shareholders
In order to assess the consequences of the Transaction for existing shareholders, we also analysed the evolution of the value of their assets before and after the Transaction.
As a reminder, the pre-Transaction value of the Company's shareholders' equity as it appears from our valuation work presented in part 6 of this report is nil. On the other hand, the Restructuring will restore value to the Company and therefore to the former Shareholders, whether or not they decide to subscribe to the capital increase reserved for them.
Furthermore, the subscription price proposed to shareholders is below the range of intrinsic values resulting from the valuation work (from €0.24 to €0.37), which reflects a potential creation of value for the shareholder, subject to the achievement of the management business plan on which our valuation is based.
Shareholders who do not wish to subscribe to the capital increase with retention of preferential subscription rights will also have the possibility to sell their rights on the market. In theory, this method allows shareholders to avoid dilution in the value of their assets, bearing in mind that the valuation of the rights on the market depends on several factors likely to strongly influence their price, the evolution of which cannot be known at this time.
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8. Related agreements
There are no related agreements between the Company, its management or shareholders and the Group's creditors in connection with the Transaction, which has been confirmed to us by a letter of representation from management.
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9. Conclusion
We remind you that the purpose of this report is not to give shareholders an implicit or explicit recommendation on whether to participate in the Transaction, but to provide them with information and an opinion on the terms and conditions and the impact for them of this Transaction.
The Transaction is the continuation of a process that began in November 2019 with the announcement by EURAZEO , the Company's main shareholder, of its intention to divest itself of the Company's share capital. In the meantime, the economic environment has changed significantly with the onset of the crisis linked to the COVID-19 pandemic leading EURAZEO to suspend its search for a buyer for its block.
Nevertheless, the Company's Management and Supervisory Board have continued their discussions on the financial and shareholder structure of the Company and contacts have been maintained to this end, which have not been successful.
Due to the very significant slowdown in its activity since March 2020 and the resulting financial difficulties, the Company estimated that it would be faced with a lasting cash shortfall as of March 2021. In view of the need to find a solution to finance its short-term activity and then its investments, the Company then entered into discussions with its bondholders with a view to restructuring its corporate debt and providing new liquidity. The discussions resulted in the signature of a lock-up agreement on 25 November 2020, amended on December 6, 2020.
The implementation of the Financial Restructuring is aimed at massively reducing the Company's corporate debt (€1,100 million plus accrued and unpaid interest) by strengthening its equity capital and providing new cash to finance its operations (€480 million) in order to maintain its ability to continue as a going concern.
In order to assess the situation of the shareholder in the context of this Restructuring, we carried out a multi-criteria valuation of the Company, before and after the Restructuring, in order to carry out calculations about dilution and financial wealth evolution for the shareholder.
Our valuation approach prior to the implementation of the Restructuring appears theoretical since it assumes a going concern assumption, which would not be the case in the absence of the Restructuring. The results of our work show a nil value for EUROPCAR MOBILITY GROUP given the weight of the corporate debt and the financing of operating losses over the coming financial years.
After the Restructuring and with reference to the management's business plan, EUROPCAR MOBILITY GROUP 'S value per share is in a range between €0.24 and €0.37 and €0.31 in central value, based on the DCF method used as the main method. The envisaged Restructuring therefore enables the shareholder of EUROPCAR MOBILITY GROUP to regain value. However, we draw attention to the fact that this valuation is based on forecasts that are by nature uncertain and that we consider to be voluntarist. Indeed, these post-Restructuring valuation levels presuppose the achievement of management's business plan with the achievement of a consolidated revenue target by 2023e of the same order as those observed before the crisis and a return to margin levels in line with those observed historically. These forecasts are also subject to the assumption of a rapid recovery in activity from 2021e.
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On the basis of the work described in this report on the valuation of the EUROPCAR MOBILITY GROUP and the review of the financial conditions of the Transaction, we must make the following main remarks.
As far as shareholders are concerned:
• Shareholders have the option of subscribing to a reserved capital increase with preferential subscription rights for an amount of €50 million. Depending on the level of subscription to this capital increase, they will be diluted between 3.1% and 8.4% of the share capital after the Restructuring, which appears relatively high.
• This level of dilution can be explained by the size of the Restructuring taken as a whole, which is very significant and seems to us to be appropriate to the Company's situation, enabling it to continue its activity with a healthy financial situation. In this respect, we note that the Company's corporate gearing would go from approximately 700% before the Restructuring to a negative gearing after the Restructuring (based on the net cash position as at 30 June 2020). In a dynamic view as at the end of December 2020, i.e. including the expected cash consumption in the second half of 2020, the Company's corporate gearing after taking into account the effects of the Restructuring would be almost zero.
• We also note that the capital increases relating to the contribution of new liquidities, i.e. the one with maintenance of the PSR as well as the one reserved for creditors, are both carried out at a strictly identical price of 0.19€. Shareholders are therefore treated in the same way as creditors from this point of view.
• Furthermore, in view of the results of our valuation work, this subscription price of €0.19 appears to be lower than the Company's intrinsic value. Shareholders could therefore benefit from the value creation resulting from the Restructuring.
As far as bondholders are concerned:
• The capital increases by incorporation of receivables reserved for creditors will be carried out at a price of €0.38, i.e., a subscription price higher than the €0.19 offered to existing shareholders corresponding to the Company's commitments.
• As far as bondholders are concerned, this price of €0.38 appears to be substantially equivalent to the €0.19 price offered to shareholders if we refer to the price of the bonds on the market, which has a discount of around 50% compared to the nominal value. This situation is representative of the cost price for bondholders who have recently acquired the bonds, however the price of €0.38 represents the cost price of the original subscribers.
• The Coordination Committee and the other creditors will be awarded, free of charge and as remuneration for their coordination role and their commitments under the Operation, warrants in 3 categories: the Guarantee Warrants, the Participation Warrants and the Coordination Warrants. The exercise of the warrants at a unit price of €0.01 will give the right to 11% of the Company's capital on a fully diluted basis. Nevertheless, although the exercise of the warrants at the exercise price of €0.01 will have a dilutive impact for the existing shareholders, this impact will remain moderate with regards to the Restructuring as a whole.
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We have compared this remuneration to that observed in comparable transactions, which may have had different terms and conditions. It appears that the remuneration allocated to the creditors in the context of this Transaction, expressed as a percentage of their investment, is within the range of comparable restructuring transactions, it being recalled that the size of this Restructuring appears to be very significant. Moreover, this remuneration in the form of warrants, rather than in cash, will not have any impact on the Company's income statement or on its cash position, which may be used in full to finance the business.
These warrants also have an exercise period of 6 months, a period that to date seems insufficient to confirm the recovery of the Company's business. Under these conditions, creditors will fully bear their shareholder risk when exercising these warrants.
In conclusion, for the existing shareholder, the implementation of the Restructuring enables the Company to continue as a going concern, by consolidating its financial structure and by financing, through the injection of new cash, the estimated operating losses for the coming financial years and future investments. The Restructuring also enables the Company to recover its value compared to the current situation.
Therefore, in the context of the Company's current financial difficulties, we believe that, at the date of this report, the terms of the Transaction are fair from a financial point of view to the shareholders.
Paris, December 28, 2020
FINEXSI EXPERT & CONSEIL FINANCIER
Lucas ROBIN Olivier PERONNET
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Appendix 1: Presentation of FINEXSI and the engagement
Presentation of FINEXSI EXPERT & CONSEIL FINANCIER
The business of FINEXSI EXPERT ET CONSEIL FINANCIER (FINEXSI ) falls within the business lines regulated by the Ordre des Experts Comptables and the Compagnie Nationale des Commissaires aux Comptes. It mainly comprises the following activities
• Statutory audit; • Acquisitions and disposals of businesses; • Contributions and mergers; • Valuation and independent expertise; • Litigation assistance. To carry out these assignments, the firm employs staff with a high level of experience and expertise in each of these specialties.
FINEXSI is an independent firm and does not belong to any group or network.
List of independent expert missions carried out by FINEXSI over the last 18 months
Date Target Initiator Presenting bank(s) Operation Advisory bank(s)
sept.-19 Latecoere Searchlight JP Morgan, Natixis Takeover bid followed by a squeeze-out Deutsche Bank oct.-19 Groupe Flo Bertrand Rothschild, Portzamparc Simplified takeover bid followed by a squeeze-out -
BNPP, Crédit Agricole Perella Weinberg oct.-19 Altran Capgemini Takeover bid CIB, HSBC, Lazard Partners, Citigroup
Andromeda Deutsche Bank, Lazard, march.-20 April Simplified takeover bid followed by a squeeze-out - Investissements Natixis july.-20 Antalis KPP Oddo BHF Simplified takeover bid - july.-20 SoLocal Group N/A N/A Capital increase reserved for creditors Rothschild & Co
Capital increase with maintenance of the Preferential sept.-20 Technicolor N/A N/A Subscription Right and capital increase reserved for Rothschild & Co certain creditors sept.-20 Devoteam Castillon Crédit Agricole CIB Takeover bid - oct.-20 Sodifance Sopra Steria Bryan, Garnier & Co Simplified takeover bid -
Membership in a professional association recognised by the Autorité des Marchés Financiers (French Financial Markets Authority)
FINEXSI EXPERT & CONSEIL FINANCIER is a member of the APEI (Association Professionnelle des Experts Indépendants), a professional association recognised by the Autorité des Marchés Financiers in application of Article 263-1 of its General Regulation.
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In addition, FINEXSI EXPERT & CONSEIL FINANCIER applies procedures aimed at protecting the independence of the firm, avoiding situations of conflict of interest and controlling the quality of the work carried out and the reports on each assignment before they are issued.
Amount of remuneration received and number of hours
Our remuneration for this mission is 420 K€, excluding taxes, fees and disbursements.
The time actually spent on this engagement was of the order of 1,300 hours.
Description of the work performed and work programme
We implemented the following work programme:
1 - Become familiar with the Transaction and accept the engagement
2 - Identify the risks and direction of the engagement
3 - Collect information and data necessary for the engagement:
• Review the Company's sector analysis notes and analysis notes on peers
4 - Assess the specific context of the Bid:
• Discussions with the Company's management
• Discussions with the Company's advisers
5 - Analyse the Transaction and related legal documentation
6 - Review the Company's accounting and financial documentation
7 - Analyse the EUROPCAR MOBILITY GROUP 's share price:
• Analyse the evolution of the share price
• Volatility analysis
• Analyse the free float and liquidity
8 - Review the Company's management’s business plan
9 - Perform a valuation using the discounted cash flow method and sensitivity scenarios
10 - Implement analogue methods:
• Listed peers
11 - Implement methods based on market data:
• Spot prices and volume-weighted average prices
• Analysts’ price targets
12 - Perform a financial analysis of the Transaction
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13 - Analyse the transaction from shareholders’ perspective and from the bondholders’ perspective
14 - Obtain the letter of affirmation from the Company's representative
15 - Draw up the report
16 - Independent review
Timetable of the engagement
As described above, our work began in February 2020 in another context.
We present below the main steps in the timetable of our engagement in the context of the Financial Restructuring project for which we were appointed by the Supervisory Board on 16 November 2020 as Independent Expert.
November 15 and 16, Meetings with the Company's boards on the presentation of terms 2020 and conditions
November 16, 2020 Designation of FINEXS by the Supervisory Board and receipt of the first elements relating to the Transaction.
Conference call with the Boards of ROTHSCHILD & CO, and the law firm DARROIS VILLEY MAILLOT BROCHIER
November 23, 2020 Conference call with the Company's management on the terms of the Restructuring, strategy and business plan
December 7, 2020 Conference call with the Company's management on the terms of the Restructuring and the business plan
December 8, 2020 Conference call with the Company's advisers, ROTHSCHILD & CO, ON the terms of the Restructuring and the Term Sheet
December 9, 2020 Progress report with the Monitoring Committee on the progress of our work
December 10, 2020 Conference call with Ms CAROLINE PAROT on the context of the Restructuring and the Company's prospects
December 16 - 17, 2020 Independent review of the FINEXSI report
December 18, 2020 Presentation of our conclusions to the Supervisory Board of the Company
December 28, 2020 Submission of the report
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List of people met or contacted
EUROPCAR MOBILITY GROUP
• Ms CAROLINE PAROT , Chairman of the Management Board;
• Ms AURÉLIA CHEVAL , Director of Strategy;
• Mr LUC PELIGRY , Financial Director;
• Mr FRANCK ROHARD , General Secretary.
Supervisory Board of EUROPCAR MOBILITY GROUP
• Mr JEAN -PAUL BAILLY , Chairman of the Supervisory Board;
• Mr PASCAL BAZIN , Vice-President;
• Ms MARTINE GEROW , Independent Member;
• Mr PATRICK SAYER , Member;
• Mr PHILIPPE AUDOIN , Member;
• Ms PETRA FRIEDMAN , Independent Member;
• Ms VIRGINIE FAUVEL , Independent Member;
• Ms SOPHIE FLAK , Member;
• Mr SANDY MILLER , Independent Member;
• Ms ADÈLE MOFIRO , Employee representative;
• Mr. ALESSANDRO RICCIOTTI, Employee representative;
• Mr ANTONIN MARCUS , Member.
ROTHSCHILD & CO, Company Counsel
• Ms CAMILLE POCHAT , Manager;
• Mr HENRY BARRAULT , Director;
• Mr CLÉMENT BARRAL , Associate;
• Mr GUILLAUME LOSTIE DE KERHOR , Analyst;
Ms. LUCIE GRESLE , Analyst.
DARROIS VILLEY MAILLOT BROCHIER , Company Lawyer
• Mr. FRANÇOIS KOPF , Attorney at Law, Partner and Co-Managing Partner
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• Mr LAURENT GAUTIER , Attorney at Law, Partner
• Mr. FRÉDÉRIC CHEVALIER , Attorney at Law
Sources of information used
Main information communicated by the EUROPCAR MOBILITY GROUP company
• Market research;
• Business Plan 2020-2023 and all the documents appended for its good understanding;
• Budget 2021 update due to the COVID-19 crisis;
• Consolidated financial statements from 2016 to 2019;
• Financial communications from 2016 to 2020 (H1 and Q3 2020 included);
• All the documentation relating to the Transaction;
• Rating agency reports;
• Notes from analysts following the stock;
• Affirmation letter.
Information provided by DARROIS VILLEY MAILLOT BROCHIER
• Draft transaction notes;
• The various Restructuring Term Sheets , the amendment to the Restructuring Term Sheet and its appendices;
• Fleet financing debt and credit agreements (including RCF);
• Security deeds.
We have received, in due time, all the documents and information necessary for the accomplishment of our mission.
Market information
• Share and bond prices, listed peers, comparable transactions, market consensus: CAPITAL IQ, MERGER MARKET and EPSILON and analyst notes;
• Market data (risk-free rate, risk premium, beta, size premium, etc.): CAPITAL IQ, ASSOCIÉS EN FINANCE , BANQUE DE FRANCE , IBBOTSON and DUFF & PHELPS ;
• Others: XERFI studies.
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Staff associated with the engagement
The signatories, OLIVIER PERONNET (Partner, 35 years of experience) and LUCAS ROBIN (Partner, 20 years of experience), were assisted by MAXIME ROGEON (Senior Manager, 12 years of experience), THOMAS LIBS (Manager, 7 years of experience) and ARTHUR LANDES (Senior Analyst, 2 years of experience).
The quality review was carried out by Mr. OLIVIER COURAU , Partner of the firm (25 years of experience), who was not involved in the valuation work.
Mr COURAU was appointed at the beginning of the engagement and was kept informed of any points of attention or difficulties identified during the engagement until the report was issued. His role is to ensure that the quality of the work and good valuation practices are respected. His work consisted mainly of
. Reviewing the engagement acceptance process and evaluating the firm's independence
. Reviewing the valuation work carried out by the team and the conclusions drawn from this work
. Reviewing the documents on which the opinion of the signatory partners is based and evaluating the format and conclusion of the report
His work was formalised in writing and discussed with the signatory partners.
Mission statement
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FINEXSI A l’attention de Messieurs Olivier PERONNET et Lucas ROBIN 14, rue de Bassano 75116 PARIS
Paris, le 16 novembre 2020
Messieurs,
La détérioration de l’environnement économique et opérationnel et par conséquent de la situation financière de la Société en lien avec la seconde vague de la pandémie de Covid-19, ainsi que l’échec dans la recherche d’un nouvel actionnaire de référence, a conduit la Société EUROPCAR MOBILITY GROUP (ou « la Société ») à annoncer le 7 septembre 2020 l’ouverture de discussions avec ses créanciers en vue de la mise en œuvre d’un plan de restructuration financière. Dans ce cadre, la Société a fait le choix de se faire assister par Maître Hélène BOURBOULOUX en qualité de mandataire ad hoc.
La restructuration financière (« la Restructuration ») sera réalisée par voie d’incorporation de créances au capital de la Société ainsi que par un apport de new money.
Dans ce cadre, un comité de suivi a été constitué avec pour mission de faire des recommandations sur le choix d’un expert indépendant et de suivre ses travaux. Celui-ci vous a recommandé au conseil de surveillance qui vous a désigné le 16 novembre 2020.
C’est dans ces conditions que nous vous faisons parvenir cette lettre de mission dont le contenu a été validé par le comité de suivi.
Objectifs et cadre réglementaire de votre mission
Votre mission consistera en la remise d’un rapport d’expertise indépendante, qui comprendra en conclusion une attestation d’équité sur les conditions financières de la Restructuration et répondant aux dispositions de l’article 262-1 du règlement général de l’AMF, de l’instruction d’application n°2006-08 relative à l’expertise indépendante, ainsi que la recommandation AMF n°2006-15 relative à l’expertise indépendante dans le cadre d’opérations financières (la « Mission »).
Cette expertise indépendante vise à apprécier les conditions financières de la Restructuration qui sera soumise à l’approbation de l’assemblée générale devant se tenir au mois de janvier 2021 et à vous prononcer sur l’équité des conditions financières de celle-ci. Celle- ci devra permettre au conseil de surveillance de la Société d’apprécier les conditions financières de la Restructuration.
Plus précisément, votre intervention relève d’une désignation volontaire, par référence à l’article 261-3 du Règlement Général de l’Autorité des Marchés Financiers.
Europcar Mobility Group 13 ter boulevard Berthier - 75017 Paris, France - Tel : +33 (0)1 80 20 90 00 S.A. à Directoire et Conseil de Surveillance au capital de 163 884 278 Euros - R.C.S. Paris 489 099 903 - N° TVA : FR 24 489 099 903
Calendrier envisagé de l’opération
Votre mission s’inscrira dans le calendrier suivant :
16 novembre 2020 Début de la Mission
28 décembre 2020 Remise de votre rapport
Nous avons compris de nos échanges que vous disposiez des ressources nécessaires pour accomplir cette mission dans les délais impartis, étant précisé que l’article 262-1 II du Règlement général de l’AMF prévoit qu’une fois désigné, l’expert doit disposer d’un délai suffisant pour élaborer son rapport en fonction de la complexité de l’opération et de la qualité de l’information mise à sa disposition et que ce délai ne peut être inférieur à vingt jours de négociation.
Ce délai minium s’entend à compter de la réception de l’ensemble de la documentation nécessaire à l’élaboration de votre rapport. Le calendrier prévu est conforme à ce délai.
Diligences à effectuer
Les diligences qui seront mises en œuvre par Finexsi dans le cadre de la Mission comprendront notamment, conformément aux dispositions du règlement général de l’AMF susvisé et de son instruction d’application n°2006-08 modifiée le 10 février 2020 relative à l’expertise indépendante, elle-même complété de la recommandation de l’AMF en date du 28 septembre 2006 modifiée le 10 février 2020 :
- La prise de connaissance détaillée de l’opération de restructuration financière envisagée telle qu’elle sera présentée pour approbation à l’Assemblée générale, de ses modalités, de la séquence ayant conduit à cette restructuration et du contexte spécifique dans lequel elle se situe ;
- Des entretiens réguliers avec le management de la Société et le comité de suivi ;
- La détermination et la mise en œuvre d’une approche d’évaluation multicritères de la Société avant et après la mise en œuvre de la restructuration (analyse du cours de bourse, DCF, comparables boursiers, transactions comparables, objectifs de cours des analystes…) ;
- L’examen du positionnement des prix de souscription proposés dans le cadre des différentes augmentations de capital par rapport aux résultats des évaluations menées ;
- L’examen et la comparaison de la situation pre et post Restructuration des actionnaires actuels de la Société, ainsi que de différentes parties prenantes, le cas échéant en fonction de différents scénarios ;
- L’analyse des éventuels accords et opérations connexes susceptibles d’avoir un impact significatif sur le prix des augmentations de capital ;
Europcar Mobility Group 13 ter boulevard Berthier - 75017 Paris, France - Tel : +33 (0)1 80 20 90 00 S.A. à Directoire et Conseil de Surveillance au capital de 163 884 278 Euros - R.C.S. Paris 489 099 903 - N° TVA : FR 24 489 099 903
- L’établissement d’un rapport dont la conclusion sera présentée sous forme d’une attestation d’équité ;
- La gestion des potentiels échanges que vous pourriez avoir avec des actionnaires minoritaires et l’AMF.
Conflit d’intérêt
Sur la base des informations portées à notre connaissance, nous comprenons que le cabinet FINEXSI, ainsi que ses associés, sont indépendants au sens des articles 261-1 et suivants du règlement général de l’AMF et ne se trouvent notamment dans aucun des cas de conflit d’intérêts visés à l’article 1 de l’instruction AMF 2006-08 relative à l'expertise indépendante.
Nous vous remercions, pour la bonne forme, de nous communiquer votre accord sur les termes de la présente par retour du double visé.
Veuillez agréer, Messieurs, l’expression de nos salutations distinguées.
Caroline PAROT
Présidente du Directoire
Europcar Mobility Group 13 ter boulevard Berthier - 75017 Paris, France - Tel : +33 (0)1 80 20 90 00 S.A. à Directoire et Conseil de Surveillance au capital de 163 884 278 Euros - R.C.S. Paris 489 099 903 - N° TVA : FR 24 489 099 903