Avis Europe plc Preliminary Results for the Year Ended Dec. 31, 1998
24 February 1999
Avis Europe plc Preliminary Results for the Year Ended December 31, 1998
BRACKNELL, Berkshire--Feb. 24, 1999--Avis Europe plc, the leading car rental company in Europe, Africa, the Middle East and Asia, today announced a significant increase in earnings for the period to December 31, 1998. The Group announced in April 1998 a change in accounting year end from February 28 to December 31 in line with other major car rental companies. The results are therefore presented for both the year ended December 31, 1998 and the 10 months ended December 31, 1998. The highlights below are for the year to December 31, 1998.Highlights
| - | Revenue up 14.3% to (pound)576.3 million ($958.9 million(a))(up 17.5% in ECU). |
| - | Operating profit up 25.6% to (pound)127.6 million ($212.3 million) (up 28.4% in ECU). |
| - | Operating margin up from 20.1% to 22.1%. |
| - | Pre-tax profits up 44.1% to (pound)98.7 million ($164.1 million) (up 46.5% in ECU). |
| - | Earnings up 46.5% to (pound)73.9 million ($123.0 million) (up 48.7% in ECU). |
| - | Earnings per share up 35.1% to 12.7p (21.1(cent)) (up 37.2% in ECU). |
| - | Margin performance driven by revenue per day increases and continued productivity improvements. |
(a) US Dollar equivalents are provided for reader convenience at the December 31, 1998 rate of (pound)1 = $1.6638.
Commenting on the results, Chairman Alun Cathcart said: "Avis Europe has had another excellent year with significant revenue growth in all major markets, reinforcing our leadership position in Europe. We have continued to improve margin performance despite predicted increases in fleet-related costs and have delivered trading results ahead of expectations for a second year. While general economic predictions are for a weaker market environment in 1999, we have had a satisfactory start to the year and are well placed to deliver further growth in the year ahead through continued application of our strategies."
The 1998 Annual Report will be mailed to Shareholders on April 28, 1999.
The financial review and extracts from the audited financial statements are available on www.avis-europe.com from February 24, 1999.
Chairman's Statement
I am pleased to announce Avis Europe's 1998 preliminary results, which continue the excellent performance achieved since our flotation in April 1997. Due to our previously announced change in accounting year end from February 28 to December 31, we are presenting our results for both the year ended December 31, 1998 and the 10 months ended December 31, 1998. To facilitate a more meaningful comparison, the review below focuses on the year ended December 31, 1998, which is also representative of the 10 month trading period to December 31, 1998.
As in previous years, the Group's results are presented in both Sterling and ECU. With the spread of our operations across Europe we believe ECU reporting has provided a more accurate reflection of the underlying performance of our business. ECU reporting has now been replaced by Euro reporting for all future financial periods.
Financial Results for 12 months to December 31, 1998
In 1998 the Group's ECU revenue grew by 17.5% versus prior year (14.9% in like for like businesses, which exclude the acquisition of the Greek licensee and 3 Arrows). Significant revenue growth was achieved in all major markets through a combination of volume and price. Reported revenues were up 14.3% to (pound)576.3 million reflecting the strength of Sterling against the major European currencies during the first half of 1998.
Operating profit for the period of (pound)127.6 million (1997: (pound)101.6 million) was 25.6% ahead of prior year and 28.4% ahead when expressed in ECU. Net interest expense of (pound)29.4 million (1997: (pound)33.5 million) benefited by (pound)3 million as a result of the year on year impact of the flotation proceeds received in April 1997. Interest on increased debt levels, primarily due to acquisitions, was more than off-set by lower interest rates. Pre-tax profits were (pound)98.7 million (1997: (pound)68.4 million), an increase of 44.1%, and earnings were 46.5% higher than last year at (pound)73.9 million (1997: (pound)50.4 million). Earnings per share increased by 35.1% to 12.7 pence (1997: 9.4 pence), reflecting the change in the share structure prior to flotation.
Overview of Trading
1998 was an excellent year for the Group with significant progress in all four areas of our strategic focus, reinforcing our leadership position, pursuing balanced growth in our core market segments, driving strong operating efficiencies and continuing investment in our network development.
In addition to delivering strong financial performance, the Group continued to win several major industry awards.
Leadership Position Reinforced
Avis Europe reinforced its leadership position with a strong revenue increase of 17.5% (ECU), following a 15.5% increase achieved in the year ended February 1998. Revenue performance was driven by a combination of volume and revenue per day increases in existing markets, together with the acquisition of our Greek licensee announced in July 1998.
Rental days, excluding acquisitions, increased by 9.7% and ECU revenue per day by 4.8%. The revenue per day increase was driven by price increases in a number of markets, together with new rental counter products introduced during the year.
The Group achieved double digit ECU revenue growth in each of its five major European markets, including the UK, which together account for 84% of total Group revenues. Economic factors led to a slowdown of demand in the UK market during the last four months of the year. Despite this, our key efficiency measures of people productivity and fleet utilization in the UK were again ahead of prior year by December.
Our operational ability to adjust to changes in demand in relatively short time periods provides a key differentiator for our business versus other travel related industries.
Balanced Growth in our Core Market Segments
We have continued to implement strategies to ensure balanced growth in our core market segments of Corporate, Leisure and Replacement car.
We achieved strong ECU revenue growth of 17.5% in the Corporate market with significant success in small and medium sized account development. The percentage of customers utilizing the Group's speed of service programs at principal business destinations increased by 21%. These programs have been further enhanced with the launch of self-service rental kiosks at key locations in Germany.
We have continued to focus on growth opportunities in the Leisure segment and have successfully integrated our former Greek licensee. From the acquisition in July 1998 through to December 31, 1998, Greek revenue grew by 31% versus the comparable period in 1997. The Group now has a corporate presence in the principal Mediterranean markets and is well placed to extract maximum advantage from future growth opportunities into this region.
We have invested further in partnership development and strategic alliances to underpin our growth. Initiatives within the global partnership with British Airways signed during 1998 contributed to first year annualized revenues 25% ahead of expectations. In addition, we secured six new airline partners during the year. Avis Europe has more airline partners than any other car rental company and also has partnership relationships with Europe's major rail companies.
The 12 year partnership with the French national rail company, SNCF, was further strengthened in 1998 with the signing of an exclusive two year marketing partnership which promotes Avis car rental facilities in 195 railway stations around France and provides 10,000 SNCF employees with facilities to sell Avis rentals alongside rail tickets.
The Replacement car segment, highlighted at the time of our flotation as a targeted expansion area, performed particularly well, with an increase in ECU revenues of 20.4% versus prior year.
In December, we announced that we had acquired 3 Arrows, one of the UK's leading companies in the credit hire and non-fault claims management business, for a total cost of (pound)41.8 million.
This acquisition, which is expected to be earnings enhancing in year one, provides a natural synergy to expand our replacement car activities in a fast growing niche within the overall replacement market, as well as providing a potential springboard into other European markets.
Strong Operating Efficiencies
The Group continued to increase operating efficiencies during 1998, with operating margin improving to 22.1% from 20.1% last year. ECU revenue growth and another significant increase in employee productivity - up 5.8% - were the principal contributors to this performance. During the 1990's the Group has increased productivity by a compound annual growth rate (CAGR) of 5% and we shall continue to find innovative ways of using operational skills and technology to drive further efficiency gains in the years ahead.
This margin increase to 22.1% was achieved despite vehicle utilization remaining at similar levels to prior year following three years of growth, and despite increases in fleet costs which, as anticipated, continue to rise ahead of revenue.
We continue to prioritize investment in information technology in order to increase operating efficiencies and to enhance service delivery. Development of enhanced fleet management systems in 1998 improved the quality of information and control on the purchase and disposal of fleet and these were successfully piloted in Italy. Implementation of new Windows-based functionality for reservation booking contributed to increased efficiencies in the UK call center.
Virtual learning and the new media training program for front line staff started to produce significant results in cost efficiency and enhanced service delivery. Since their launch in April 1998, more than 150 rental staff in the UK have achieved the required performance levels in one third of the time previously taken to train new staff. The system is currently being implemented in an additional 40 countries across the network.
System enhancements to handle the introduction of the Euro were successful, providing on line reservation quotations and billing facilities from January 1, 1999. We can now provide customers with rental quotes and agreements in local currency and the Euro and over 1,000 Euro invoices have been issued during January.
We have carried out a thorough review of our systems to ensure full millennium compliance and are confident that our business critical systems will be Y2K compliant before the end of the year.
Investment in Network Development
Network development remains a priority for the Group and we have continued to pursue opportunities to invest in an extension of our Asian network to create the potential for long term growth in the years ahead.
During the last quarter of 1998 we increased our interest in Singapore. This provides us with a strategic base within the Asian region.
I am delighted to announce that we have recently completed negotiations to establish Avis Rent A Car activities in India through the appointment of a licensee. The Avis licensee will operate under a joint venture arrangement.
EIH Ltd, a publicly quoted company and its affiliates, which are members of the Oberoi Group, one of Asia's leading hospitality and service organizations, will have 67% of the equity with Avis Europe holding the remaining 33%. The new licensee will operate under the Avis name in India as soon as regulatory approvals are received.
We continue to pursue partnership opportunities for the remaining principal open markets of China and Japan.
Dividend
The Board is proposing a final dividend for the 10 month period of 3.0 pence per share, which will be paid on June 3, 1999 to shareholders on the register at the close of business on March 12, 1999. This brings the total dividend for the 10 month period to 4.5 pence per share.
Shareholder Return
The Company has provided shareholders with an excellent return on investment since it floated in April 1997. In 1998 total shareholder return was 48%, based on the increase in share price, together with reinvested dividends.
Summary and Outlook
Avis Europe has had another excellent year with significant revenue growth in all major markets, reinforcing our leadership position in Europe. We have continued to improve margin performance despite predicted increases in fleet costs and have delivered trading results ahead of expectations for a second year.
While general economic predictions are for a weaker market environment in 1999, we have had a satisfactory start to the year and are well placed to deliver further growth in the year ahead through continued application of our strategies.
Avis Europe plc rents cars under the Avis brand name to customers in 110 countries. Avis Europe's ordinary shares trade on the London Stock Exchange. Prices may be accessed on Bloomberg under the symbol AVE LN and Reuter Equities 3000 Service under AVE.L. Additional information is available on Avis Europe's internet site: www.avis-europe.com.
FOR TABULAR INFORMATION PLEASE CALL TAYLOR RAFFERTY ASSOCIATES AT 212-889-4350