Avis Budget Group Inc (CAR) 2008 Q2 法說會逐字稿

Thank you for standing by and welcome to the Avis Interim Results News Wires conference call. At this time all the disciplines are a listen only mode. There will be a presentation, followed by a question and answer session. (OPERATOR INSTRUCTIONS).

I must advise you that this conference is being recorded today, Thursday, August 28, 2008.

I would now like to hand the conference to your first speaker for today, Pascal Bazin, please go ahead sir.

Thank you, good morning everyone and thank you for joining us to talk about Avis interim results today. I am Pascal Bazin, Chief Executive of Avis Europe and I'm joined by Martyn Smith, our Finance Director.

I know it's a very busy day for everyone, so we'll just give you a quick run through the results and operating activity for the first half and then go to questions.

First, there are several key points to make. Economy conditions have been challenging for the industry in the first half, as they have been for everyone, particularly in Spain and the UK.

In that context, we have delivered good underlying trading results. Rental volumes, we are up, as was rental revenue per day, a measuring of pricing. However, these gains were offset by the impact of weaker used car market.

Going forward, we remain focused on the strategic priorities we outlined earlier this year, to drive growth, lower cost and ensure successful operation execution.

So moving on to the headline numbers, overall, revenue was up by 2.7% to EUR620.7 million in reported currency and up by 5.5% at constant exchange rate; a good overall performance supported by a well-balanced geographical spread.

For the main Avis corporately-owned business in Western Europe, we increased the volume by 2.3%, with all the countries ahead, except for Spain and Portugal, where the weaker economic element affected business levels.

Rental revenue per day, a measure of pricing, was up by 2% in the period, at constant currency rates. This improvement is for the second consecutive six-month period and we believe it is a good increase, in view of economic conditions.

Our Licensees business in the rest of the world, continued to deliver excellent growth, with revenues ahead by 16%. We also increased revenues of our Budget branded business by 12.6%, again, with a particularly strong performance by Licensees.

In terms of profit, we reported a highest season in the first half for us of EUR9 million on an underlying basis, with the overall loss before tax, including exceptional interest and foreign exchange instrument valuation, being EUR6.8 million.

This result was impacted by increased fleet costs in the order of EUR9 million, mainly due to the weak used car markets in Spain and the UK. We mentioned earlier, and the prior year period also benefiting from one-time property disposal of EUR2.7 million.

Regarding debt, our borrowings are in line with those of last year. We sold the business in Greece last year, the proceeds being reinvested in our core market.

From an equity perspective, we have no bonds maturing until August 2010, these representing only 3% of our committed facilities.

That's the numbers, I'll now give you a quick summary of the actions we took in the first half to achieve this result in the tough economical environment and how we will continue to drive the business forward and then close with the outlook.

Firstly, as I outlined at the prelims in February, we are differentiating the Avis brand by focusing on service, speed, transparency and choice for our customers. This is helping us build a loyal and a valuable customer base and we have a significant increase of Avis preferred members.

Secondly, we are strongly focused on sales, investing in a web presence to target individual customers, winning new corporate accounts and growing our insurance replacement business which, as you know, balances the seasonality of our leisure customers.

We continue to maximize sales from ancillary products, such as satellite navigation, as well as driving more and more business between different countries within the Group.

We are growing our partnerships, such as with the high speed rail networks, whose customer numbers are growing fast, as well as the main airlines in Europe and the Middle East. We are also targeting emerging markets. Avis holds a leading position across Asian market, and we are particularly developing China and India with our joint venture partners.

Thirdly, we are investing in revenue management activity, aimed at getting maximum price and usage from each car. We took a number of very detailed actions to optimize the mix of car, rental length and pricing across the business. This was particularly successful during Easter and we had a very good extended winter skiing season.

Finally, we keep reducing fixed cost. We are closely managing the fleet and tightening capacity in the second half, in view of the [demand] outlook.

We have made further reductions of people in our headquarters in Bracknell and in our UK rental business. We are releasing seasonal staff faster and have combined the Group separation in Portugal and Spain under a single Managing Director.

We are also further leveraging our shared service center and continue to target damage and [insurance] cost, where we achieved savings of several millions in the first half in these areas.

At the end, let me outline briefly to more recent summer trading and our outlook for the full year.

In July and August to date, revenues are in line with the comparative period, being slightly below expectations. For the second half overall, we [now] expect continued volume growth, albeit more limited. Whilst we also anticipate a continuing improvement in pricing, this will be against stronger comparatives.

As I just mentioned, we are taking further action to reduce cost and our overall expectations for the full year underlying result, therefore, remain unchanged. Key risks to meeting to these expectations are further falls in fleet residual values and more generally, the material worsening of the economic environment.

In summary, therefore, we delivered good underlying results in the first half. Our overall expectations for the full year are unchanged. Our strong operational approach continues and is particularly important in terms of how we managed our fleet cost in the balance of the year. And we clearly remain focused on our strategic priority, to drive growth, loyalty, lower cost and ensure successful operation execution.

Martyn and I are now happy to take any questions.

We will now begin the question and answer session. If you wish to ask a question (OPERATOR INSTRUCTIONS).

Your first question comes from [Sabine Tyrone] of Bloomberg, please ask your question.

Hello, I just wanted to ask quickly, when you talk about tightening capacity going forward, what do you mean exactly and will there be more cost cuts?

Yes, tightening capacity means that -- as everybody is aware we have a very low visibility on the economies in the next month. So, a function of that what we are doing is that we are starting to reduce our fleet and tighten our capacity in terms of number of cars in some of the market, specifically the very seasonal market as Spain, France and Italy, to be sure that we are absolutely not in over capacity in the next months. That's the first point.

The second point is that in terms of personnel staff -- seasonal staff, sorry, we have speed up the exit of our seasonal staff also in these specific countries, in order to be in a very good position to face a potential economic slowdown in the last quarter.

In terms of cost, we are clearly focusing and continuing to push on cost. We have already reduced our cost in our Bracknell operations and headquarters. We have reduced our costs in our UK subsidiary. We are clearly reducing our cost people and all the costs in Spain, where the economy is very challenging.

And broadly speaking, I would say that in the economics in which we are living today, it's clear that cost are a very strong point of focus, fleet, people, but also insurance damage cost. Everything is under scrutiny and the Company is really having a hard look, very regularly, at anything that can reduce cost or flex the cost in [front] of the volumes that are coming.

And so, when you say you are going to reduce capacity in Spain, France and Italy, can you give us -- do you already have a plan by how much or?

We have already reduced capacity by a few thousand cars in some markets. Spain, clearly, we have cancelled some orders to car manufacturers. We have accelerated some sales of cars in Spain and outside. So Spain, we are speaking of several thousands of cars, because of all the condition of the market.

France, we have speed up the exit of the cars at the end of the season. And here again, we are speaking of a few thousands of cars. So, we are putting our self in a situation where we rather prefer to have a tightened fleet in the uncertainty of the economy than to have too many capacities in the today market conditions.

And is there any market where you're actually expanding capacity?

Sorry?

Is there any market where you're actually expanding capacity?

In some, yes. In some market we are not expanding, but keeping our capacity; the German market, the Austrian market, Swiss market and even the Italian one for the past season, our markets which are today quite well orientated. So, we are keeping our capacity, even if we are really very close to them and absolutely are ready to tighten if something happens.

And looking forward, how do you see the daily rental revenue going? Do you see further increases or --?

We had an increase, as I said, of 2% on the first half of the year at constant currency. We still expect to have another increase on the second semester, probably a bit lower than 2%, knowing that it is against highest comparative last year, because you will remember that the second half of 2007 was the first time since a long time, where we were able to put prices up.

We still expect prices to be up, mainly because we are absolutely maximizing a major investment that we've done in the last three years in terms of yielding capacity, which is revenue management. And we believe that the results we've got in the first half of the year are more coming from the use of the investments across all our networks than from the market.

Okay, thanks a lot.

Thank you.

(OPERATOR INSTRUCTIONS). There are no further questions at this time, please continue.

Okay, if there are no further questions then please do give us a call during the day. You should know where to find those numbers on the press release. Thank you very much everyone for joining

Thank you.

Thank you.

That does conclude our conference for today.

For those of you wishing to view this conference, the replay facility can be accessed by dialing within the UK on 0845 245 5205, or alternatively on country code plus 44 1452 55 00 00. The reservation number is 621 229 54#. Thank you for participating, you may all disconnect.