| Tue 15 Jan 2002, 0:00 | | Strong Finish For December Quarter Carries Over In |
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Avis Southern Africa Limited
Press Release
15 January 2002
Dear Avis stakeholder
Strong finish for December quarter carries over into new year
The past quarter started in the turbulent aftermath of September 11 and in
my November newsletter, I noted that in the light of the global jitteriness
then prevailing, we thought it prudent to take a conservative view of our
short-term prospects.
I am happy to report that the quarter turned out to be close to our
original expectations, and that our car rental operations in South Africa
and Scandinavia have again succeeded in achieving double-digit growth in
rental days sold, the industry's main performance benchmark. However, South
Africa's regional neighbours are still suffering from negative sentiment
and volumes there remain weak. Fleet Services maintained a healthy
profitability on the back of new products and a firm used-car market.
Locally, October and November were a little subdued in terms of inbound car
rental business but by December, volumes were ahead of the previous year's.
The growth has continued into 2002 and international reservations for
January and for February are currently very strong - a situation which is
likely to be sustained through the rest of the peak tourist season to
April. Our new inbound rate structure came into effect in November as
planned and consequently our average all-in rate per rental day is now
improving in line with our expectations. An interesting feature of our
December figures, incidentally, was a significant increase in the level of
local leisure business: many South Africans who usually holiday abroad
clearly opted to stay here.
The December quarter is not a peak season for Scandinavia but our
operations in Norway and Sweden nevertheless posted a 14% increase in
rental days for the quarter. We are well pleased with the value that we
have been able to introduce to these operations through our focused
approach to car rental. There is every indication that this value is
sustainable and that we can expect 25% of the group's net profit to be
generated outside the Rand Monetary Area by next year.
Reserve Bank approves additional investment in Scandinavia
At the start of the quarter, we invested a further R150 million in
Scandinavia with Reserve Bank approval. The money is being used to
establish a business providing longer-term vehicle use products such as
leasing, for which we have identified a significant demand in that market.
A+ long-term credit rating for Avis
Avis has been assigned an A+ long-term credit rating by CA-Ratings, the
South African affiliate of Standard & Poor's. The agency said the Avis
strengths which had supported this investment-grade rating included its
high-quality management and systems; its capacity to benefit from a tourism
swing to Southern Africa; the volume growth opportunities arising from
horizontal expansion in its Scandinavian operations; the growth potential
of its fleet service business; and the anticipated increase in hard
currency earnings from its offshore interests. We commissioned the ratings
examination partly to provide investors with a clearer understanding of our
gearing level, which is conservative by industry standards, and partly to
facilitate negotiations with international banks and suppliers. We have
already experienced the benefits of this rating through the successful
issue of short-term paper to a major local institution.
The rand: swings and roundabouts
Last year's precipitous decline in the value of the rand has benefits as
well as disadvantages for Avis. On the plus side, it will enhance the
value of our foreign operations and will undoubtedly boost inbound tourism
to South Africa, which at current exchange rates is ridiculously cheap to
visitors from abroad. It is also likely to enhance the already buoyant
used-car market, which traditionally responds well to new-car price
increases. We expect new-car prices to rise by about 15% in the first half
of the year and perhaps by another 5% later. While this will obviously
have an impact on our vehicle costs, we are generally keeping these well
under control. In fact, over the past year we have succeeded in reducing
vehicle holding costs expressed as a percentage of our revenues. The other
cost factor which will be affected adversely is the price of participation
in the global GDS reservation system. On balance, however, we believe that
the positives will outweigh the negatives.
Avis again demonstrates resilience and sustainable growth potential
As we enter the last quarter of our financial year, Avis is well on track
to produce a real growth in headline earnings for the 12 months to March.
The fact that it will have done so in a climate of unprecedented global
uncertainty and in the face of challenging market conditions is a tribute
to the essential soundness of the business - a business which is well-
balanced between the strong cash flows and trading upside of our car rental
operations, the annuity income of Fleet Services and the increasingly
substantial rand-hedge component of our offshore interests. The results
for the year will be published on or about 16 May: as usual there were will
be presentations in Johannesburg and Cape Town, to which you will be
invited nearer the time.
Yours sincerely
Grenville Wilson
Chief Executive
