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Last Updated: Tuesday, 27 February 2007, 18:15 GMT
Tough outlook knocks Avis shares
Avis worker
Profit margins have come under pressure
Shares in car hire group Avis Europe have fallen by more than 14% after the company unveiled a drop in profits and said the market would remain difficult.

Restructuring charges and higher fleet costs meant pre-tax profits for 2006 were almost cut in half to 10.7m euros (7.2m; $14.1m).

Avis also warned that future market conditions were set to be tougher than it had previously predicted.

However, it said it was making progress in cutting costs and improving prices.

Cautious outlook

The external environment has been, and is expected to continue to be, more difficult than we assumed two years ago
Murray Hennessy, Avis Europe

Avis said it had experienced a sharp rise in fleet and staffing costs in 2006, and its corporate rental division had seen revenues per billed day fall by 1.4%.

Despite this, the company said it was making "good progress" on implementing its strategy, which sought to lower costs and target more profitable customers.

Avis also said its underlying profits for 2006 before one-off charges - which rose 3% from the previous year to 38.9m euros - were ahead of expectations.

Even so, shares in Avis sank after investors focused on the cautious outlook given by chief executive Murray Hennessy.

"Looking further ahead, the external environment has been, and is expected to continue to be, more difficult than we assumed two years ago and no longer supports the guidance we gave in 2005 regarding margin improvement," Mr Hennessy said.

Shares in Avis Europe closed down 12.5 pence, or 14.62%, at 73p on the London Stock Exchange.

'Difficult' year hits Avis profit
03 Mar 06 |  Business
Avis shares fall on recovery plan
16 Jun 05 |  Business
Avis shares hit by trading fears
16 Dec 04 |  Business

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