Avis Europe issues new shares in recovery bid

The struggling car rental firm Avis Europe today announced plans to raise ?110.5m by issuing new shares as part of its recovery strategy.

The owner of Budget and Avis said it was issuing 334.7 million new shares and will offer existing shareholders four new shares for every seven Avis shares they own. The shares will be priced at 35p each, representing a 44% discount to last night's closing price of 63p.

This latest blow to investors comes after Avis scrapped its full-year dividend payment in February because of tough trading conditions. The group said it did not intend to restore payments this year. Its shares fell nearly 10% today.

Avis Europe has been hit by the downturn in the car rental industry since the September 11 2001 terrorist attacks in the US, which hit tourism. The economic slowdown in Europe has also hurt demand.

More customers have been hiring cars online, making it easier to compare prices and reducing the focus on the quality of service, the company said. The impact on Avis has been lower rental rates at a time when costs have continued to rise.

Murray Hennessey, the chief executive, said the rights issue was necessary for the group to recover from a halving of operating profits between 2001 and 2004.

"It will fund targeted, profitable growth and strengthen our capital base," he said.

Optimism was based on rising disposable incomes in Europe, Asia, the Middle East and Africa, which is expected to lead to people spending more money on leisure and holidays.

Avis plans to focus on its more profitable customers and warned that underperforming rental outlets could be relocated to areas with lower costs or where they were likely to attract more customers.

The company has already started investing more money in sales and marketing to encourage people to book on its website, and is making its prices more flexible to demand.

Costs have also been cut, with Avis halting commissions on directly contracted business and reducing IT staff numbers by 125 since October.