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Avis Europe plc Annual Report 2010

Avis Europe plc, Avis House, Park Road, Bracknell, Berkshire RG12 2EW

Telephone +44 (0)1344 426644Facsimile +44 (0)1344 485616www.avis-europe.com

Award winning

World Travel Awards, Europe’s leading business car rental company 2010

World Travel Awards, World’s leading business car rental company 2010

World Travel Awards, Asia’s leading car rental company 2010

World Travel Awards, Indian Ocean’s leading car rental company 2010

World Travel Awards, Middle East’s leading business car rental company 2010

British Travel Awards, best business car hire company 2010

British Travel Awards, best car hire company of the year 2010 (silver)

Business Travel Awards,best car rental company in Europe 2010

Business Travel Awards,best car rental company worldwide 2010

World Travel Awards, Africa’s leading business car rental company 2010

British Travel Awards, best holiday car hire company 2010

Grand Travel Award for Norway’s best car rental provider 2011



Grand Travel Award for Sweden’s best car rental provider 2010

Shareholder information

Designed by Tor Pettersen & Partners. Typesetting by Orb SolutionsPrinted by Park Communications on FSC certified paper. Park is an EMAS certified CarbonNeutral® Company and its Environmental Management System is certified to ISO14001:2004. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. This document is printed on Revive 50:50 Silk, a paper containing 50% recovered waste and 50% virgin fibre sourced from well managed, sustainable, FSC certified forests. The pulp used in this product is bleached using a Totally Chlorine Free (TCF) process.

avis-europe.com Annual Report 2010 85

Registered office and head officeAvis House, Park Road, Bracknell, Berkshire, RG12 2EWTel: +44 (0) 1344 426644Fax: +44 (0) 1344 485616Registered number: 3311438

WebsiteThe Avis Europe website, www.avis-europe.com, includes an Investor Centre and is continuously updated with announcements and Avis news.

RegistrarShareholders with queries relating to shareholdings, change of address, lost share certificates or dividend payments should contact the Company’s registrar, Equiniti, on 0871 384 2278 or write to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA.

The registrar provides a wide range of shareholder information online. Shareholders can check their holding and find practical help on transferring shares or updating their details at www.shareview.co.uk

Founders ClubFounders Club members and holders of other shareholder privileges should use the following dedicated phone line for all reservations and enquiries including queries about discounts – 0844 581 0173.

Since 1 January 2005 Avis Europe plc no longer offers discounts for new shareholders.

ShareGiftShareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to charity through ShareGift, a registered charity administered by The Orr Mackintosh Foundation. The share transfer form needed to make a donation may be obtained from the Company’s registrar, Equiniti. Further information about ShareGift is available at www.sharegift.org or by telephone: 020 7930 3737

OverviewAvis Europe at a glance

What We do

We are a leading vehicle rental company operating two of the main global brands, Avis and Budget, in Europe, Africa, the Middle East and Asia. Avis Europe operates the Avis and Budget brands in its territories under long-term licences from Avis Budget Group, Inc. (ABG), which operates the brands in the rest of the world. Although under separate ownership, Avis Europe and ABG have close commercial ties, joint marketing initiatives and technology to provide a global service to customers.

MaRket oveRvieW

We operate in 13 countries on a corporately-owned basis and have licensee operations across a further 102 countries. Together with the ABG network, we have over 7,600 locations across our worldwide network.

CuSTOMER OvERvIEW

Our customers can be characterised into three main groups: Individual, Corporate and Insurance/Replacement. The analysis of customers by customer type, location and country for our corporately-owned segment is as follows:

Rental revenue by country

France

24%

Germany

17%Italy

17%

UK

15%

Spain

13%

Other

14%

Rental revenue by customer

Individual

54%Corporate

34%

Insur/Rep.

12%

Rental revenue by location

Airport

53%Non-airport

47%

avis-europe.comAnnual Report 2010 1

OVERVIEW ifc Avis at a glance 2 Market analysis 4 An integrated business model

BUSINESSREVIEW 6 Chief Executive’s review 12 Corporate social responsibility 18 Financial review

CORPORATEGOVERNANCE 24 Chairman’s statement 25 Board of Directors 26 Corporate governance report 30 Risks and uncertainties 34 Statement of Directors’ responsibilities 34 Remuneration report 42 Directors’ report FINANCIALSTATEMENTS 44 Auditors’ report 45 Consolidated Income Statement 46 Consolidated Statement of Comprehensive Income 47 Consolidated Balance Sheet 48 Consolidated Statement of Changes in Equity 49 Consolidated Cash Flow Statement 50 Significant Accounting Policies 56 Notes to the Consolidated Financial Statements 78 Auditors’ Report – Parent Company 79 Parent Company Balance Sheet 80 Parent Company Cash Flow Statement 81 Significant Accounting Policies –

Parent Company 82 Notes to Parent Company Financial Statements 84 Five Year Summary 85 Shareholder Information

ContentsStRAtEgIC PRIoRItIES

Financial review p18 >>

We measure our performance through a number of Key Performance Indicators:

SuMMARY oF KEY PERFoRMANCE INDICAtoRS

Rentalrevenueperday5(% change)

+2.4%reported currency

(2009: +1.0%)

Billeddays9(% change)

(0.1)%reported

(2009: (10.3)%)

We now intend to maximise opportunities from the improving trends we are seeing across the industry as a whole, which will support our continued push for improved margins and cash generation. the strength of our brands, service and innovative offer to customers position the group well to take full advantage of opportunities in both our traditional core and emerging markets and in growing our new mobility offers.

Continue to develop our strong customer oriented and mobility brands

Drive profitable growth

Ensure capital efficiency

our focus

Strategy p6 >>

+1.6%constant currency6

(2009: +0.7%)

+0.8%like-for-like4

(2009: (8.4)%)

Footnotes and detailed definitions are described on page 23

Underlying1ReturnonCapitalEmployed3

12.4%(2009: 9.9%)

Utilisation10

(% pts change)

+1.0%pt.(2009: +3.9% pts)

Underlying1 pre-taxmargin2

4.2%(2009: 3.0%)

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2 avis-europe.comAnnual Report 2010

overviewMarket analysis

OperatingenvironmentMarketanalysisandgrowththere is little external data available regarding the European car rental market. the main source is Euromonitor, who estimate that €8.0 billion of car rental revenues were generated in Europe during 2010. the largest countries by revenue were germany (24%), Spain (17%), France (17%), the uK (15%), and Italy (14%). During the year, Euromonitor estimated that a combined fleet of approximately 1.1 million vehicles was employed by the car rental industry, representing a reduction of 2.3% compared with 2009.

Car rental industry transaction growth has historically been approximately correlated to general economic activity levels plus, in the case of rentals from airports, to airline passenger volume growth. From these perspectives, the operating environment in 2010 began to recover from the difficulties experienced in 2009.

Consensus Economics Inc report an estimated 1.7% increase in euro-area gDP for 2010, contrasting with a decline of 4.0% for 2009 and growth of 0.3% in 2008. In respect of the uK, they report estimated gDP growth of 1.7% for 2010, following declines of 5.0% and 0.1% for 2009 and 2008 respectively.

the Airports Council International reported growth of 4.2% in European passenger numbers in 2010 compared with a reduction of 5.4% in 2009.

Correspondingly, during 2010 the operating environment began to ease across most European countries compared to that experienced in 2009. Euromonitor report a reduction of 2.3% in the number of rental transactions for the industry, with revenues ahead by 0.1%. this compares to a reduction of 10.4% in rental transactions in 2009, with an 8.8% reduction in revenues.

In respect of 2011, Consensus Economics Inc forecast growth of 1.5% in euro-area gDP. In respect of the uK, they report forecast gDP growth of 2.1%. Both these figures are broadly similar to 2010 estimates.

growth expectations for the airline sector tend to be higher than gDP growth, driven in part by structural trends, in particular by the continued growth of low cost airlines. the Airports Council International currently estimates growth in passenger traffic for flights in Europe of 3.1% for 2011 and 4.1% for 2012.

Marketcompositionthe car rental market is generally categorised either by the type of customer group, (Individual, Corporate, Insurance/Replacement) or by the location of the rental service (airport, non-airport). In 2010, approximately 52% of the market was estimated to be Individual, with 40% being Corporate and 8% being Insurance/Replacement business. During 2010, 65% of the industry’s revenue came from airport rentals, with 35% attributable to non-airport locations.

We recognise three key customer groups within our corporately-owned network, each with differing needs and expectations: Individuals, Corporate and Insurance/Replacement.

Individual:these customers are individual travellers booking directly or indirectly through travel companies, tour operators, partnership arrangements and brokers. this category is more seasonal than the Corporate customer category, with demand peaking over the key holiday periods. Individual customers are principally attracted to Avis by its widespread network, quality of service, reliability, car choice, brand, website and competitive prices.

Corporate:Corporate customers book via negotiated arrangements with their employers and through vehicle replacement companies. this customer category displays a relatively even pattern of demand throughout the year. the key requirements of Corporate customers are competitive prices, speed and quality of service, reliability, car choice, availability of management information and geographical coverage.

Insurance/Replacement:these customers come through insurance and leasing companies, vehicle dealerships and repair

shops with which Avis has a direct contractual relationship. this category also displays a relatively even pattern of demand throughout the year and customers’ requirements are similar to those in the Corporate customer group.

Partnershipsto support business from both Individual and Corporate customers we have an extensive portfolio of over 70 international partnerships with the world’s airlines, railway networks and other leading travel companies.

Stations/locationsRental locations throughout the network are selected for their convenience to customers, with particular importance attached to representation at airports, rail locations and other major travel points. Whilst Euromonitor estimates that across the market as a whole 65% of revenue comes from airport rentals, Avis benefits from a broadly even distribution of revenue from airport and non-airport locations due to its significant international network.

CompetitionIn Europe three large multinational companies comprise around 61% of the overall market. Euromonitor research shows that the Avis and Budget brands had the second highest aggregate market revenue share in Europe in 2010 at 18.3%. the Europcar group (which includes the National and Alamo brands) holds the highest reported share at 26.7%, while Hertz is the third largest operator with a reported market share of 16.1%.

In specific markets we face competition from other car rental operators. For example, Sixt is a major competitor in germany with a share of 31.8% in that market and Enterprise in the uK holding 8.1% of that market (source: Euromonitor). there are a large number of other operators with strength in particular markets, examples being Maggiore in Italy and ADA in France.

It is noteworthy that in our territories we operate two of the three established global brands, Avis, Budget and Hertz.

Very strong 2010 performance in the improving trading environment


WHERE WE oPERAtE

our network comprises countries in Western Europe (the corporately-owned countries) plus a wider network of licensee operations across the rest of Europe, Africa, the Middle East and Asia.

the Budget-branded business is corporately-owned in seven western European countries with the remainder of the network represented by licensees.

Corporately-ownedAustriaBelgiumCzech RepublicFranceGermanyItalyLuxembourgNetherlandsPortugalSingaporeSpainSwitzerlandUK

LicenseeAsiaAfrica & Indian OceanCentral/Eastern EuropeMiddle East & MediterraneanScandinavia

No Avis presence.

Avis Europe plc Avis Budget group, Inc.*

Europe Americas Africa Australasia Middle East Asia Territories: Asia

Corporately-owned: Countries 13 7Locations 1,897 1,997

Licensees: Avis Countries 99 49Budget Countries 54 52Avis Locations 1,301 897Budget Locations 613 937

* Avis Budget group, Inc., independently owned and quoted in the uS, operates Avis and Budget brands in the Americas, Australasia and Asia.

Corporately-ownedAustriaFranceGermanyNetherlandsSpainSwitzerlandUK

LicenseeAfrica & Indian OceanCentral/Eastern EuropeMiddle East & MediterraneanScandinavia

No Budget presence. In Asia, the Budget brand is operated by Avis Budget Group, Inc.

Avis: geographic presence as operated by Avis Europe plc

Budget: geographic presence as operated by Avis Europe plc

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the table below links our vision and values to each of our stakeholder groups and the strategies and business drivers we have to achieve our objectives. the risks we face and the Key Performance Indicators we use to measure our progress are also set out by stakeholder.

overviewAn integrated business model

VISIoNthe leading global mobility solutions provider – “Convenient mobility with the Avis human touch.”

Delivering long-term profitable growth

Loyal customers choosing Avis everywhere

Making Avis a great place to work

Alignment with travel partners to create mutual competitive advantage

Minimising our environmental impacts

Make positive contributions to the quality of life in the communities where we operate

VALuES“We try harder.” is the ethos that runs through Avis and manifests itself in everything that we do

the highest standards of governance

Communicating with shareholders on a timely, clear and fair basis

Convenient mobility with the Avis human touch

Fostering a culture of open and informal working in which all employees can grow to their full potential

Doing business with integrity, professionalism and sensitivity

Committed to measuring the impact that our business has on the environment

Community investment guidelines set out our investment criteria

Strategy p6 >>

StRAtEgIC FoCuSA clear strategy to grow both profitability and return on capital employed

Maximising opportunities from progressive demand recovery in our traditional core businesses

Strengthening leading market position and accelerating growth in fast-growing geographical markets

Developing new mobility solutions to anticipate changing consumer behaviours

Continuing to improve cost and capital efficiency

Delivering consistently high service standards

Working with pace and focus to meet customer needs, going the extra mile

Ensuring our people are well trained and positively incentivised

Seeking partnerships with companies who have the same ethos

Remaining a carbon-neutral operation

Actively driving employee engagement in volunteering and fundraising


our proven flexible business model helps deliver a strong performance

BuSINESS DRIVERSStrongly differentiated and global leading brands

growth, linked to general economic activity and, in the case of airport rentals, to airline passenger volume growth

Changing consumer attitudes towards car ownership

Flexible cost base, strong asset backing with a wide range of funding sources

Develop strong customer-oriented andmobility brands

Brand leadership and service differentiation

Worldwide network

Living the “We try harder.” ethos consistently

Making Avis the preferred car rental employer

Fostering long-term relationships with key airline, rail and other corporate partners

Well established licensee partners

Strong relationships with vehicle manufacturers

Reducing energy consumption

Low-emission fleet

Risks p30 >>

RISKSManaging risk through geographic and customer diversification and maximising flexibility in our business model

Funding

Interest and foreign currency

International operations

Demand

Pricing and competitive pressures

Pensions

Fleet

Relationship with Avis Budget group, Inc.

Information systems

Insurance

Airports and railway stations

KPIs p6 to p23 >>

PERFoRMANCEWe have chosen the Key Performance Indicators (KPIs) below to measure our progress over time

Corporately-owned segment• Rental revenue per day• Billed days• utilisation

total group• underlying pre-tax margin• underlying return on capital employed

overall satisfaction levels

Net Promoter Score™

Customer complaints

Station performance

Employee satisfaction levels

Retention of contracted business Licensee revenue

Supplier diversification

Reduction and offset of emissions

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2010 has seen a progressive return to growth in the car rental industry as global economic conditions have stabilised, albeit with a number of unforeseen disruptions to the travel industry during the year. this has enabled us to continue our focus on driving further improvements in pricing together with a tight control of costs and capital. At the same time, we invested in future growth opportunities, particularly our continued expansion in China and introducing new mobility customer offerings.

We significantly improved underlying1 profit before tax to €51.0 million (2009: €35.2 million), with pre-tax margin2 ahead by 120 basis points to 4.2% and return on capital employed3 ahead by 250 basis points to 12.4%, all at the highest levels in five years.

Progressiveimprovementinrentalincomethrough both market recovery and our own actions to gain market share we saw a progressive improvement in volumes in our corporately-owned segment during the year with billed days turning positive in the second half, leading to a like-for-like4 increase of 0.8% for the full year. An improving macroeconomic environment, our geographic diversification, brand leadership and service differentiation all contributed to this performance which was achieved despite the disruptions to travel caused by adverse weather conditions across Northern Europe at both the beginning and end of the year and the Icelandic ash cloud in April. We saw an improving trend in the majority of countries, the main exception being Spain where the trading environment continues to remain difficult. We achieved the highest growth

Business reviewChief Executive’s review

Brand leadership and service differentiation are key strategic drivers

We are committed to serving all of our stakeholders.

Stakeholder Main strategic focus

Shareholders Develop strong customer-oriented and mobility brandsDrive profitable growthEnsure capital efficiency

Customers Deliver consistently high service standards Brand differentiation

Employees Ensure our people are well-trained and positively incentivised

Business affiliates Develop strategic alliances

Environment Reduce our impacts to a minimum

Community Contribute to the quality of life in the communities in which we operateDrive employee engagement in volunteering and fundraising

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the Board monitors a range of financial and non-financial performance indicators, reported on a regular basis, to measure the group’s performance. of these, the Key Performance Indicators (KPIs) are set out below:

Corporately-owned segment KPIs

Rental revenue per day

Billed days

utilisation

Progress 2010

Continued to monitor capacity levels closely, capitalising on investments made in revenue management and seeking to optimise customer mix, which led to a 1.6% increase.

through both market recovery and gaining market share, we saw a progressive improvement in volumes, 0.1% lower overall and 0.8% ahead on a like-for-like basis.

1.0% pt. improvement in utilisation in addition to the step-change improvement in 2009, despite operational challenges arising from the ash cloud.

overall group KPIs

underlying pre-tax margin

underlying Return on Capital Employed

Progress 2010

Significant improvement in underlying profit before tax drove 120 basis point increase in pre-tax margin to 4.2%.

underlying return on capital employed was ahead 250 basis points to 12.4%, driven by an improvement in operating margin and strong capital employed performance.

In the opinion of the Directors, underlying pre-tax margin is a more appropriate key performance indicator than underlying operating margin as it includes the financing cost of operating a rent-a-car business. Accordingly, the KPIs presented have been amended since the comparative year in respect of this change.

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Business review ChiefExecutive’sreviewcontinued

customer mix. these actions have all helped to achieve a 1.6% improvement in constant currency6 rental revenue per day5. Fee income from Licensee segments was 8.6% higher. Most Avis regions were ahead of prior year, benefiting from earlier volume recovery and favourable exchange rates. Reported Budget income was lower year-on-year as two markets were reorganised as corporately-owned operations.

TightcostandcapitaldisciplineFollowing the substantial reduction of the fixed cost base in 2009, we continued to focus on maintaining discipline over all cost lines. the average number of staff was reduced by a further 2.9% and we extended the salary freeze of the previous year through the first quarter of 2010.

During the year, we increased the operational integration of the corporately-owned Budget rental locations with Avis to now include germany and Holland, further maximising synergies by fully combining fleet and back office functions.

We have also driven further efficiencies in business processes. We extended the

in the uK largely as a result of winning several major new corporate contracts and gaining share in the less seasonal and off-airport Insurance/Replacement customer group.

We are focussed on differentiating and strengthening our brands. Recent initiatives have included the re-launch of our customer booking websites, enhancing our online customer invoice portals, introducing an iPhone rental reservation application and the development of a Blackberry booking solution. these enhancements and innovations complement the continued success of our “3-minute promise” under which we guarantee our Avis Preferred customers their keys and rental agreement within three minutes of entering the rental station. this service remains unmatched in the rental industry.

In addition, we saw further substantial growth in the recently introduced customer offer, Avis Flex, a versatile monthly rental product to satisfy increasing demand for greater flexibility from our Corporate customers.

We have continued to monitor capacity levels closely, capitalising on the investments made in revenue management and seeking to optimise

Quality of service is a key differentiator. Customer loyalty is important and we use the following customer KPIs to track our performance and drive improvement.

Customer KPIs Progress

overall satisfaction levels overall satisfaction levels improved by 1% over the year, mainly as a result of greater customer satisfaction with vehicle choice, availability and condition.

Net Promoter ScoretM our Net Promoter ScoretM measures customers’ willingness to recommend Avis to a friend. this KPI improved by 2% pts. during 2010, reflecting growing customer loyalty based on their recent Avis experience.

Customer complaints the percentage of customer invoices which were adjusted in 2010 increased by only 0.1% pt. from 2009, in a year which included a high degree of travel disruption due to adverse winter weather, the volcanic ash cloud and airline industrial action.

Station performance the station performance score, which measures the overall efficiency of the running of a rental station, remained stable throughout 2010.

implementation of an improved systems interface for rental station staff, thereby reducing training needs and improving the customer experience. the strong focus on fleet costs remains and we are presently rolling out a new system to help minimise vehicle holding costs by further optimising the rotation of vehicles on the rental fleet.

FurtherimprovementinutilisationWe have increased utilisation10 by a further 100 basis points to 73.9%, in addition to the 390 basis point step-change improvement achieved in the prior year. this is despite the operational challenges arising from the ash cloud and a progressive rebalancing of holding periods for our non-repurchase vehicles. Introduction of a non-cancellation fee is also helping improve utilisation, as we now receive more advance notice of customers’ changed travel plans.

ContinuedmomentumofgrowingmarginsandreturnsAs a result of the above actions, underlying operating margin2 further improved by 10 basis points to 9.0%. Net finance costs substantially reduced as a result of both lower debt levels (reduced by the Rights Issue and continued


Avis Home Delivery Designed to make the car rental experience more convenient, we launched doorstep delivery and collection throughout the UK during 2010. Building on our existing delivery and collection capability for Corporate customers, our Individual customers can now have their rental car delivered direct to their home and collected at the end of the rental for a small additional fee.

The service has proved extremely popular with customers, with over 90% of respondents to a recent survey saying they would recommend Avis Home Delivery to a friend. Customer take-up continues to show strong growth, supported by specific marketing activity including a successful nationwide radio campaign.

Avis FlexLaunched in 2009, Avis Flex provides a flexible and cost effective long-term rental solution for Corporate customers. During 2010 Avis Flex was rolled out to 10 European markets with revenue growth doubling versus 2009.

New websiteThe enhanced Avis website was launched across all corporately-owned countries and a number of licensees in June 2010. The customer journey through the website has been substantially refined, with a 50% reduction in the number of steps required to make a booking. Since launch, the number of visitors to our site who go on to make a booking has increased by circa 20%.

iPhone appThe Avis iPhone app launched in eight countries during 2010 and will be extended to a further six countries in 2011. Customers can search for vehicles, obtain quotes and book their hire cars in three easy steps and in less than three minutes. A Blackberry app is being developed for 2011.

Differentiation through innovation

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capital discipline) and reduced interest rates. As a consequence, underlying pre-tax margin was strongly increased by 120 basis points to 4.2%.

underlying return on capital employed was ahead by 250 basis points to 12.4% driven by both the improvement in operating margin and the focus on capital employed.

StrategicdevelopmentIn addition to the continued focus on our traditional markets in Western Europe, we continue to invest in our international operations. this includes continued licensee network development (for example, the recent opening in Vietnam) and rapidly expanding our joint venture in China. In addition to the long-term growth potential in these markets, we are already beginning to benefit from the very strong growth rates in outbound international travel of these customers into our traditional markets.

Furthermore, we have identified growth opportunities as consumers and businesses begin to seek to move away from existing vehicle ownership patterns, recognising that we are well placed to help shape the evolution of environmentally compatible mobility. Current investment and development activity in such mobility offers includes the acquisition of Vinci Park’s interest in our Paris car sharing operation, now being re-launched as Avis on Demand; the

launch of home delivery and collection in the uK and the development in France of an alternative short-term solution for leasing customers of Citroen.

Outlookour dual-brand strategy and global reach is well placed to drive growth and benefit from the improving economic climate in most of our main markets. While visibility remains limited, particularly in Spain, we expect overall volumes to further improve and we will continue to seek to enhance pricing.

Costs and capital discipline also remain key and we continue to focus on improving utilisation. Furthermore, net finance costs will reduce year-on-year, benefiting from cash flow performance and the full year effect of the Rights Issue. We therefore expect a further increase in our underlying pre-tax margin during 2011.

In addition to the focus on our traditional core markets, benefiting from the Avis and Budget brand strengths and close attention to quality of service, we will also continue to invest in future profitable growth opportunities, particularly our ongoing expansion in China and other fast growing markets, and innovate through the introduction of further new mobility customer offers. the Board remains confident of further progress in the year ahead.

Footnotes and detailed definitions are described on page 23

Underlying Return on Capital Employed (%)

8.5

2007 2008 2009 2010

9.09.9

12.4

Underlying pre-tax margin (%)

2.8

2007 2008 2009 2010

2.9 3.0

4.2

Underlying Return on Capital Employed (%)

8.5

2007 2008 2009 2010

9.09.9

12.4

Underlying pre-tax margin (%)

2.8

2007 2008 2009 2010

2.9 3.0

4.2


Avis’ presence in China.Our early market entry and the strength of the Avis brand are reinforcing our leading market position. We currently have 39 locations in 28 cities and are on track to increase the number of rental stations to 100 by the end of 2012.

DongGuan

GuangZhou ShenZhen

XiaMen

WuHan

ChangShaChongQing

QingDao

TianJinBeiJing

DaLian

ShenYang

Ha’ErBin

JiNan

Xi’An

ChengDu

NanChang

HangZhou NingBo

ShangHai

JiangYinHeFei

ChangZhou

SuZhou

NanJing

WuXi

ZhongShanHongKongJiangMen

Kunming

Lhasa

Wurumqi

Xining

Hohhot

Yinchuan

Lanzhou

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Business reviewCorporate social responsibility

We have a comprehensive environmental programme in place to ensure that we progressively reduce Co2

emissions in our premises, offset non-reducible emissions, continue to introduce less polluting vehicles onto our fleet and encourage our customers and partners to offset their emissions.

We face challenges in setting formal overall targets for energy consumption because in many rental stations, particularly at airports, we share our location with other users, and thus have limited ability to directly affect energy use. However, where possible, our corporately-owned country headquarters and rental stations, plus our shared service centres, have set individual targets. In addition, we have forged closer links with certain airport operators to introduce joint environmental initiatives, particularly in relation to recycling. For example, we recycle office equipment and computers in conjunction with local authorities and airports. on community matters, our corporately-owned operations have made good progress in providing vehicles for community purposes and local environmental improvements. Local management has discretion to support staff that volunteer and raise funds for causes of their choice, and the year has seen a lively range of charitable activities throughout our operations. Examples include staff volunteers running for Action against Hunger in France, employees supporting the Fair trade Association in Italy, and donating writing materials to a primary school in Kenya from the uK.

In the workplace we actively seek to ensure and improve employee satisfaction, which together with customer satisfaction, is fully recognised as being essential for the long-term success of the group. our values are set out in our statement of business principles (see www.avis-europe.com).

We are a member of the FtSE4good Index and the Kempen/SNS Smallcap SRI Europe Index.

EnvironmentSeveral converging factors make our green agenda increasingly important, not least the need to align our CSR policies with those of our customers. We are installing on our fleet newly developed electric vehicles, which are key in the drive for a low-carbon economy. Added to this is the stimulus from legislative pressures such as congestion charges in major cities and the greater onus on companies to disclose carbon emissions.

the largest of our impacts on the environment is greenhouse gas emissions. Since 1997 we have offset such emissions through innovative renewable energy and energy efficiency projects, and through reforestation. For every metric tonne of Co2

produced, we fund an equivalent metric tonne to be saved by climate-friendly offsetting initiatives in conjunction with the CarbonNeutral® Company.

We measure our environmental impacts through a management information system that integrates environmental reporting into financial reporting, both tracking utility use and business travel. the system encompasses our corporately-owned

Board level responsibility for Corporate Social Responsibility (CSR) rests with the Chief Executive. In our corporately-owned operations, CSR management and monitoring is assigned to local management. In licensee countries, our Regional Licensee Directors are responsible for promoting alignment with group CSR principles and policies.

CSR strategy is an integral part of our “We try harder.” philosophy. We are committed to the strategy of measuring the effects of our business operations on the environment and progressively reducing the impact.

Being a good corporate citizen is an integral part of our business model

country headquarters and rental stations, plus our shared service and call centres.

our data is reviewed and analysed by an independent third party assessor working with the CarbonNeutral® Company.

In 2010 emissions from our corporately-owned operations amounted to 15,901 tCo2

e, a reported increase of 17.6% compared with 2009. However, with the restatement of emissions relating to gas and electricity usage in the uK business and to vehicle usage in Spain in 2009, the overall increase in emissions was 0.8%.

BuildingsandpremisesDuring the year we have taken further steps to make our buildings and premises more environmentally friendly, and make it easier for staff to play their part. Initiatives include:

• Reducing utility usage by conducting an internal Co2

emissions reduction programme. this included energy audits, installing motion sensors into lighting, and changing to lower electricity consumption technology. Measurements in germany indicate that converting fascia signs to LED technology delivers energy savings of some 85%.

• Signing our first green electricity contract, under which the entire electricity needs of the European headquarters from April 2011 to March 2012 will be met from 100% renewable resources such as wind turbine, bio-mass and hydro systems.


Italy: The Mary Poppins foundationSince 2001, this voluntary foundation has been supporting children with cancer in the Paediatric Oncology Clinic of the Rome General Hospital. It provides lodging and financial help for children and their families who visit Rome for cancer treatment from other countries, mainly in Asia and Africa. In the last 10 years, Avis has raised €45,000 for the foundation, and collected €4,000 in 2010 to equip a sterile specialist treatment room.

Avis donates this money to the foundation through an amateur theatrical company, Dolphin’s Company, with which some Avis employees are involved. Every year, Avis funds a charity performance for employees, customers, partners and consultants, with proceeds donated to the Mary Poppins foundation.

Spain: Employee volunteering in BarcelonaEvery quarter, when employees of the Barcelona Call Centre commit 12 hours or more of their own time to a charitable organisation, we donate €150 to that charity. Typical volunteering in this highly successful programme involves spending time talking with elderly people and helping with shopping or housework, or providing Spanish lessons to immigrant children in the city.

Hungary: Toxic waste disasterOctober brought Hungary’s worst-ever ecological disaster as up to a million cubic metres of toxic red sludge escaped from a reservoir and poured through villages and towns – eventually polluting the River Danube and affecting other European countries.

Seeking to help, the Avis shared service centre in Budapest (“BSC”) opted for donations boxes in the office which quickly filled up with €500. We subsequently tripled this amount and sent €1,500 to the Red Cross – resulting in a positive effect not only on the community affected by the disaster but also on the BSC team who united for a common cause.

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• Moving from our current 60-80% towards 100% target for recycling the group’s refuse. We recycle all paper, plastic and cans – in some offices providing staff with recycling bins instead of waste bins – and where possible have become totally paperless.

• using e-learning and video-conferencing to reduce travel. Seven countries now participate, with a resulting significant reduction in European travel.

• Encouraging car-sharing at our European headquarters by allocating priority parking spaces in our car park, reserved for staff who travel together.

• Re-cycling water by washing our cars with rain water that has been collected and recycled.

CertificationsWe have worked with the CarbonNeutral® Company since 1997 to offset our operational Co2

footprint by purchasing offsets from independently validated and verified clean and renewable energy projects around the world. Projects in 2010 included:

• A biogas project at five farms in the Netherlands to reduce methane emissions and displace fossil fuels used to heat local buildings.

• Wind power projects in the Erode district of tamil Nadu, India, and at two sites in turkey. these generate clean electricity that otherwise

MobilityAs car usage in general shifts towards a more economical and emission-conscious approach, we are exploring new growth opportunities, recognising that we are well placed to help shape the evolution of environmentally compatible mobility. As part of this, we are encouraging the development of new solutions that both reflect changing consumer behaviour and complement the traditional car rental business.

one such solution is the Paris-based car-sharing initiative oKIgo, now being re-launched as ‘Avis on Demand’ following the acquisition of Vinci Park’s interest in this operation. Customers pay a subscription to have an Avis car available 24/7 for rental periods as short as one hour. Studies show that sharing a car in this way effectively replaces up to eight individual cars.

A unique partnership formed with Citroen France during the year is also geared to encouraging more prudent use of the car. Entitled “Business Pass”, it enables us to offer leasing customers a different car for a period – such as family vacation – where their needs are different from normal working days. this way, customers have an economic alternative to owning a larger vehicle, but still retain flexible mobility.

Business review Corporatesocialresponsibilitycontinued

would have been derived from power stations burning fossil fuels.

• A river hydro-power project in the mountainous province of Yunnan, Southern China – delivering electricity to the local power grid and displacing electricity that would have primarily been derived from fossil fuel-fired power stations.

our European corporately-owned operations maintained their CarbonNeutral® status during 2010, while Avis Norway and Sweden maintained their eco ISo 14001 standards.

LicenseesLast year our licensee in South Africa achieved Carbon Neutral Accreditation by offsetting its greenhouse gas emissions for its internal electricity and fuel consumption to net zero. this year, seeking to reduce its carbon footprint further, Avis South Africa has appointed EnviroServ Waste Management to help implement an integrated waste management system and recycling programme at its offices around the country.

Many of our licensees have put a range of creative ideas into practice, aimed at recycling more, while reducing energy and water usage and Co2

emissions. For example, in turkey and Zimbabwe licensees have been balancing their Co2

emissions with tree-planting programmes.

Environment targets Progress

Emissions reduction

Emissions offset

Fleet initiatives

In 2010 emissions from our corporately-owned operations amounted to 15,901 tCo

2e, an

underlying overall increase of 0.8%.

We continued, and will continue, to maintain our CarbonNeutral® status, and have a committed budget attached to this.

through a number of ‘green’ steps, such as extending the Avis Eco Collection of low-emission vehicles, 55% of 2010 fleet purchases emitted below 140g Co

2 per km.

We will reduce this further as electric vehicles enter the fleet during 2011.

our group policy is to progressively reduce our impacts on the environment in every area of our operation.


In the year ahead we will pilot other environmentally friendly mobility solutions, with the aim of formally launching the best candidates.

CarportfolioContinuing the “greening” of our fleet, we have signed a pre-order for 500 electric vehicles from Renault. these will join our fleet in late 2011, and by the end of the year Avis customers in seven countries will be able to hire the Renault Fluence ZE and Renault Kangoo Express ZE.

We have also extended the low-emission AVIS ECo collection launched in the uK late in 2009. this guarantees customers a fuel-efficient, sub-120 Co2

emission diesel model every time they rent a car from the new collection.

our fleet now includes several hundred new and environmentally friendly “green” cars that run on fuels other than petrol or diesel, or use advanced emission-reducing technologies. these include:

• toyota Prius vehicles extended during the year to the uK.

• Honda Civic hybrids introduced in germany and Portugal.

• Natural gas Volkswagen tourans in germany;• LPg-fuelled Volkswagens in Italy.• BMW 1 series with stop-start technology in

and to make free transport available for community activities. In 2010, among many other initiatives, we provided some 40 vehicles from Avis France to help transport artists and equipment to a concert in aid of Les Restaurants du Coeur, a charity that supplies free meals for people in need. All profits from the concert go to the charity. In Italy, we provided a car for a month for use in helping the elderly in Milan during the summer holidays.

In addition to this activity across our corporate and licensee network, we support uNICEF on a variety of projects, as well as initiatives that are particularly important to local staff. In the uK, for example, employees took part in the annual “Santa Dash”, a 5km run that raises money for thames Hospicecare. In Spain, Avis in Malaga supports people with disabilities by recycling waste paper, card and plastics through the Disabled Parents Association.

DRIVINGENGAGEMENTDevelopingourpeopleour Human Resources vision is to enable people to grow within our company – developing both themselves and our organisation. In 2010 we invested in improving capability and engagement at all levels.

Spain, germany, the uK, Belgium, Italy and the Czech Republic.

• Ethanol-powered Saab 9-5 BioPower cars, Ford Flexi-fuel and toyota Prius vehicles in Scandinavia.

By frequently updating our fleet, we ensure that we are using the latest low-emission vehicles available, and we check them after every rental to maintain their optimum operating efficiency.

As a result of these and other changes, 55% of 2010 fleet purchases emitted less than 140g Co2

per km, on a par with European norms.

Ongoingenvironmentalfocusthe year ahead will see us continuing to seek opportunities to reduce Co2

emissions from all our buildings and operations. Specific initiatives include further trials of various mobility options, along with our first large-scale trial of electric vehicles in our increasingly “green” fleet.

GIVINGBACKCommunityWe aim to make a positive contribution to the quality of life in the communities where we operate.

our community investment guidelines encourage us to help with local environmental improvements

SantadashIn the uK, employees at the group headquarters in Bracknell took part in the annual “Santa Dash”, a 5km run that raises money for thames Hospicecare, a local charity.

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16 avis-europe.com Annual Report 2010

The quality of line management is critical to the development of our organisation, and we introduced workshops to help clarify requirements and raise capabilities. Employees in all areas of our business took part in workshops to discuss “what makes a great Avis manager?”. Using the results of this we have:

• Setoutamanagementcharteroutliningexactlywhatisexpectedofmanagers.

• Sharedbestpracticesacrosstheorganisation.• Createdacomprehensiveline-manager

development programme that we will roll out acrossourcorporately-ownedcountries.

Always acutely aware that it is our people who deliver our brand promise and bring “We try harder.” to life, we also invested in the skills of ourfront-linecustomer-facingemployees.

In 10 stations across Europe we piloted advanced customer service training, and as part of this implemented a series of local initiatives which employees had identified as key to raising service standards. This proved highly successful in boosting skill, motivation and engagement levels andwillbeextendedmorewidelyacrossEuropein 2011.

recognise those who achieve good results in what is still a tough business environment.

We have been particularly aware in 2010 of the need to thank our people at every opportunity for their continued commitment.

The “We try harder.” promise We rely on our people to deliver the “We try harder.” promise and appreciate that it is essential that we make Avis an enjoyable place to work where employees can develop and grow.

We keep the spirit of “We try harder.” alive throughCompanyinductionprogrammesandthrough our communications and training programmes. Employee recognition programmes that encourage teamwork are widely used. For example,everycountryrecognisesits‘Stationof the Year’ and individual employees recognise colleagues who have demonstrated great commitment or service through a scheme known as‘MakingaDifference’.

In addition, most of our countries hold annual conventions that celebrate the brand, teamwork and public recognition of those who have exemplifiedthespiritofAvis.

Business review Corporate social responsibility continued

2010 also saw a major drive on leadership development. In partnership with Ashridge BusinessSchoolintheUKwerana3½dayleadership programme for 50 senior managers, focusing on the leader’s role in shaping culture, driving results, and engaging teams.

In addition, we carried out a comprehensive reviewofsome350managersanddirectors–looking at potential to grow within the company, personal aspirations and possible career paths. Every individual reviewed was given open feedback.

WorkplaceWe continued to review our organisation to ensure weremainaseffectiveandflexibleaspossible. In the current economic environment it has proved even more important than ever to communicate wellwithourstaff.Despitethetightcontrolofcosts and employee numbers, staff morale overall remains very positive and we celebrate this and applaud success at every opportunity. We communicate regularly and openly at team level, and enable employees to have direct contact with senior management. We continue to provide training and development opportunities and to

AvisPortugalgavesometrulyhands-onsupporttoalocalorganisationthatcaresforhomelesspeople–agroupthatAvis volunteers feel are often overlooked.

TheCentrodeAcolhimentoCasadoBeatohostssome300peopleeverydayforfood,shelterandmedicalcare.AvisvolunteerscollectedblanketsandothernecessitiesfordeliverybeforeChristmas,butfollowedthiswithaninternalpostercampaign‘Thistime,insteadofanAvisshirt,we’llbeusingan apron’ and then providing, cooking and serving a special dinner for the homeless. The whole Avis team felt they had made a real difference, and are now planning to help more social causes.


ETHICSDisabilitypolicyWe are committed to encouraging the recruitment, development and retention of disabled people. Specifically, the Company commits to:

• Interview all (internal or external) applicants with a disability who meet the minimum criteria for an advertised job vacancy.

• Make every effort when employees become disabled to enable them to stay in employment.

• take action to ensure that key employees, such as senior managers and managers with vacancies, develop an awareness of disability, so that our commitments are met.

If an employee becomes disabled while working for Avis, they are encouraged to notify the Company and we make every effort to ensure continued employment. If appropriate, the Company will arrange suitable training and rehabilitation and will make any reasonable adjustments.

DiversityDuring 2010 we continued to focus on developing a workforce that reflects the communities we serve. In particular, we continued to ensure our management structure reflects the international nature of our business. the Avis Executive Board comprises six different nationalities. In our

contact centre in Barcelona we employ some 30 nationalities, and in our group headquarters we now have some 21 different nationalities working side by side.

EqualopportunitiesWe operate in many countries with diverse employment practices. Whilst respecting local circumstances, wherever we operate we follow the principles of equal opportunity in recruitment, development, remuneration and advancement.

We make every effort to offer part-time and flexible working arrangements to those employees who have personal and family commitments.

HealthandsafetyWe continue to embed a robust health and safety culture across the group, with each country required to report quarterly on key statistics.

the majority of countries have increased training in this area, with many taking action locally to further improve performance. For example, in our contact centre in Barcelona we held a health and safety week to raise knowledge and awareness amongst our employees. During the week a series of activities took place including workshops and relaxation sessions.

our working “climate”

As part of our drive to improve the engagement of employees, we introduced an exercise that enables us to monitor the working “climate” regularly. At least quarterly, every line manager leads a discussion with their team regarding their commitment and motivation levels, team issues, and ideas for improvement. the results of these discussions are aggregated at country level and reported to the Avis Executive Board. this process enables us to remain sensitive to the working atmosphere and morale, and quickly respond to issues.

By ensuring ownership for the working climate with managers and their teams, we have been able to empower people locally.

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profit flow from the improvements in rental rate per day, and our continuing tight control of costs. Amounts excluded from underlying were €31.0 million lower, primarily reflecting the exceptional reorganisation actions in the prior year, with operating profit therefore €35.8 million higher.

Corporately-ownedoperations € million 2010 2009

Rental revenue 1,034.8 1,011.4

other revenue 118.6 107.8

Rental income 1,153.4 1,119.2

Cost of sales (665.8) (642.2)

gross profit 487.6 477.0

Administrative expenses (419.1) (408.9)

Underlyingoperatingprofit 68.5 68.1

Rental income from the corporately-owned business segment was 3.1% higher at €1,153.4 million in reported currency and 2.3% higher on a constant currency6 basis.

% change versus prior period

First half Second half Full year

Rental length (0.2) 3.0 1.7Billed days (5.1) 4.2 (0.1)Rental revenue per day 4.5 (0.8) 1.6Rental income: 0.9 4.9 3.1corporately-owned

In respect of our corporately-owned operations segment, rental income was ahead by 0.9% in the first half and 4.9% in the second half, with the full year improvement being 3.1%.

Billed days9 were 0.1% lower overall, and 0.8% ahead on a like-for-like4 basis. We have seen an improving trend in the majority of countries throughout the year, with billed days well ahead in the second half, offsetting the softer first half.

We increased rental revenue per day5 by 2.4% on a reported basis and 1.6% on a constant currency basis with a particularly strong performance in the first half, which included a circa 1% pt. benefit from one-way rentals during the ash cloud period. We successfully yielded the business across the summer, but since August reported rental revenue per day was lower, due to the longer rental length offered by the success of Avis Flex and customers extending rentals during adverse weather conditions. Both customer and country mix also had an effect. Rental revenue per car month, our combined measure of pricing and utilisation, was ahead in both the first and second halves of the year, and in the second half we continued to improve pricing, before changes in mix and rental length.

trading conditions in the Individual customer group stabilised as leisure customers resumed travel from the first half onwards. We achieved particularly good increases in revenue in inbound Europe as we benefited from the global economic recovery, particularly from customers travelling from the Americas, reflecting the global reach of our brands. overall pricing in the Individual customer group was ahead of general inflation. Consequently, rental income was ahead of the comparative year.

Rental income in the Corporate customer group recovered strongly in the second half following the resumption of business travel generally. Volumes were higher overall, despite a lower first quarter which was impacted by the adverse winter weather disruptions in Northern Europe. the growth of our Avis Flex product particularly benefited this customer group.

Insurance/Replacement rental income was significantly ahead, despite being broadly flat in the first half, reflecting new account wins, particularly in the uK, with an increase in rental length naturally reducing rate per day. Rental income from this customer group has now recovered to above 2007 levels. these account wins, being of longer average length, dilute overall reported rate per day, but naturally smooth the seasonality of the business, improving fleet utilisation10 and use of other operating assets outside the peak summer period. this has the benefit of enhancing overall return on capital employed3.

other revenue was higher as a result of both stronger fuel sales and sub-licensee revenues (both fees and leasing of vehicles) with the full-year effect of certain rental locations being sub-licensed.

Rental income from corporately-owned operations is analysed geographically as follows:

€ million 2010 2009

France 269.4 265.4germany 195.6 185.5Italy 193.2 190.0Spain 134.7 144.8united Kingdom 205.0 183.4other 155.5 150.1Rentalincome 1,153.4 1,119.2

We continue to benefit from our geographical diversification with an improving trend in the majority of countries, the exception being Spain. good growth was experienced in germany and Holland with the return of Corporate customer

FinancialresultsResultsoverviewunderlying profit before tax8 increased to €51.0 million (2009: €35.2 million). After a considerable reduction in exceptional charges and re-measurement items, profit before tax was €49.7 million (2009: €4.5 million).

the underlying1 basic earnings per share was 17.8 euro cents (2009 restated: 20.0 euro cents), reflecting the impact of a higher tax rate and an adjustment for the combined effect of the increased number of shares following the Rights Issue and share consolidation in July. total basic earnings per share was 18.4 euro cents (2009 restated: 0.2 euro cents).

Grouprevenue %€ million 2010 2009 change

Corporately-ownedoperations:rentalincome 1,153.4 1,119.2 3.1

Licensees: Avis 37.3 32.9 13.4

Budget 9.6 10.3 (6.8)

46.9 43.2 8.6

Rental income 1,200.3 1,162.4 3.3

Disposal proceeds on non- 321.6 233.1 38.0repurchase vehicles

GroupRevenue 1,521.9 1,395.5 9.1

Rental income7 was 3.3% higher at €1,200 million, primarily reflecting the improved pricing performance in the corporately-owned segment and the resumption of growth from the Avis licensee segment. Reported Budget revenues were impacted by the re-launch of former licensees in germany and Holland as corporately-owned operations.

Disposal proceeds on non-repurchase vehicles were 38.0% ahead of prior year primarily reflecting the re-balancing undertaken of holding periods, 2009 levels being significantly lower as we managed net vehicle purchases on a conservative basis given the then prevailing economic uncertainty.

Groupoperatingprofit € million 2010 2009

Underlyingoperatingprofit 108.2 103.4

Amounts excluded from underlying:

- Net exceptional credit/(charges) 0.3 (29.5)

- Certain re-measurement items (2.8) (4.0) and economic hedges

Operatingprofit 105.7 69.9

underlying operating profit was €4.8 million higher than the comparative period reflecting operating

Business reviewFinancial review


Reported Budget licensee segment revenue was 6.8% lower, with the reduction in fees due to the transfer of Holland and Germany to corporately-owned operations being partially offset by the continued growth of the diverse network.

Costs (which are structurally higher than those of the above Avis licensee business as they comprise all network support, including systems and sales and marketing) were €1.5 million lower, mainly due to lower receivables provisions and reduced staff costs resulting from the combining of the remaining corporately-owned operations with the respective local Avis business. Consequently, underlying operating profit increased to €5.1 million.

Operating marginUnderlying operating margin2 was 9.0%, 10 basis points higher than prior year, reflecting the improvement in pricing, utilisation and cost actions, as outlined above.

The operating margin after net exceptional items, certain re-measurement items and economic hedges was 6.9%, being 1.9% higher than the prior year. This was primarily due to significantly lower exceptional administrative charges, which were a net credit of €0.3 million in the current year (2009: charge of €29.5 million), offset by an increase in revenues from the disposal proceeds on non-repurchase vehicles.

Underlying net finance costs

€ million 2010 2009

Finance costsNet finance costs (excluding payable 57.5 66.4on deferred consideration)

Interest payable on deferred 2.0 1.9consideration

Underlying net finance costs* 59.5 68.3

Average net debt 713 949

* Excludes certain re-measurement items and economic hedges, totalling a gain of €1.2 million (2009: gain of €2.8 million).

Average net debt was reduced from €949 million to €713 million, primarily due to the €181 million Rights Issue proceeds and continued tight management of capital assisting free cash generation. The underlying net finance costs of €59.5 million were €8.8 million lower, reflecting the reduction in the underlying average net debt for the year and the benefit of lower borrowing rates, as existing hedging expired, partly offset by lower deposit

spending and higher leisure volumes following the integration of Budget operations. UK growth was largely the result of winning customer contracts as described above.

Cost of sales of €665.8 million was €23.6 million or 3.7% higher than prior year. Fleet costs only increased by €8.2 million or 2.0%, benefiting from the 100 basis points improvement in utilisation. During the year, we took advantage of continued stabilisation in the used car markets to accelerate the rotation of our fleet post the peak summer period, thereby reducing the age of our vehicles. Other cost of sales was €15.4 million or 6.4% higher on an increased level of fuel sales at a higher cost and the resumption of investment in marketing activities to support the brands.

Administrative expenses of €419.1 million were €10.2 million or 2.5% above prior year. Staff costs were €4.6 million or 1.8% higher. At constant currency and excluding the impact of share option and related charges and ordinary restructuring costs, staff costs were 1.1% lower. We further maintained tight control of recruitment with average staff numbers in the year reduced by 2.9% to 5,163, and continued the prior year salary freeze for the first quarter of the year. Overheads were marginally higher reflecting higher receivable provisions, given the economic climate, and the translation effect on sterling-denominated head-office costs.

Avis licensee

€ million 2010 2009

Revenue 37.3 32.9

Direct costs (2.7) (1.9)

Underlying operating profit 34.6 31.0

Revenue from the Avis licensee segment was 4.6% higher on a constant currency basis, with most regions ahead of prior year, and 13.4% higher on a reported basis as a consequence of the translation benefit from favourable exchange rates.

Despite higher costs, largely due to foreign exchange and volume related costs, underlying operating profit increased to €34.6 million.

Budget licensee

€ million 2010 2009

Revenue 9.6 10.3

Direct costs (4.5) (6.0)

Underlying operating profit 5.1 4.3

rates on the higher average gross cash deposits held. The effective borrowing rate was 6.5% (2009: 6.7%) and deposit rate was 0.5% (2009: 1.2%).

Exceptional items A net exceptional charge before taxation of €0.6 million was recognised in the year, analysed as follows:

€ million 2010 2009

Refinancing and capital 5.5 –restructuring costs

Disposal of leasehold interest (4.8) –

Restructuring costs (0.1) 21.8

Securitisation preparation costs – 7.8

Other – (0.1)

Net exceptional charge before tax 0.6 29.5

Certain costs expensed in the year in conjunction with the Rights Issue and refinancing were recognised as exceptional costs. These were largely offset by the gain on disposal of a material leasehold interest in a UK property.

In the prior year, €21.8 million of restructuring costs were recognised in respect of rationalisation of our operations. Certain re-measurement items and economic hedges The following items have been recognised in the year and are excluded from underlying profit before tax: Profit Operating Finance before€ million profit items tax

Net re-measurement losses 3.1 4.6 7.7on derivative financial instruments

Economic hedge adjustments (0.3) (8.7) (9.0)

Foreign exchange loss – 2.0 2.0on borrowings

2.8 (2.1) 0.7

Operating profit re-measurement losses on derivative financial instruments of €3.1 million arose from the recognition in the Income Statement of movements in the fair value of forward exchange contracts used to hedge net sterling and Swiss franc exposures. Net re-measurement losses on finance items primarily arose from movements in the fair value of both interest rate swaps used to limit the Group’s floating interest rate exposures and an embedded derivative in respect of the call option on the €250 million senior Floating Rate Notes. Economic hedge adjustments on finance items totalling €9.0 million largely arose from the maturity of interest rate swaps in the year (the re-measurement loss

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Other capital employedA reduction of €50.7 million was achieved in theperiod,largelydueto€33.2millionlowernet fleet working capital than prior year. We accelerated the disposal of fleet post our summer peak,therebyreducingyear-endfleetreceivablebalances, and purchased certain new vehicles later in the period, then benefiting from supplier credittermsattheyear-end.Also,otherproperty,plant and equipment was €6.1 million lower as we maintained tight control of operational capital expenditure.

Shareholders’ fundsAt the end of the year, shareholders’ funds were €291.9million(2009:€62.4million).Thisisprimarily due to the gross proceeds of the Rights Issue of €180.6 million, retained profit of €28.8 million(2009:€0.2million),actuarialgainsof€7.4million(2009:lossesof€17.6million)andtranslationreservegainsof€9.4million(2009:€5.5 million).

Net debtNet debt at the year end was further reduced by €229.5 million to €528.4 million driven by the Rights Issue proceeds and positive free cash flow intheyear.Moredetailsofourfundingpositionareprovidedundertheheading“Cashflowandnet debt”, below.

TaxationNettaxassetsincreasedintheyearfollowingaone-offtaxpayment(thathadbeenaccruedinprevious years) as a consequence of a change in overseaslegislation.Ongoingtaxchargesfortheyear were offset by broadly equivalent payments during the year.

Retirement benefit obligationsRetirement benefit obligations were reduced by €21.1 million, primarily due to cash contributions totheschemesof€23.2million,includingdeficitpaymentsintothemainUKschemeof€19.1million,partlyoffsetbyexchangetranslationof€2.3million.Theactuarialgainarisingfromapplying lower inflation assumptions upon the transitionfromRetailPriceIndextoConsumerPriceIndexmeasuresintheUKwaslargelyoffsetby the impact of applying a lower discount rate assumption.ThechargeintheIncomeStatementfor defined benefit schemes of €7.4 million was offset by an actuarial gain of €7.4 million arising from an improvement in actual investment performance in the year.

being mainly recognised in the prior year). The foreignexchangelossonborrowingsprimarilyarosefromtranslationofsterlingdebtexposures.

Joint ventures and associate

€ million 2010 2009

Shareofprofitofjointventures 2.3 0.1and associate

Our share of profit of joint ventures and associate increased during the year, reflecting both good growthinChinaandareductioninlossesinOKIGO,thePariscar-sharingjointventure.Duringthe year we doubled the number of locations in Chinaandarenowoperatingat39locationsin28 cities, with a fleet of around 4,600 cars. We reinforced our leading market position with our appointment as the official designated car supplier totheShanghai2010Expo.

Taxation

€ million 2010 2009

Underlyingtaxation 23.1 10.4

Creditonexceptionalitems (2.2) (5.8)

Creditoncertainre-measurement – (0.3)items and economic hedges

Taxationchargeincludingexceptional 20.9 4.3items,certainre-measurementitemsand economic hedges

Theunderlyingeffectiverateoftaxationfortheyearwas46%(2009:30%)asaconsequenceofresults arising in different jurisdictions impacting bothcurrentanddeferredtaxation.Inaddition,a local law change has led to a reclassification of what was previously treated as an operating expensenowbeingincludedinthetaxcharge,amountingto€3.0millionintheyear,withafurther €0.9 million continuing to be included asanoperatingexpense(2009:€5.2millionoperatingexpense).Thepreviousyearalsobenefited from the satisfactory resolution of a number of historic matters. Thetaxonexceptional,certainre-measurementitems and economic hedges in 2010 was a credit of €2.2 million compared to €6.1 million in 2009, reflectingthemixofexceptionalitemstogetherwith capital losses covering the gain on the disposal of a leasehold property interest.

Earnings per shareEarnings per share for the year has been based upon a weighted average number of shares of 156.3milliontoadjustfortheRightsIssueandsubsequent share consolidation; the comparative has then been adjusted to facilitate a direct comparison.

Underlying basic earnings per share decreased by 2.2eurocentsto17.8eurocents(2009restated:20.0 euro cents), with the effect of the higher taxrateandtheaboveadjustmentoffsettingan improved underlying operating profit. Total basic earnings per share increased by 18.2 euro centsto18.4eurocents(2009restated:0.2eurocents),duemainlytohighernetexceptionalcharges in the prior year.

Financial position and returnsOurbalancesheetasat31Decemberissummarised as follows:

€ million 2010 2009

Fleet 953.0 942.1Other (50.5) 0.2Capitalemployed 902.5 942.3 Shareholders’funds (291.9) (62.4)Net debt (528.4) (757.9)Taxation 15.8 (3.4)Retirement benefit obligations (68.0) (89.1)Other funding (30.0) (29.5) (902.5) (942.3)

FleetThesplitbetweenclosingnon-repurchaseandrepurchasevehicles(subjecttomanufacturerrepurchase arrangements, which guarantee a disposal value at the end of the holding period) on the balance sheet is set out below:

2010 2009 € million % € million %

Non-repurchasevehicles 353.5 37 364.5 39in fleet

Non-repurchasevehicles 0.7 – 3.1 –within inventory

Vehicles subject to 598.8 63 574.5 61manufacturer repurchaseagreements

953.0 100 942.1 100

Average owned fleet decreased by 5.5% to 82,188 units. The average number of fleet units operatedundershort-termhireoperatingleasesduringtheyearwas25.1%higherat16,393,withanIncomeStatementchargeof€74.1million(2009:€59.6million).Therefore,theoverallaverage number of fleet units, including operating lease vehicles, decreased by 1.5% to 98,581 reflecting the further improvement in utilisation during the year.

Business review Financial review continued


Returnoncapitalemployedunderlying return on capital employed increased from 9.9% for the year ended 31 December 2009 to 12.4% for the year ended 31 December 2010, driven by a higher asset turn as we drove capital employed discipline, including the further improvement in utilisation.

CashflowandnetdebtCashflow

€ million 2010 2009

Net cash generated from 177.0 448.9 operating activities

Net cash used in investing activities (6.3) (13.4)

Net cash used in financing activities (3.1) (408.3)

Net change in cash and cash 167.6 27.2equivalents before foreign exchange

other movements in net debt 120.0 337.8resulting from cash flows

Net new finance leases (63.2) 11.4

other non-cash movements, 5.1 (1.1)including the effects of foreign exchange

Decrease in net debt 229.5 375.3

Net cash generated from operating activities of €177.0 million was significantly lower despite the improvement in operating profit, as in the prior year we substantially reduced the overall size of our fleet to match demand in the then prevailing economic conditions. Net cash used in investing activities of €6.3 million was lower, as non-fleet operational capital expenditure was reduced year-on-year and we sold certain financial assets held for trading. Net cash used in financing activities of €3.1 million contrasts to the comparative of €408.3 million; 2010 benefiting from the Rights Issue inflow compared to the cash outflow from our debt reduction of the previous year. overall net inflow of cash was therefore €167.6 million.

other movements in net debt resulting from cash flows, primarily arise from the repayment of commercial paper, loan notes and related derivatives. the increase in net new finance leases was due to the inception of new agreements exceeding the disposal of existing vehicles.

For management reporting and analysis, the movement in net debt is alternatively presented as follows:

€ million 2010 2009

underlying EBItDA 372.3 371.1

Net fleet fixed asset charge (246.0) (248.8)Closing fleet (11.0) 350.4Working capital 33.2 (4.1)Exchange and other 12.0 12.8Fleet cash flow (211.8) 110.3

Net exceptional items and other (2.5) (32.1)Working capital 15.2 27.6Pension deficit payments (19.1) (4.6)Net operating capex (9.0) (10.3)tax and interest (100.0) (83.2)Non-fleet cash flow (115.4) (102.6)

Free cash flow 45.1 378.8

Proceeds of Rights Issue 180.6 –other 3.8 (3.5) 184.4 (3.5)

Decrease in net debt 229.5 375.3

underlying EBItDA was broadly flat year-on-year. Fleet cash flow of €211.8 million represented a more normalised situation than the comparative, as on-balance sheet fleet was increased slightly by the year end, contrasting to the €350.4 million reduction in 2009. Fleet working capital was improved year-on-year, largely due to the earlier collection of de-fleeting receivables and the delivery of vehicles later in the year thereby increasing fleet payables. Non-fleet cash flows of €115.3 million were higher than prior year. the cash outflow in respect of net exceptional items and other was primarily comprised of the payment of restructuring charges recognised in previous years. Working capital inflow reflected further improvements in the management of net trade receivables and payables. Pension deficit payments of €19.1 million included paying in advance €9.7 million that would have otherwise fallen due in 2011, contrasting to payments of €4.6 million in 2009. tax and interest outflow was higher than the comparative primarily due to a one-off tax payment of €25.4 million, following a change of local law in a particular jurisdiction, offsetting a €11.6 million reduction in interest paid.

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Business review Financial review continued

FundingCapital structureThe objective of the Group’s capital management policy is to ensure that the business has the required financial resources to fulfil its strategic goals, while ensuring that the capital structure is both cost effective and sufficiently robust to deal with changes in economic conditions and the risk characteristics of the Group.

The Group’s business is highly seasonal. As a result the Group increases its vehicle fleet during the peak summer months, the size of fleet then reducing towards the winter period, when fleet levels are typically lowest. Therefore, the Group’s financingstrategyistouselong-termsourcesofcapital, including equity, bonds and loan notes and,tosomeextent,bankrevolvingcreditfacilitiestofinanceitsexpectedbaseleveloffleet.Moreflexiblesourcesoffinancing,includingleases,arethen used to fund the fleet during the peak season.

Leases include both committed finance lease facilities provided by a number of commercial banks and operating leases provided by a variety of vehicle manufacturers in a number of different countries.

The majority of borrowings are raised through Avis FinanceCompanyplc,anindirectwholly-ownedsubsidiaryoftheCompany,andproceedsareusedto finance the Group’s subsidiaries. Facilities vary intheirmaturitytomeetshort,mediumandlong-term requirements of the Group.

Rights IssueThe Rights Issue was undertaken in July 2010 to strengthen the Group’s balance sheet. The €181 million net proceeds are being used to ensure thattheGrouphassufficientfinancialflexibilityto meet its investment needs going forward and to provide for the repayment of $120 million of theGroup’sUSPPswhentheymatureinJune2011. The stronger financial position now provides a platform to support the strategy of planned profitable growth in both the Group’s core and emerging markets and development of new mobility solutions.

FacilitiesAsat31December2010,theGrouphadundrawncommitted borrowing facilities of €581 million (2009:€850million)andadditionaluncommittedborrowingfacilitiesavailableof€338million(2009:€312million).Oftheundrawncommittedfacilities€160millionexpirewithinoneyear(2009:€192million), €nil million between one and two years (2009:€630million)and€421millionbetweentwoandfiveyears(2009:€28million).

Inaddition,asat31December2010,theGrouphad outstanding loan notes and associated derivativefinancialinstrumentsof€535million(2009:€587million).Ofthese,€101millionmatures within one year, €109 million matures betweenoneandtwoyears,€325millionmaturesbetween two and five years, and €nil million after morethanfiveyears(2009:€51millionwithinoneyear; €101 million between one and two years, €435millionbetweentwoandfiveyearsand€nilmillion after more than five years). The Group also held cash and cash equivalents of €220 million (2009:€52million),beingcashandshort-termdepositsof€232million(2009:€61million)lessbankoverdraftsof€12million(2009:€9million).

Other funding arrangements Where commercially beneficial, we seek to optimise financing costs by entering into operating lease transactions, where substantially all of the risks and rewards of ownership remain with thelessor.At31December2010,thetotalcommitment to pay operating lease rentals in future periods for land, buildings and vehicles was€201million(2009:€203million).Attheend of the year, the Group has certain insurance, operating lease and station rental commitments which are backed by guarantees and letters of credit that have been issued by banks to third partiesamountingto€94million(2009:€80million).

Counterparty credit riskAsidefromtheGroup’screditriskexposureontradeandotherreceivables(assetoutinNote19totheFinancialStatements)theGroupalsohascreditriskexposureoncashdeposits.Theriskis actively managed by following a policy of only depositing with approved financial institutions with strong credit ratings. Each counterparty has a credit limit authorised by the Treasury Review Committee,withexposuresmonitoreddailyandthe limits being regularly reviewed. The credit risk isassessedwithregardtoallexposureswitheachfinancial institution, including derivative contracts.

Pensions The majority of the Group’s staff are within defined contribution or applicable state sponsored pension schemes. With regard to defined benefits, the Group has two main schemes: an unfunded plan inGermanywithaliabilityof€39.9million(2009:€35.0million)andaUKplan,withfundingheldininvestments outside of the Group, having a deficit of€23.5million(2009:€49.8million).

The scheme in Germany was closed to new entrants in 2006.

We generated free cash flow of €45.1 million. The comparative cash flow was impacted by the reduction in fleet investment undertaken in 2009. Together with the Rights Issue proceeds, net debt was reduced by €229.5 million in the year,followingthe€375.3millionreductioninthecomparative period.

Net debt 31 December 31December 2010 2009 € million % € million %

Debtduewithinoneyear (112.9) 15 (74.0) 9

Debtdueafteroneyear (435.6) 57 (509.5) 62

Finance leases (184.4) 24 (167.9) 21

Gross borrowings (732.9) 96 (751.4) 92

Derivativedebtinstruments (27.2) 4 (69.8) 8

Gross debt (760.1) 100 (821.2)100

Interest bearing assets 231.7 63.3

Net debt (528.4) (757.9)

Wereducedthelevelofgrossborrowingsyear-on-yearthroughcontinuedcapitalemployeddiscipline, particularly the further 100 basis points improvement in fleet utilisation. This actionmitigatedtheincreaseinfairvalueofUSdenominated debt arising from the movement in marketinterestratesandthestrengtheningofUSDollarintheyear.

Despitethesettlementofa$48millionUSPrivatePlacement Note during the year, debt due within oneyearincreasedasa$120millionUSPrivatePlacementNotewasreclassifiedfromlong-termtoshort-term.ThisNote,dueforrepaymentinJune2011, will be settled out of interest bearing assets. Financeleasesincreasedyear-on-yearasaconsequence of the utilisation of newly negotiated facilities.

The fair value of derivative debt instruments decreased due to the realised portion relating to theUSPrivatePlacementNoteandinterestrateswaps settled during the year, and a reduction in the fair value of the remaining cross currency interestrateswapsastheUSDollarstrengthenedover the period.

The increase in interest bearing assets was a consequence of the Rights Issue. Overall therefore, there was a substantial reduction in net debt driven by the Rights Issue proceeds and positive free cash flow in the period.


the previous final salary defined benefit scheme in the uK was closed to both then existing and new employees in 2007 and replaced by the Retirement Capital Plan, wherein the group retains investment and inflation risk, and the employee any longevity risk. Assets for this scheme are pooled and controlled by the trustees of the previous scheme, together referred to as the “Avis uK Pension Plan”.

An actuarial valuation of the Avis uK Pension Plan was last prepared as at 31 March 2008, being the first valuation carried out subject to the requirements of the Pensions Act 2004. Resulting from this process, it was agreed with the trustees that, under a nine-year recovery plan, the group’s annual cash contributions to fund the deficit would be increased effective July 2009 to £8.2 million. this obligation may be re-assessed when the results of the forthcoming triennial actuarial valuation are available. However, in 2010 the group paid in advance the amount that would have otherwise fallen due in 2011.

PrincipalrisksanduncertaintiesRisk mitigation is a key element of the management role in the group. We have a consistent process to identify, manage and help mitigate exposure to issues which may have a negative impact on the business. As part of the review process, the relative importance of certain identified risks has changed since the previous year end. While risks relating to economic uncertainty on demand and residual values are still key, the risk with regard to certain counterparties previously identified is viewed to be substantially diminished, hence no longer reported. Conversely, on re-assessment, the risk regarding airport and railway stations has been added to the summary below. In respect of all such principal risks, we continue to monitor and respond to the changing environment.

Summarised below are the main risk factors identified that may affect the group’s business: • Additional costs arising in international

operations from unexpected changes to local regulatory environments, impacts to revenue from external factors such as political disturbance, etc

• Natural disasters, economic downturn, etc may cause a reduction in demand

• Pricing pressure from additional transparency with technological change and competitive pressures

• Fleet risks including exposure to movements in residual values and change in supplier terms

• over-reliance on our partnership with Avis Budget group, Inc.

• Risk to our information systems arising from data protection issues or communication network failures

• Availability of suitable insurance cover• Dependency on the availability of

concessionary arrangements at airports and railway stations

• Availability of appropriate level of funding• Exposure to fluctuations in interest rates and

foreign currencies• Variation of assumptions impacting size of

pension deficit

GoingconcernDuring 2010 the Company successfully completed the €181 million Rights Issue and put in place a new €375 million bank facility with a three-year maturity. In addition, maturities of committed finance leases have been extended. the Directors, having made all the relevant enquiries consider that the group and the Company have adequate resources at their disposal to continue their operations for the foreseeable future, and that it is therefore appropriate to prepare the accounts on a going concern basis.

Forward-lookingstatementsthis Annual Report contains a number of forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty and actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements. Any forward-looking statements contained in this Annual Report reflect the Company’s and group’s expectations with respect to future events as at the date hereof and the group can give no assurance that these expectations will prove to be correct.

MartynSmithgroup Finance Director

Footnotesanddetaileddefinitions1 underlying excludes exceptional charges, certain net re-measurement and economic hedging items (see Basis of Preparation). underlying is not a defined term under IFRS, and is not intended to be a substitute for, or superior to, IFRS measures.2 underlying operating margin/pre-tax margin is calculated as underlying operating profit/profit before tax divided by total rental income. 3 Return on capital employed is the ratio of underlying operating profit for the past 12 months, including the operating profit of the joint ventures and associate, to capital employed. Capital employed is an average of current and previous two period end closing balances, comprising shareholders’ funds plus net debt and other liabilities.4 Like-for-like measures comprise only those corporately-owned and agency rental stations that were in operation throughout all of the current and comparative periods.5 Rental revenue per day is calculated as rental revenues divided by billed days. 6 Constant currency revenue data is calculated whereby both current and prior year non-euro denominated revenue is translated into euro at the exchange rate prevailing in the equivalent month in the prior year.7 Excludes the impact of IAS 16, Property, plant and equipment. For management reporting, revenues from the disposal of vehicles not subject to repurchase agreements are netted against the related net book value in cost of sales – see Basis of Preparation.8 these profit measures exclude exceptional charges of €0.6 million (2009: €29.5 million) and certain net re-measurement and economic hedging items totalling a loss of €0.7 million (2009: loss of €1.2 million).9 Billed days include any day or period less than a day for which a vehicle rental is invoiced to a customer.10 utilisation is calculated as the average period of time during which operational vehicles are on rent as a percentage of their holding period.

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governanceChairman’s statement

DividendsIn line with previous statements and in view of the uncertain economic environment, the Board has not recommended payment of a dividend for the year ended 31 December 2010. the Board’s intention is to recommence the payment of dividends when the financial and trading position of the group allows.

Strategythe progressive improvement in our results was an important factor supporting the group’s successful refinancing completed in July 2010, including the €181 million Rights Issue and our €375 million revolving credit facility. Strengthening the balance sheet in this way provides a very strong platform to take advantage of profitable opportunities for growth in our traditional markets as economic conditions stabilise, to continue expansion in higher growing emerging markets and to develop new mobility solutions.

EnvironmentAs car usage in general shifts towards a more economical and low-emission approach, we are exploring new growth opportunities, recognising that we are well placed to help shape the evolution of environmentally compatible mobility. As part of this, we are encouraging the development of new mobility solutions that both reflect changing consumer behaviour and complement the traditional car rental business.

Outlookour dual-brand strategy and global reach is well placed to drive growth and benefit from the improving economic climate in most of our main markets. While visibility remains limited, particularly in Spain, we expect overall volumes to further improve and we will continue to seek to enhance pricing.

Costs and capital discipline also remain key and we continue to focus on improving utilisation. Furthermore, net finance costs will reduce year-on-year, benefiting from cash flow performance and the full year effect of the Rights Issue. We therefore expect a further increase in our underlying pre-tax margin during 2011.

In addition to the focus on our traditional core markets, benefiting from the Avis and Budget brand strengths and close attention to quality of service, we will also continue to invest in future profitable growth opportunities, particularly our ongoing expansion in China and other fast growing markets, and innovate through the introduction of further new mobility customer offers. the Board remains confident of further progress in the year ahead.

GovernanceSound principles of governance at Board level and across the group remain a key focus for us, particularly to ensure that management and staff in all our businesses identify, understand and manage risk in a proactive way. the extensive disruption to international travel caused by the volcanic ash cloud in April provided a good example of risk management in action. this incident presented our operations with a major and unexpected logistical challenge and I am pleased to report that our staff responded with speed and flexibility to really help our customers and redeploy fleet effectively. It also demonstrated the importance of our processes to capture the experiences from events such as this, ensuring that best practice is shared across the group.

through the year Board members have had a number of opportunities to meet with members of the Avis Executive Board and other senior management, and we are now expanding this programme so that the Directors have further opportunities to understand the business and engage with management. During the year the Board conducted a detailed succession planning review across the business.

Axel von Ruedorffer will retire from the Board in May 2011 after nearly ten years service to the Company and I would like to express our thanks for his invaluable contribution over this time. We intend to appoint a new independent non-executive in due course to maintain the balance of the Board.

It has been a challenging and exciting year for the business and our employees have demonstrated tremendous commitment and creativity, keeping the Avis human touch in a trading environment which continued to remain difficult. I have every confidence that the Avis “We try harder.” spirit will be just as much in evidence in 2011.

AlunCathcartChairman

I am delighted that we have achieved such a strong trading performance for 2010, despite challenging market conditions, increasing both market share and profitability. We saw a progressive improvement in volumes during the year and delivered an increase in rate per day for the third consecutive year. We improved underlying

profit before tax by 45% to €51.0 million, with pre-tax margin ahead by 120 basis points to 4.2% and return on capital employed ahead by 250 basis points to 12.4%, all at the highest levels in five years.

During the past two years we have engineered a significant turnaround of the group, effectively restructuring the Company and reorganising the Avis and Budget brands for future growth. At the same time we have continued to invest in both customer service innovation and product differentiation.


Board of Directors

ExecutiveDirectors

PascalBazin (54) AppointedtotheBoard1January2008ChiefExecutive(sinceJanuary2008)He joined Avis France as President in 2005 from Redcats, the third largest worldwide home shopping group, where he was CEo of the Redcats specialised brands division and Senior Vice President of group Strategy/Development. His previous appointments include Chief Executive officer of a number of international divisions of the cosmetic group, Yves Rocher. He began his career in 1980 with management consulting firm Peat Marwick Mitchell, after graduating from Polytechnique school in Paris.

Jean-PierreBizet (62) AppointedtotheBoard29October2002ExecutiveDeputyChairman(sinceMay2004)He was appointed a non-executive Director of the Board in october 2002, and became Executive Deputy Chairman in May 2004. A former Director at McKinsey & Co. Inc., France, and Managing Director of the Belgian retail conglomerate gIB group, he joined s.a. D’Ieteren n.v. in 2002 and was appointed its Chief Executive officer in May 2005. He is also Chairman of the board of Belron s.a.

MartynSmith (55) AppointedtotheBoard11September2002GroupFinanceDirector(sinceSeptember2002)He joined Avis Europe from John Menzies plc where he held the position of group Finance Director from 1999 to 2002. Prior to joining Menzies, he was group Financial Controller for Inchcape plc, and previously held a number of financial roles with Inchcape plc and Rothmans International.

Non-executiveDirectors

AlunCathcart (67) #◊AppointedtotheBoard3February1997Chairman(sinceMay2004)ChairmanoftheNominationsCommitteeuntil 1 January 1999 he was Chairman and Chief Executive of Avis Europe plc and served as Interim Chief Executive from November 2003 until March 2004. He spent 14 years in executive positions in the transportation industry before joining Avis Europe in 1980, and became Chief Executive in 1983. He is also Chairman of Palletways group Limited and Andrew Page Holdings Limited, and a non-executive Director of Justice Holdings Limited.

LesCullen (59) *#◊ AppointedtotheBoard25May2004ChairmanoftheAuditCommitteeHe has held successive appointments as group Finance Director of StC plc, De La Rue plc, goodman Fielder Ltd, Inchcape plc and Prudential plc, having previously held senior financial roles with Black & Decker and grandMet. He is a non-executive Director and Chairman of the Audit Committees of Interserve plc and F&C global Smaller Companies plc. He is also a trustee of the charity Sustrans Ltd.

RolandD’Ieteren (69) #◊ AppointedtotheBoard3February1997Since May 2005 he has been Chairman of s.a. D’Ieteren n.v., having previously been President and Chief Executive officer since 1975. He joined s.a. D’Ieteren n.v. in 1971. He is a non-executive Director of Belron s.a.

BenoitGhiot (41) AppointedtotheBoard15December2004He is Chief Financial officer of s.a. D’Ieteren n.v., having joined the Company in 2002, and is also a member of the Board of Directors of Belron s.a. Prior to joining the D’Ieteren group he was group Controller and Strategic Planning Director with the Belgian retail group gIB.

AxelvonRuedorffer (69) *#◊ AppointedtotheBoard27June2001From 1984 to 2002 he was a member of the Board of Managing Directors of Commerzbank Ag, having joined the bank in 1967 and was responsible for Accounting and taxes, Compliance, Financial Control and Internal Auditing. He is a non-executive Director of a number of companies, including Stiebel Eltron group and a number of financial institutions.

PierreAlainDeSmedt (66) *#◊ AppointedtotheBoard1February2007ChairmanoftheRemunerationCommittee(sinceMay2008)He is Chairman of FEB (Belgian Federation of Enterprises). He was with Volkswagen for 25 years, managing operations in Belgium and South America and was appointed Chairman of Volkswagen’s Spanish SEAt business in 1997. He moved to Renault for five years, becoming Deputy Director general for Renault groupe SA. He currently holds a number of directorships with Belgacom, Deceuninck and Alcopa.

* Member of the Audit Committee# Member of the Nominations Committee◊ Member of the Remuneration Committee

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Codeprinciplesthis report explains how the corporate governance principles set out in the Combined Code on Corporate governance 2008 (the Code) are applied by the Company.

Board of Directorsthe names and biographical details of the Directors, including their Committee memberships, are set out on page 25. there were no changes to the composition of the Board between 1 January 2010 and 25 February 2011.

All Directors will stand for re-election at the forthcoming Annual general Meeting, with the exception of Axel von Ruedorffer who will retire from the Board immediately following the Annual general Meeting on 25 May 2011. the Board is currently seeking a new independent non-executive Director to replace him.

As at 25 February 2011, the Board comprised the Chairman, three executive Directors and a further five non-executive Directors. three of the non-executive Directors (Les Cullen, Pierre Alain De Smedt and Axel von Ruedorffer) are considered to be independent. Although Axel von Ruedorffer has now been a Director for over nine years, having been appointed for a further one year term at the 2010 Annual general Meeting, Board continuity was viewed as particularly important for the Rights Issue and refinancing undertaken in 2010. the Company considers that Axel von Ruedorffer remains an independent Director, while recognising that this length of service is not in line with Code recommendations. the two remaining non-executive Directors (Roland D’Ieteren and Benoit ghiot) and the executive Deputy Chairman (Jean-Pierre Bizet) are appointed by s.a. D’Ieteren n.v., which has a shareholding of 59.6% in the Company, pursuant to the terms of a Relationship Agreement entered into at flotation in 1997. under the Relationship Agreement, s.a. D’Ieteren n.v. is obliged to ensure that its appointed Directors exercise their voting rights so as to maintain the independence of the Board, as required by the Listing Rules, thus ensuring that all Directors take decisions objectively in the interests of the Company. Further details of the Relationship Agreement are set out in the Directors’ Report on page 42, together with information relating to the Company’s capital structure.

the role of the Boardthe Board is collectively responsible for providing clear and effective leadership of the group by setting strategic objectives and providing the highest values and standards for the conduct of the Company’s business. the Board’s key areas of focus are:

• Formulation of strategy• Ensuring that effective plans are developed for both the short-term and

longer-term development of the group• Increasing shareholder value• Significant financing arrangements• Ensuring that a framework of appropriately prudent and effective controls

is maintained• Corporate governance

the roles of the Chairman and the Chief Executive are separate. the Chairman is responsible for leadership of the Board and for corporate governance, in particular for facilitating the contribution of the non-executive Directors, and ensuring that the Company maintains effective communication with its shareholders and other stakeholders. In coordination with the Chief

Executive, the Chairman is responsible for encouraging close and effective working relationships between group level management and all levels of corporately-owned and licensee operations. the Chairman also chairs the Nominations Committee and has responsibility for ensuring that Board evaluation processes are carried out and their results acted upon.

the role of the non-executive members of the Board is to bring objective and informed judgement to Board discussions, with key areas of focus being:

• reviewing business and management performance• development of strategy• reviewing and monitoring financial controls and risk management• determining appropriate remuneration levels• developing succession planning at senior levels of the group.

the Chairman meets separately with the non-executive Directors at least annually in order to facilitate the non-executive Directors’ contribution to the Board. the Company did not have a nominated Senior Independent Director during the period to 25 February 2011 and the Nominations Committee continues to keep this role under review.

Board processes to enable the Board to function effectively, full and timely access is given to all relevant information. the Company Secretary is responsible for ensuring that Board procedures are followed and for advising the Board, through the Chairman, on all matters of governance. All Directors have access to the Company Secretary whenever they require. In the event that any Director wishes to take independent professional advice on any point arising in connection with the exercise of their duties, the Company Secretary will arrange this at the Company’s expense in accordance with written procedure. the Company Secretary may only be removed by a resolution of the Board of Directors.

Board evaluationDuring 2010 the Board carried out its annual evaluation process, which is designed to provide a thorough evaluation of the Board’s own performance and that of its Committees. Evaluations are conducted via a set of structured questionnaires which ask each Board/ Committee member to comment on a range of factors which contribute to the effectiveness of the Board or the relevant Committee.

the results of the Board evaluation are reviewed by the Chairman and relevant feedback is provided to the Board to agree any appropriate action, with a similar process undertaken by the Chairman of each Committee.

Board Committeesthe Board has established a Nominations Committee, Remuneration Committee and Audit Committee as described below. the terms of reference for each of the Committees are available on the group’s website at www.avis-europe.com. In addition to the effectiveness evaluation, each Committee conducts an annual review of its terms of reference, and recommends to the Board any changes that may be required.

governanceCorporate governance report


Nominations Committee the Committee is responsible for ensuring that the Company has a rigorous and transparent process for the appointment of new Directors. the Committee’s key responsibilities are:

• periodic review of the Board’s structure and composition• setting objective criteria for new appointments to the Board, including

sufficient time availability for the role, especially for chairmanships• regular review of succession plans for the Board, members of the

Avis Executive Board and other senior executives across the group to ensure that continuing management capability is available to match the development needs of the business

• ensuring that Board induction and training requirements are met.

During 2010, the Nominations Committee reviewed Board succession planning and approved certain changes to the senior management team in order to support the business needs of the group going forward.

the members of the Nominations Committee are disclosed on page 25, and their attendance at meetings in the table overleaf. there were no changes to the composition of the Committee between 1 January 2010 and 25 February 2011. As recommended by the Combined Code, the membership of the Committee comprises a majority of independent non-executive Directors. the Chief Executive and group HR Director attend meetings of the Nominations Committee by invitation of the Chairman of the Committee.

Remuneration Committee the Committee’s remit is to ensure that the Company has a rigorous and transparent process for developing policy on executive remuneration. the Committee’s key responsibilities are:

• determining policy on remuneration and terms of service for senior executives, including notice periods, termination payments and compensation commitments in the event of early termination

• approving the terms of appointment for the Chairman, executive Directors and members of the Avis Executive Board

• structuring and allocation of the group’s share incentive schemes, including the setting of appropriate performance targets.

In setting policy, the Committee ensures that appropriate incentives are provided to attract, retain and motivate executives of the appropriate calibre, to encourage performance and, in a fair and responsible manner, to reward individual contributions to the group. the Committee takes account of market practice, the group’s position relative to other companies and the pay and employment conditions of other group employees. the Committee consults with the Chairman and/or Chief Executive, as appropriate, when determining the individual remuneration package of each executive Director. However, no Director is involved in deciding his own remuneration.

the activities of the Committee during the year, together with details of all Directors’ remuneration and service contracts are described in the Remuneration Report on page 34.

the members of the Remuneration Committee are disclosed on page 25, and their attendance at meetings in the table overleaf. there were no changes to the composition of the Committee between 1 January 2010 and 25 February 2011. Roland D’Ieteren has appointed Jean-Pierre Bizet, another D’Ieteren appointed Director, who is also an executive Director, as his alternate for the purpose of attendance at Remuneration Committee meetings. the Company

recognises that the representation of the D’Ieteren-appointed Directors on the Committee is not in compliance with the Code, as Roland D’Ieteren is not regarded as an independent non-executive Director and Jean-Pierre Bizet is an executive Director, but considers it essential that s.a. D’Ieteren n.v., as the majority shareholder of the Company, is represented on the Committee. the D’Ieteren-appointed Directors abstain from discussion and voting on the remuneration of any Directors appointed by s.a. D’Ieteren n.v. pursuant to the Relationship Agreement referred to on page 26.

the Chief Executive, group Finance Director and group HR Director attend meetings of the Remuneration Committee by invitation of the Chairman of the Committee.

Audit Committee the Committee assists the Board by ensuring that the group presents a balanced and understandable assessment of its position with regard to financial reporting, including interim, preliminary and other formal announcements relating to the group’s financial performance. the Committee’s key responsibilities are:

• monitoring the integrity of the group’s financial statements and the effectiveness and independence of the external audit process

• ensuring that an appropriate relationship between the group and the external auditors is maintained, including review and (where appropriate) approval of any non-audit services to be provided by the auditors, and related fees, in line with the group’s written policy

• reviewing the appropriateness of the group’s accounting policies• reviewing the effectiveness of the system of internal control, as set out

under the Internal control and risk management section below• reviewing the effectiveness of the internal audit and risk management

function• approving, upon the recommendation of the group Finance Director, the

appointment and termination of the head of the internal audit and risk management function.

In 2010 the Audit Committee discharged its responsibilities by: • reviewing the group’s draft annual financial statements, interim results

statement, and interim management statements prior to Board approval• reviewing going concern• reviewing the appropriateness of the group’s accounting policies and their

compliance with International Financial Reporting Standards, together with material accounting estimates and judgments

• reviewing the working capital report and prospectus disclosures in connection with the Rights Issue

• reviewing a report on the group’s systems of internal control and their effectiveness

• receiving regular updates on the key risk areas set out in the Risks and uncertainties section on pages 30 to 33

• reviewing the proposed annual internal audit programme and receiving regular progress reports

• assessing the effectiveness of the internal audit and risk management function together with their resources and standing in the group

• reviewing the effectiveness of whistleblowing arrangements• appraising the external auditor’s plan, including key areas of scope and

key areas of risk• considering and approving the audit fee and reviewing non-audit fees

payable to the group’s external auditors during the year• assessing external auditors’ effectiveness and independence, and making

recommendations to the Board regarding their reappointment.

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governance Corporategovernancereportcontinued

the members of the Audit Committee are disclosed on page 25, and their attendance at meetings in the table below. there were no changes to the composition of the Committee between 1 January 2010 and 25 February 2011. As recommended by the Code, the membership of the Committee comprises independent non-executive Directors.

the group Finance Director, group Financial Controller and head of internal audit and risk management attend meetings of the Audit Committee by invitation of the Chairman of the Committee. the external auditors usually attend meetings, but are not present when the Committee discusses their performance and/ or remuneration. the Committee also meets privately with both the external and internal auditors without the presence of any of the executive directors or management.

Board and Committee meeting attendancethe Board meets a minimum of six times each year and more frequently when business needs require. there were four additional Board meetings in 2010, as well as the six scheduled meetings and two scheduled conference calls.

the attendance of Directors at Board meetings and at meetings of the Nominations Committee, Remuneration Committee and Audit Committee during the year is detailed below:

Nominations Remuneration AuditDirector Board Committee Committee Committee Held Attended Held Attended Held¹ Attended Held Attended

Pascal Bazin 12 12 n/a n/a n/a n/a n/a n/aJean-Pierre Bizet 12 12 1 12 7 72 n/a n/aAlun Cathcart 12 11 1 1 7 6 n/a n/aLes Cullen 12 12 1 1 7 7 4 4Roland D’Ieteren 12 10 1 02 7 02 n/a n/aBenoit ghiot 12 12 n/a n/a n/a n/a n/a n/aAxel von 12 6 1 1 7 4 4 2Ruedorffer Pierre Alain De 12 11 1 1 7 7 4 4Smedt Martyn Smith 12 12 n/a n/a n/a n/a n/a n/a

1 Includes one conference call.2 Jean-Pierre Bizet attended as alternate for Roland D’Ieteren (see page 27).

other Committeesthe Board also appoints other Committees from time to time to conduct routine business within delegated authority prescribed by the Board and under the supervision of at least one Board member.

In particular, the Board has established a treasury Review Committee with delegated authority to review and approve certain treasury related matters on behalf of the Company and the group, including setting policy and granting authority for financing decisions, bank accounts, treasury credit exposures, control mechanisms for hedging and foreign exchange transactions, guarantees and indemnities and, if appropriate, recommending for consideration by the Board other treasury management policies. Membership comprises the group Finance Director and senior managers, including the group treasurer and group Financial Controller.

the Chief Executive oversees an operating board, the Avis Executive Board (AEB) comprising the key senior management of the group who meet monthly to review trading and progress with key strategic initiatives and to coordinate the efficient management of the business. AEB members and their key responsibilities as at 31 December 2010 were as below:

group Pascal Bazin Chief ExecutiveMartyn Smith group Finance DirectorJacques Brun group HR DirectorCorporately-owned operations Function territoryWolfgang Neumann Commercial germany Call centre (Barcelona) Stephane Soille operations Austria, Belgium/ Luxembourg, Netherlands, Switzerland, Czech RepublicJan Loning Support services France (Budapest) Kevin Bradshaw Information technology uKRoberto Lucchini Fleet initiatives Italy, PortugalMassimo Marsili – SpainAvis & Budget Licensees John McNicholas Licensees

Corporately-owned operations are managed under a matrix structure with most AEB members being responsible for both a key function/operation across the network as well as responsibility for overseeing the operations in either one or a number of countries.

Shareholder relationsthe Board as a whole is responsible for maintaining regular dialogue with shareholders. the Chief Executive and group Finance Director make presentations to institutional shareholders following the announcement of the interim and preliminary results each year, (which are also published on the Company’s website at www.avis-europe.com/investor-centre/financial-reports.aspx) and are actively involved in an investor relations programme during the rest of the year. the Chairman is also responsible for maintaining a channel through which shareholders can express their views, and for communicating any shareholder issues or concerns to the Board as a whole.

the Chief Executive makes a presentation at the Annual general Meeting highlighting key business developments during the year. All shareholders have the opportunity to put questions at the meeting or leave written questions, which will be answered in writing as soon as possible afterwards. A copy of the Chief Executive’s presentation may be requested at the Annual general Meeting or from the Investor Relations Department. the Company’s website at www.avis-europe.com provides current and past information about the group. the Chairman of each of the Nominations Committee, Remuneration Committee and Audit Committee attended the 2010 Annual general Meeting and were available to answer shareholders’ questions during and after the meeting.


External auditor the Company has a written policy regarding auditor independence, which is designed to maintain the objectivity and independence of the external auditor. the policy sets out the circumstances in which the external auditor may provide non-audit services to the group and the internal approval processes to be followed where this is under consideration. As noted above, the Audit Committee monitors the application of the policy and the independence of the audit process. the Committee’s policy is to review whether other firms should be invited to tender for the external audit role at least as frequently as audit partner rotation is required.

A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company will be proposed at the forthcoming Annual general Meeting.

Internal control and risk management the Board is responsible for the group’s systems of internal control and risk management and for reviewing each year the effectiveness of those systems. Such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute, assurance against material misstatement or loss.

the group has a detailed risk management process to identify, evaluate and manage the significant risks faced by the group which is overseen by the Avis Executive Board. the group conducts an annual risk review across all its operating units and updates its centrally held risk register with each risk’s impact, probability and mitigation actions. A summary of the principal risks facing the group has been reviewed by the Audit Committee and communicated to the Board, and is provided in the Risks and uncertainties section on pages 30 to 33.

the key features of the group risk management and internal control process comprise the following procedures:

• clearly defined group policies and business standards covering key business areas, including a code of conduct and competition policy

• annual certification process by which the operating unit manager responsible confirms the adequacy of their systems of internal financial control and their compliance with group policies and local laws and regulations, and is also required to report any breakdown in control or occurrence of fraud if they were to occur

• a schedule of regular finance reviews for all corporately-owned businesses covering material local assets and liabilities

• the internal audit function performs regular independent reviews, providing the Audit Committee with an assessment as to the adequacy of key controls over operating and financial processes and systems

• the Audit Committee reviews the effectiveness of the systems of internal control during the financial year. It reviews reports of any control issues that arise from internal and external audits and any issues that relate to or may need to be included in the risks set out in the Risks and uncertainties section on pages 30 to 33

• a group-wide whistleblowing procedure is in place enabling employees to raise any concerns they may have, under which matters can be advised anonymously.

Financial reporting process In addition to the general internal control and risk management framework set out above, the following elements of our internal control system are specific to the financial reporting process including the preparation of the group’s Consolidated Financial Statements:

• formal reporting processes and accounting policies are aligned• a reporting system designed to ensure visibility and consistency

of management information, intended to provide a sound basis for management decision-making, both at group level and at each business unit within segments (both corporately-owned and licensees)

• all such business units are required to produce a monthly financial report of business performance, including commentary analysis. these reports are thoroughly reviewed by the Chief Executive, group Finance Director and other members of the Avis Executive Board

• corporately-owned business units are required to produce weekly cash flow forecasts, which are reviewed by group treasury as part of their overall cash management processes

• the group finance function undertake regular technical training to ensure that they are up to date on financial reporting standards and good practice

• a reporting review process, including regular re-forecasting, which includes comparison of business unit performance and business plans to identify risk areas and determine improvement actions.

the Board confirms that it has continued to review, through the Audit Committee in particular, the effectiveness of the group’s internal controls and risk management processes during 2010 and up to the date of this report and that these reviews covered all material controls, including financial, operational and compliance controls and risk management systems. Where any weaknesses were identified, appropriate corrective action was agreed and continues to be closely monitored.

Corporate governance statement the Board of Directors confirms that the Company has complied throughout the financial year with the provisions set out in Section 1 of the Combined Code 2008 (the Code), with the exception of the following requirements:

• that independent non-executive Directors (excluding the Chairman) should comprise not less than 50% of the Board

• that the Remuneration Committee should comprise the Chairman together with independent non-executive Directors

• the application of the Code recommendations as to independence criteria for Directors; and

• that a Senior Independent Director be nominated.

the reasons for non-compliance in each of the relevant areas are explained within the review of the Company’s application of the principles of the Code set out above. In each area of non-compliance, the Directors believe that current policy is in the best interests of the Company.

the Code is available at the Financial Reporting Council’s website at www.frc.org.uk/corporate/combinedcode.cfm

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Risk mitigation is a key element of the management role in the group. We have a consistent process to identify, manage and help mitigate exposure to issues which may have a negative impact on the business. As part of the review process, the relative importance of certain identified risks has changed since the prior year end. While risks relating to economic uncertainty on demand and residual values are still key, the risk with regard to certain counterparties previously identified is viewed to be substantially

governanceRisks and uncertainties

Risk Description/potential impact Mitigation

International operations

Local requirements and regulatory environment

these include unexpected changes to regulations and requirements, differing accounting, legal and tax practices and interpretations, practical difficulties in managing overseas operations and potential political instability.

the group maintains a broad presence across all its major markets, seeking to balance exposure to any one particular operation. through day-to-day management of the business these risks are monitored, with procedures in place to escalate and address any significant issues should they arise. Additionally, there are codes of conduct and agreed business practices that the licensees must comply with and against which Avis audits their compliance.

Dependency on third parties

Revenues received from licensee operations, which represent a significant income stream for the group, are dependent on the performance of the individual licensee operators which can also be severely impacted by external factors such as political disturbance.

We are in frequent dialogue and work closely with our licensees, promoting business across the whole network. We have a team that is experienced in renewing licensee contracts and (where applicable) identifying and establishing new licensees for individual territories.

We closely monitor any major external events arising in these territories and work with our partners to minimise any impact.

Demand

Significant reduction in customer demand

the business faces various risks associated with demand for its services, which in itself is highly seasonal. Disruption could occur during the peak summer season at the time when we normally increase staff levels and purchase more vehicles to accommodate the anticipated usual increase in demand. there may be disruptions in air travel patterns or a general decrease in air travel as a result of a significant event such as a natural disaster, terrorist incident or as a consequence of increased security measures being taken by the authorities in anticipation of such a threat. Such air travel disruption has been shown to have a clear impact on our rental business. An economic downturn, particularly sudden, poses challenges for the group given its capital intensity and limited visibility of forward reservations.

We have detailed management reporting systems which monitor both daily rental patterns and future reservation trends. Fleet allocation software allows us to readily react to the frequent demand changes across our network, seeking to optimise the allocation of vehicles. Fleet rotation tools allow us to make strategic decisions on fleet levels in response to demand changes through both flexing level and timing of fleet purchases, and/or fleet disposals. the group maintains a flexible business model, enabling us to readily flex fleet and staff when required in response to events such as the recent Icelandic ash cloud.

the introduction of products such as Avis Flex, as well as our overall management of segments in this context, helps to smooth the normal seasonal impact of the business.

Pricing and competitive pressures

Increased pricing transparency and competitive pressures

the car rental industry faces pressure from increased pricing transparency as a result of the growth of internet travel portals, other forms of e-commerce and the rental brokers. Large European rental operators compete with the group in most customer categories, and mergers and acquisitions involving those competitors may result in increased competitive pressure.

Local rental operators may have lower operating costs, enabling them to charge relatively low prices.

We monitor competitor activity carefully, but ultimately our only protection from suffering material damage to our business is to continue to work to provide our customers with a high quality and differentiated service at a price they believe is good value. through our “We try harder.” and “Avis with the human touch” ethos, and continuing new product development, we seek to differentiate the Avis offer through service and efficiency. We have systems and processes for monitoring market pricing. Prices are frequently reviewed both centrally and at individual rental station level and the impact of any market price changes are assessed with reference to the overall balance of supply and demand and customer group mix. We do not seek to compete directly on price with local operators but our strength is in our global reach and customer “peace of mind” that the Avis and Budget brands give, and the superior service we seek to offer. We seek to maintain competitive prices in the markets where we operate, typically with a younger average age of fleet.

diminished, hence no longer reported. Conversely, on re-assessment, the risk regarding airport and railway stations has been added to the summary below. In respect of all such principal risks, we continue to monitor and respond to the changing environment. Summarised below are the main risk factors identified that may affect the group’s business:



Fleet

Fleet supply

Fleet re-sale

Loss or material change in the terms on which we obtain fleet vehicles from major vehicle suppliers could harm the performance of the business. there could be risks to business volumes and to financial and operating results if we had to seek alternative supplier arrangements, particularly in the short term. Sales incentive and discount programmes offered by manufacturers to car rental companies tend to keep the average cost of cars relatively low for the car rental industry. In periods when the environment for new car sales improves or when manufacturers are trying to rebalance capacity for a downward shift in demand, they could decide to reduce their allocation of sales to fleet purchasers such as the group, and/ or to remove the incentives and discounts thereby increasing the average cost of vehicles.

Vehicles not covered by repurchase programmes are sold on the open market. Residual values of these vehicles are exposed to an adverse movement in used vehicle prices. Equally, a severe or persistent decline in the results of operations or financial condition of one of the major manufacturers supplying vehicles for the group’s fleet could impact overall residual values. Any such movement in used vehicle prices, or poor demand in the used vehicle market, may hinder our ability to sell these vehicles and could adversely affect the group’s results. Where difficulties are experienced in sourcing vehicles, or where prevailing economic conditions result in depressed used vehicle prices and reduced demand, these risks may be mitigated by extending the holding period of vehicles. However, extended holding periods may introduce new risks including increased maintenance costs, manufacturer warranty expiry, more uncertainty over residual values and the potential impact of older vehicles on customer loyalty and safety considerations.

We have strong long-term relationships with all main fleet suppliers with substantial diversification of manufacturer suppliers. In the event that we could not procure all the required vehicles from current sources, vehicles could be obtained from other sources, such as dealers. there is a formal negotiation and approval process to all vehicle sourcing (and disposals) to help control effective costs and manage overall residual values risk. our international operation means that we are also able to source fleet on a multinational basis, and we are therefore not reliant on any one geographical fleet sourcing market.

We seek to achieve the best possible prices for re-sale cars through diversification of model type and a well-established network of distribution channels. We regularly review our fleet levels, rotation plans and operating expenditure levels in order to optimise the utilisation and overall economic cost of holding the vehicles. We selectively extend or reduce fleet holding periods depending on market conditions, but monitor the overall fleet ageing to ensure that average fleet holding periods are maintained within an acceptable range. our European-wide footprint is also an advantage as we can move rental fleet cross-border depending upon the relative strengths of used car markets.

Relationship with Avis Budget group

over-reliance on key partner

Avis Budget group, Inc. (ABg) licences the Avis and Budget brands to the group for operation in specified territories through master licensing agreements which expire in 2036. We use the Wizard rental and reservation system under licence from ABg, pursuant to a long-term computer services agreement, which is subject to a five-year notice period. Wizard has been operational since 1972, and has been continuously enhanced and expanded since that time. It is a fully integrated reservation, rental and management information system that is used by Avis Europe and ABg worldwide. We are obliged to contribute to the cost of upgrading and enhancing Wizard; therefore unanticipated costs could adversely affect the group’s results. Should Wizard need to be replaced, process and execution issues could present a substantial risk to the group’s operations. Any adverse changes to the terms of the agreements or any deterioration in ABg or its business or in the relationship with ABg is likely to have an adverse effect on the group’s financial condition and results of its operations.

the group does not have any cross-shareholdings with ABg, yet through the close contractual and business relationship the two companies work together to provide a seamless service to customers of both the Avis and the Budget networks. Regular reviews are held with ABg in order to monitor the development and support of the Wizard systems along with the related costs. Both ABg and Avis Europe have a mutual interest in both parties operating businesses in a manner that both upholds the value of the global Avis and Budget brands and allows both parties to provide a similar service in the locations in which it operates. We undertake joint marketing initiatives with ABg and share market and customer information where appropriate. ABg also provides joint services and cross-refers customers, and vice versa, through a formalised agreement. the maintenance of a good relationship with ABg is regarded as very important to the group, and we seek to manage it as such.

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Information systems

Communication network failure

Data security

the key Wizard rental and reservation systems mentioned above rely heavily on communications service providers to link them with the business locations these systems serve. A failure of a major system, or a major disruption of communications between the system and the locations it serves, could cause a loss of reservations, interfere with our ability to manage our fleet, slow rental and sales processes and otherwise adversely affect our ability to manage our business effectively.

In addition, as our systems contain identifiable customer and staff personal data and confidential information relating to other businesses, if we did not maintain the security of the data we hold, we could suffer reputational damage, potential regulatory enforcement action or, in some circumstances, claims for breach of contractual obligations.

Although such risk cannot be fully eliminated, we design our systems, our service provider contracts, business continuity plans and insurance programmes in order to mitigate such a risk. For example the communications network has been designed and implemented to provide resilience at critical locations and remove single points of failure wherever possible.

We have developed strong security policies and undertake rigorous security measures to protect this data and any systems that have been granted access to it. We operate under a principle of segregation of duties across all data driven applications separating It development and operational resources and responsibilities.

Insurance

Availability of suitable insurance cover

Significant risks would exist to the stability of the group’s business if access to insurance and/or reinsurance was constrained, denied or available only at increased costs that could not be passed on in increased prices. We are legally obliged to provide all vehicle rental customers with insurance against accidents caused to third parties. We also provide our customers the option to purchase waivers of liability in the event that the vehicle sustains damage or is stolen whilst in their custody. We provide reinsurance services to some insurers for a capped limit through the group’s own captive insurance companies.

We cover various risks arising from the normal course of business, including damage to property and third party general liability. Cover is arranged with a number of major insurance companies to cost effectively spread risk and we are reliant on their continued credit standing. Certain of these insurance policies are supported by letters of credit and parent company guarantees provided by the group, the extent of which is partly dependent upon the insurer’s perceived credit standing of the group. Where appropriate the captive companies purchase reinsurance to limit their own exposure to acceptable levels.

Airports and railway stations

Dependency on the granting and renewal of concessionary arrangements

the group generates material revenues from rental locations at airports and train stations pursuant to concessionary arrangements that generally have terms from three to five years. A certain proportion of these arrangements will be due for renewal each year, and there can be no assurance that they will be renewed, or that they will be renewed on comparable terms.

We seek to maintain strong relationships with all relevant authorities and have a strong track record of renewing such contracts on a regular basis. our diversified international network means that no single location accounts for more than 2% of the group’s consolidated rental income. In the event that we could not continue to operate from a location on reasonable terms, we would obtain an alternative operational location to minimise the impact and are investigating other opportunities such as use of online check-in and kiosks.

Funding

Availability of appropriate funding

the group’s operations are by their very nature capital intensive and are dependent on its various sources of funding. terms of credit between the group and its principal suppliers of fleet vary widely, depending both on the market in which the vehicles are to be used and on the supplier. Certain suppliers also provide vehicles on operating lease terms. Any material worsening of credit terms would result in a corresponding increase in debt funding requirements. As a substantial proportion of the group’s vehicles are funded with borrowings, including both on and off balance sheet leasing arrangements, the group depends on access to the debt markets and other forms of financing to fund its fleet. If we are unable to access such debt facilities on commercially acceptable terms, or have difficulty meeting the terms of any lender covenants, the current business, results of operations, financial condition and future prospects may be adversely affected.

A key feature of our business is a pool of nearly new saleable assets with good asset cover over debt providing financial institutions with a higher level of comfort. Leased vehicles are owned by the lessor: all other vehicles are owned by the group with no security provided to lenders. the group has a policy of keeping a contingency margin between forecast financing requirements and committed debt facilities. We seek to ensure that the group has a core level of long-term committed funding in place with maturities spread over a number of years. this core funding is supplemented with shorter-term committed and uncommitted facilities particularly to cover seasonal debt requirements. All funding is arranged with a wide range of providers, on both a public and private basis. We maintain a regular dialogue with debt providers to keep them updated on the trading performance and prospects of the business. During 2010 the group completed a €181million rights issue to further strengthen its financial position.

governance Risksanduncertaintiescontinued



Interest and foreign currency

Exposure to fluctuation in interest rates and foreign currencies

Interest rate risk arises from the group’s borrowings which, after foreign currency risk hedging, principally arise in euro and sterling. Borrowings issued at variable rates expose the group to cash flow interest rate risk whereas borrowings issued at fixed rates expose the group to fair value interest rate risk.

the majority of the group’s business is transacted in euros, sterling, uS dollars and Swiss francs.

to manage these risks, the group is financed through a combination of both fixed and floating rate facilities and enters into various interest rate derivative instruments. group policy is to ensure that at the end of each calendar quarter, the average amount of debt that is at fixed or capped rates of interest when expressed as a percentage of forecast net borrowings is always between a lower and upper limit for various rolling 12 month periods following the relevant quarter-end. When debt facilities mature the group is exposed to the then market rate credit spreads on its new borrowings. In each country where the group has a corporately-owned operation, revenue generated and costs incurred are primarily denominated in the relevant local currency, thereby providing a natural currency hedge. In addition, intra-group trading transactions are netted and settled centrally. Any remaining material foreign currency transaction exposures are hedged as appropriate into either euros or sterling. Revenue recognised from Licensees is primarily received in sterling providing a natural hedge to the costs of running the European Head office. the policy with regard to translation exposures is to match where practicable the average assets of the group to the equivalent average liabilities in each major currency and thus minimise any impact of changing exchange rates. to the extent that this does not occur, both foreign currency borrowings and forward exchange contracts are used.

Pensions

Pension fund deficit the group has two principal defined benefit pension schemes, a uK scheme which is in deficit, and an unfunded scheme in germany. the group’s balance sheet liability against these schemes is subject to uncertainty concerning the risks and returns around the respective assets and liabilities of the uK scheme and the interest rate applied to the book reserve for the german scheme. In particular, as detailed in the Notes to the Consolidated Financial Statements, volatility in interest rates and inflation rates impact on the amount by which future pension liabilities are discounted and affect the returns forecast to be earned. the group’s future cash contributions to the defined benefit pension schemes and government pension protection funds are also dependent on future scheme performance and underlying actuarial assumptions.

the defined benefit scheme in germany was closed to new entrants in 2006. Actuarial valuations of the Avis uK Pension Plan are performed every three years. the next valuation, as at 31 March 2011, should be available late 2011. the previous full defined benefit scheme in the uK was closed to both then existing and new employees in 2007 and replaced by the Retirement Capital Plan, wherein the group retains investment and inflation risk, and the employee takes any longevity risk. Following each valuation of the uK scheme, the group takes appropriate action to address any deficit that may exist. Currently, the group has committed to eliminate the estimated shortfall by means of paying deficit contributions of £8.2 million each year ending on 1 January 2017, with the 2011 due payment already made in 2010.

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governanceStatement of Directors’ responsibilities

Remuneration report

this report has been prepared in accordance with the relevant requirements of the Listing Rules of the uK Listing Authority and the Large and Medium-sized Companies and groups (Accounts and Reports) Regulations 2008. As required by the latter, a resolution to approve the Remuneration Report will be proposed at the forthcoming Annual general Meeting of the Company at which the Financial Statements will be approved. the Board has also given full consideration to the best practice provisions on Directors’ remuneration as set out in the Combined Code on Corporate governance 2008 (the Code).

Part 1 of this report sets out the group’s policy on executive remuneration and explains the various elements of the Directors’ remuneration packages. Part 2 of this report, which contains the information on which auditors are required to report to the Company’s shareholders, sets out details of Directors’ earnings and pension entitlements and fees paid to non-executive Directors in 2010. Directors’ interests in shares, share incentive awards and share options, all of which are beneficial except as noted, are set out on pages 39 to 41.

Part1(Unaudited)RemunerationCommitteeScopethe Remuneration Committee is responsible for developing policy on remuneration for executive Directors and senior management and for determining specific remuneration packages for executive Directors and members of the Avis Executive Board (AEB). the Committee is constituted under terms of reference laid down by the Board. these terms are designed to enable the Company to comply with the requirements relating to remuneration policy contained in the Code.

the full terms of reference are set out on the Company’s website: www.avis-europe.com and are available upon request.

During 2010, the Remuneration Committee’s activities included:

• review of incentive arrangements for 2010 and 2011 for executive Directors, AEB members and senior management

• grants of awards under the Long term Incentive Plan• approving adjustments to existing awards under the Company’s share

incentive schemes to reflect the impact of the Rights Issue and share consolidation completed in July 2010

• approving certain changes to senior country management and roles• overseeing a consultation process regarding the Company’s uK Pension

Plan• review of the Committee’s performance in 2010.

Membership the membership of the Remuneration Committee is set out in the Corporate governance report on page 27.

the Remuneration Committee is comprised of the Chairman of the Board and four non-executive Directors. All the non-executive Directors on the Committee are regarded as independent, except as explained on page 27 of the Corporate governance report. the Committee met seven times during the year and each member’s attendance at these meetings is shown in the Corporate governance report on page 28.

there were no changes to the composition of the Board or the Committee in the period 1 January 2010 – 25 February 2011.

the Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. under that law the Directors have prepared the group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European union, and the Parent Company Financial Statements in accordance with united Kingdom generally Accepted Accounting Practice (united Kingdom Accounting Standards and applicable law). under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the Company and of the profit or loss of the group for that period. In preparing these Financial Statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently• make judgements and accounting estimates that are reasonable and

prudent• state whether IFRSs as adopted by the European union and applicable

uK Accounting Standards have been followed, subject to any material departures disclosed and explained in the group and Parent Company Financial Statements respectively, and

• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

the Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the group and enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the group Financial Statements, Article 4 of the IAS Regulation. they are also responsible for safeguarding the assets of the Company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

the Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the united Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. Each of the Directors, whose names and functions are listed in their biographies on page 25 confirm that, to the best of their knowledge:

• the group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the Eu, give a true and fair view of the assets, liabilities, financial position and profit of the group, and

• the Business review includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that it faces.


Advisers During the period under review the Chief Executive, group Finance Director and group HR Director attended meetings by invitation and provided advice to the Committee to assist it in making informed decisions on relevant matters. No Director was present when his own remuneration was being discussed. External advice was received from Deloitte LLP (Long term Incentive Plan), Freshfields Bruckhaus Deringer (share scheme adjustments) and PricewaterhouseCoopers LLP (share scheme adjustments). All advisers were appointed by the Company. other than described above, no additional services were provided by the external advisers during the year.

RemunerationpolicyIntroduction the group’s executive remuneration policy for 2011 is designed to attract, retain and motivate executive and senior management to ensure that the group secures the appropriate competencies and experience needed to meet its objectives and satisfy shareholder expectations. In general, in determining its policy, the Remuneration Committee takes account of market practice, the group’s position relative to other companies and the Company’s performance.

the Remuneration Committee believes that shareholder interests are best served by executive remuneration packages that have a large component of performance-related pay linked to annual performance. For 2011 the relationship between fixed and variable remuneration for achievement of maximum performance is 30% fixed and 70% variable for the Chief Executive and 40% fixed and 60% variable for the group Finance Director. the variable element comprises an annual incentive bonus scheme and an award under the Long term Incentive Plan. the Deputy Chairman, who is also an executive Director, has a service contract with an annual fee only.

Salary In response to the prevailing difficult economic climate, executive salaries were frozen in 2010. Executive Directors and members of the AEB were granted an incentive opportunity for the year designed to deliver 50% of salary for on-target performance (as defined and agreed by the Remuneration Committee). Executive Directors and members of the AEB also received a grant under the Long term Incentive Plan, details of which are set out below.

For 2011 salaries for executive Directors and the AEB have again not been increased and an annual incentive opportunity is being provided on a similar basis to 2010. In recognition of this continuing freeze of base salary, the Remuneration Committee has, however, approved an increase in the percentage of base salary for the LtIP grants to be made in 2011 from 75% to 150% for the Chief Executive and from 50% to 100% for the group Finance Director and other AEB members.

For all other employees, the 2011 policy is that salary reviews may take place on a country and business unit basis, depending on market conditions and performance.

Annual incentive bonus Annual incentive bonus plans for executive Directors and key senior management are based on achievement of both profit and return on capital employed targets approved by the Remuneration Committee and related directly to the annual plan approved by the Board. targets and performance measures are quantitative and there is a financial threshold below which no bonus payment is made. Bonuses are paid following finalisation of the applicable year’s results, at which point the quantum of bonuses is established.

In 2011, as in the previous year, 80% of the bonus is based on appropriately stretching financial targets and 20% on achievement of quantitative individual objectives, which include contribution to the delivery of key group initiatives.

the base salary, bonus payments and value of benefits in kind for each Director are set out in the Directors’ emoluments table on page 39. A summary is also provided in Note 37 of the Consolidated Financial Statements, together with the remuneration of other key management (being other AEB members). Bonus payments, benefits in kind and cash allowances do not form part of pensionable earnings for Directors.

Shareincentivepolicythe Remuneration Committee sets policy with regard to share incentives with the objective of aligning the interests of shareholders and management in growing the value of the business over the longer term. It does this by granting share awards which vest depending on the extent to which the business meets targets for both earnings and return on capital over a three-year period; the value of the incentive to an executive is also heavily dependent on the level of share price appreciation over the period, also helping to align the interests of the executive and the shareholders. An additional feature of the share incentive policy is that it acts as a highly effective retention tool.

the Company is proposing to adopt a new uK HM Revenue & Customs approved scheme, the Avis Europe Long term Approved Share option Plan, in order to give scope for tax-effective grants to uK participants. A resolution to this effect will be proposed at the forthcoming Annual general Meeting.

Shareholding guidelines implemented in 2005 require executive Directors to build up their personal holdings of shares in the Company. the guidelines are 150% of salary for the Chief Executive and 100% of salary for the group Finance Director. the Remuneration Committee requires executives to retain 50% of any vested shares (net of tax and exercise costs) arising from any share incentive scheme until the shareholding requirement is achieved.

Rights Issue and share consolidationPursuant to the Company’s 9 for 8 Rights Issue in July 2010 and subsequent 10 for 1 share consolidation, the Remuneration Committee approved a number of adjustments to existing awards made under the Company’s share incentive plans, details of which are set out below. In each case, adjustments were designed to maintain unchanged the economic terms of the grants made under the plans.

outstanding share plans outstanding share plans are as follows: Long term Incentive Plan (last award 2010); Share Retention Plan (last award 2009); and Share option Schemes (last award April 2004). A description of each of these plans is set out below. During the year all outstanding awards under the Performance Share Plan lapsed. the assessment of whether performance conditions have been met is verified by the Remuneration Committee at the time of vesting.

Individual Directors’ share incentive awards are set out pages 40 to 41.

Long term Incentive Planthe Long term Incentive Plan, introduced in 2007, comprises awards of ordinary shares in the Company, structured as nil cost options or conditional awards. Awards vest three years after grant, providing certain performance conditions are met. It is intended that there will be annual grants of awards under this Plan.

Remuneration report

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governance Remunerationreportcontinued

the performance conditions required for vesting purposes are based on tranches of 50% in respect of the group’s three-year growth in earnings per share (EPS) and 50% in respect of return on capital employed (RoCE) performance. If one or both of the performance targets are not met at the end of the performance period, 50% or 100% (as appropriate) of the award will lapse on vesting.

the performance targets for awards granted under the Plan in 2010 are set out below:

EPStrancheofAward Percentage of award that vests inPercentage growth in EPS respect of EPS trancheLess than 10% per annum1 None10% per annum1 20%19.5% per annum1 100%Between 10% and Straight-line basis between 19.5% per annum1 20% and 100%

ROCEtrancheofAward Percentage of award that vestsPercentage RoCE achieved in respect of RoCE trancheLess than 11.0% None11.0% 20%12.0% 100%Between 11.0% Straight-line basis betweenand 12.0% 20% and 100%

1 targets shown are before adjustment for the impact of the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation.


EPStrancheofAward Percentage of award that vestsPercentage growth in EPS in respect of EPS trancheLess than 12.5% per annum1 None12.5% per annum1 20%22.8% per annum1 100%Between 12.5% and Straight-line basis between22.8% per annum1 20% and 100%




EPStrancheofAward Percentage of award that vestsPercentage growth in EPS in respect of EPS trancheLess than 14.9% per annum1 None14.9% per annum1 20%23.0% per annum1 100%Between 14.9% and Straight-line basis between23.0% per annum 20% and 100%



the performance targets for awards granted under the Plan in 2007 were not satisfied and accordingly the awards made in 2007 lapsed on 4 June 2010.

EPS is calculated on an underlying basis i.e. excluding exceptional items, certain re-measurement items and economic hedge items. However, the Remuneration Committee has discretion to adjust for any exceptional items which it deems to be within management control, if appropriate, to ensure the outcome is fair to both shareholders and executives. the basis of the RoCE calculation is included in Note 26 to the Consolidated Financial Statements. the Remuneration Committee believes that EPS represents a complete measure of financial performance, capturing both interest and tax, and is closely tracked by many of the Company’s investors. Car rental is highly asset intensive and the Remuneration Committee also wishes management to be focussed on improving the return the Company achieves on this capital.

Participation is at the Remuneration Committee’s discretion. In 2010 awards were made to all members of the AEB, which included two of the executive Directors, and to 39 senior managers. Maximum awards are capped at 100% of salary (150% for the Chief Executive) (see page 40). Dividends, as and when reinstated, will not accrue on the awards made to date, but it is anticipated that for awards granted in future, dividends would accrue but be paid only on shares that vest. outstanding awards will vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time.

Following the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation, the Remuneration Committee approved certain adjustments to the awards outstanding: (1) the number of shares comprised in the awards was adjusted by a multiple of 0.1352; (2) the EPS performance condition was adjusted to reflect the impact of the Rights Issue on EPS (no change was made to the RoCE performance condition). All awards were granted at a nil exercise price and therefore no adjustment to the exercise price was necessary.


Share Retention Plan on 1 May 2009 the Share Retention Plan was established as a one-off discretionary benefit for the sole purpose of retaining the services of the Chief Executive.

the principal terms of the Plan are as follows. the sole participant is the Chief Executive and the award is in the form of a conditional share award of ordinary shares in the Company. the Plan provides that in normal circumstances the award vests in three equal tranches on 1 May 2010, 1 May 2011 and 1 May 2012, provided that the Chief Executive is still employed by the group and is not subject to notice of termination of his employment (whether given or received) on these dates. there are no performance conditions relating to this award.

Following the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation, the Remuneration Committee approved an adjustment to the outstanding tranches of the award whereby the number of shares in each tranche was adjusted by a multiple of 0.1352.

the award will normally lapse on cessation of employment (save on death, when the award will vest in full). If employment ceases by reason of injury or disability, or for any other reason if the Remuneration Committee so decides, the Remuneration Committee has discretion to decide whether or not the award will vest and, if so, the extent to which it will vest. In the event of a takeover, the Remuneration Committee will decide the extent to which any outstanding part of the award will vest. In the event of a corporate reorganisation, the Remuneration Committee may decide that the award continues over the shares of any new holding company.

If there is a demerger or other corporate event which, in the opinion of the Remuneration Committee, will materially affect the share price, then the Remuneration Committee may decide that the award vests early. In the event of any increase or variation in the share capital of the Company, the payment of a capital dividend or other event similarly affecting the award, the number of shares subject to the award may be adjusted. the Remuneration Committee may alter the Plan at any time.

Performance Share Plan No awards under this Plan have been made since April 2004 and no further grants can be made as the Plan has now expired. the performance conditions relating to all outstanding awards have not been satisfied and accordingly all outstanding awards under the Performance Share Plan lapsed with effect from 17 March 2010.

Share option schemesNo options have been granted under these schemes since April 2004, and no further grants can be made as the schemes have now expired. Further details of outstanding share options are set out in Note 31 to the Consolidated Financial Statements.

the schemes comprise Inland Revenue approved and unapproved share option schemes which have an EPS based performance condition. Employees may not normally exercise options earlier than three years, nor more than 10 years after the grant (seven years for grants made before April 2000 for the unapproved scheme). options lapse upon cessation of employment. However, special conditions apply if employment ceases because of death, injury, disability, redundancy, retirement or because the employing business or company is transferred outside the group, or for any other reason at the

discretion of the Board. outstanding options will vest and become exercisable on a change of control and, with the exception of the uK Approved Share option Scheme, any options vesting will, at the discretion of the Remuneration Committee, be subject to the satisfaction of any performance conditions at that time.

the performance conditions relating to these schemes required that real growth in EPS should exceed 3% per annum during any period of three consecutive years following the date of grant. the performance conditions relating to the outstanding options (all of which were granted prior to 2004) have been satisfied.

In order to reflect the impact of the Company’s 9 for 8 Rights Issue, the Remuneration Committee approved the following adjustments: (1) for awards outstanding under the Avis International Share option Scheme and the Avis uK unapproved Share option Scheme, the number of shares comprised in the award was adjusted by a multiple of 1.352, with the exercise price adjusted by the inverse; (2) for awards outstanding under the Avis uK Approved Share option Scheme, the number of shares comprised in the award was adjusted by a multiple of 1.335 in accordance with the rules of the scheme, with the exercise price adjusted by the inverse; and (3) for awards outstanding under the French Share option Scheme, the number of shares comprised in the award was adjusted by a multiple of 1.339 in accordance with the rules of the scheme, with the exercise price adjusted by the inverse. For all schemes, the number of shares comprised in awards was then reduced by a factor of 10 to reflect the share consolidation.

the rules of the share option schemes limit the number of options that can be granted over new issue shares in a rolling 10-year period to 5% of issued share capital under discretionary share schemes, and 10% of issued share capital under all share schemes. the total number of share options outstanding at 31 December 2010 is well within these dilution limits (see page 41).

Avis Europe Employee Share trust the Avis Europe Employee Share trust was established in March 2000 to facilitate provision of shares for the Company’s share incentive schemes. the trust may hold up to 5% of the issued share capital of the Company at any one time.

At 31 December 2010, the trust held 1,478,117 ordinary shares of 10 pence each. It is intended that the shares in the trust will be used to satisfy share awards made under the Company’s various share incentive schemes as and when these awards vest. the awards outstanding under each of the relevant plans at 31 December 2009 and 31 December 2010 are set out below.

Share awards outstanding Share awards outstandingShare Incentive Scheme at 31 December 20101 at 31 December 20092

Performance Share Plan Nil 514,875 sharesLong term Incentive Plan 7,673,407 shares 54,426,596 sharesShare Retention Plan 95,150 shares 1,055,662 sharestotal 7,768,557 shares 55,997,133 shares

1 Share awards outstanding at 31 December 2010 comprise awards over ordinary shares of 10 pence each, following the adjustments made following the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation (see pages 35 to 37 for further information). 2 Share awards outstanding at 31 December 2009 comprise awards over ordinary shares of 1 pence each, prior to the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation.

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the Company periodically reviews the number of shares held by the trust in light of the anticipated vesting dates and performance conditions under the various plans. the Company also regularly reviews its hedging policy but does not currently hedge any of these awards against potential Social Security costs that may be incurred across the group as and when the awards vest.

Totalshareholderreturn(TSR)the graph below illustrates the performance of Avis Europe plc and a “broad equity market index” over the past five years. As Avis Europe plc has been a constituent of the FtSE All Share Index throughout this five-year period, that index is considered the most appropriate form of “broad equity market index” against which the group’s performance should be graphed. As required by legislation, performance is measured by total shareholder return (share price plus dividends paid).

All dates at 31 December.this graph shows the value, by the end of 2010, of £100 invested in Avis Europe plc on 31 December 2005 compared with the value of £100 invested in the FtSE All Share Index. the other points plotted are the values at intervening financial year ends.

Non-executiveDirectorsNon-executive Directors’ fees are positioned to attract non-executives with broad business and commercial experience and to be competitive in the marketplace. the Chairman’s fee is determined by the Remuneration Committee. the Chairman and the Chief Executive set the remuneration of non-executive Directors based on periodic review of current survey data. Policy is to pay an annual fee of £32,500 with an additional fee for chairmanship of a Committee. Non-executive Directors do not receive awards under the Company’s share incentive schemes.

ServiceContractsExecutive Directors the Company’s policy is to employ each executive Director under a service contract which is subject to 12 months’ notice on either side and runs until terminated. the contract provides for salary to be paid for any unexpired period of notice in the event of termination by the Company. Compensation for contractual benefits and bonus for the unexpired period of notice is at the discretion of the Remuneration Committee. there is no compensation for loss of rights under the share and pension schemes. All contracts contain mitigation provisions. there are no special contractual payments associated with change of control.

All executive Directors have service contracts in line with policy as shown.

Date of service contract Notice period

Pascal Bazin 1 January 2008 12 monthsJean-Pierre Bizet1 25 May 2004 12 monthsMartyn Smith 11 September 2002 12 months

1 the Deputy Chairman, who is also an executive Director, has a service contract with an annual fee only and his appointment is subject to the terms of the Relationship Agreement (see Corporate governance report on page 26).

the Board believes that it can be of benefit to the group as a whole for the executive Directors to broaden their experience through service as a non-executive Director of other businesses. Subject to individual review, group policy is that executive Directors may hold one non-executive directorship in another business and may retain the fees. During the year ended 31 December 2010, none of the executive Directors held any relevant appointments. the policy does not apply to the role of executive Deputy Chairman which is an appointment made under the Relationship Agreement with s.a. D’Ieteren n.v. nor to charitable or other pro bono appointments.

Non-executive Directors the Company’s policy is to engage non-executive Directors on renewable three-year terms, which can be terminated by either party at any time without penalty (subject to the terms of the Relationship Agreement in respect of Directors appointed by s.a. D’Ieteren n.v.).

Date of appointment as Date of current a non-executive Director appointment letter

Alun Cathcart1 25 May 2004 18 May 2010Les Cullen 25 May 2004 17 May 2010Roland D’Ieteren 3 February 1997 2 March 2009Benoit ghiot 15 December 2004 1 December 2010Axel von Ruedorffer 27 June 2001 16 June 2010Pierre Alain De Smedt 1 February 2007 17 May 2010

1 Alun Cathcart previously served as an executive Director for the periods 3 February 1997 to 31 March 1999 and 1 May 2002 to 24 May 2004, having served as a non-executive Director for the intervening period 1 April 1999 to 30 April 2002.

All non-executive Directors, including the Chairman, have current letters of appointment renewed for a three year term in accordance with policy, except that Axel von Ruedorffer’s current letter of appointment is for a one year term ending on 27 June 2011.

RetirementbenefitsExecutive Directors based in the uK can participate in the Avis uK Pension Plan although none of the executive Directors accrued benefits under the Avis uK Pension Plan during 2010.

Martyn Smith withdrew from the Plan effective 5 April 2006 and has a preserved pension entitlement under the Final Salary section. From that date he has received a taxable cash allowance of 20% of base salary in lieu of Pension Plan membership. the Final Salary section of the Plan was closed to new entrants with effect from 1 July 2003.

Pascal Bazin does not participate in any Avis occupational pension plan.

Total shareholder return – value of hypothetical £100 holding

Avis FTSE All share index

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Part2(Audited)Directors’remunerationDirectors’ emolumentsthe remuneration of Directors, comprising salary or fees, taxable benefits and bonus payments for the year ended 31 December 2010 is set out in the table below. Salary Salary total year to total year to Salary/ taxable supplement supplement Compensation 31 December 31 December fees Bonus Benefits1 Pension Car/fuel for loss of office 2010 2009 £ £ £ £ £ £ £ £

Executive P Bazin 550,760 484,669 11,205 – – – 1,046,634 1,040,498J-P Bizet 80,000 – – – – – 80,000 80,000M Smith 330,000 290,400 12,984 66,000 – – 699,384 661,606total 960,760 775,069 24,189 66,000 – – 1,826,018 1,782,104 Non-executive W A Cathcart 190,000 – 1,695 – 20,000 – 211,695 211,372L Cullen 40,000 – – – – – 40,000 40,000R D’Ieteren 32,500 – – – – – 32,500 32,500B ghiot 32,500 – – – – – 32,500 32,500A von Ruedorffer 32,500 – – – – – 32,500 32,500P A De Smedt 37,500 – – – – – 37,500 37,500total 365,000 – 1,695 – 20,000 – 386,695 386,372Total 1,325,760 775,069 25,884 66,000 20,000 – 2,212,713 2,168,476

AvisExecutiveBoard(excludingexecutiveDirectors):Aggregate 2,033,464 1,543,103 93,450 102,580 – 210,181 3,982,777 3,846,088

1 taxable benefits include principally car, fuel and medical insurance.

Base salaries for the executive Directors during the period 1 January 2010 to 31 December 2010 are: Pascal Bazin €640,000 and Martyn Smith £330,000.

PensionsDetails of Directors’ pension entitlements under the Avis uK Pension Plan (a defined benefit scheme) at 31 December 2010:

Amount of transfer value of Amount of change remaining Accrued Increase/(decrease) transfer value of transfer value of Increase/(decrease) in accrued change in pension in accrued accrued pension accrued pension in value less benefit due accrued benefit to 31 December pension at 31 December at 31 December Director’s own to inflation during year 2010 excluding inflation 2009 2010 contributionsDirector £ £ £ £ £ £ £

W A Cathcart1 – – – – 4,726,621 4,614,311 (112,310)M Smith2 – – – – 113,419 120,355 6,936

1 Alun Cathcart is no longer accruing a benefit in the Avis uK Pension Plan and has been in receipt of a pension from 12 September 2005. In the year to 31 December 2010 he received a pension of £316,148 (2009: £315,048). 2 Martyn Smith left the Avis uK Pension Plan on 5 April 2006 with a deferred pension of £6,160 per annum payable from age 62.

Directors’interestsintheCompany’ssharesthe beneficial and non-beneficial interests of the Directors as at 31 December 2010 are shown below. there have been no changes between 31 December 2010 and 25 February 2011:

Executive 31 December 20101 1 January 20102 P Bazin 123,946 284,336J-P Bizet – –M Smith 57,235 269,342

1 Shares held at 31 December 2010 comprise ordinary shares of 10 pence each, following the Company’s 10:1 share consolidation in August 2010. All Directors took up their rights in full in the Company’s 9 for 8 Rights Issue.2 Shares held at 1 January 2010 comprise ordinary shares of 1 pence each, prior to the Company’s 10:1 share consolidation in August 2010.3 Includes 2,693 shares of 10 pence each at 31 December 2010 (12,673 shares of 1 pence each at 1 January 2010) in which Alun Cathcart has a non-beneficial interest as trustee for the beneficial owner.

Non-Executive 31 December 20101 1 January 20102 W A Cathcart3 94,216 443,373L Cullen 4,250 20,000R D’Ieteren – –B ghiot – –A von Ruedorffer 4,250 20,000 P A De Smedt 101,849 479,270

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Directors’interestsintheCompany’sshareplansDetails of awards outstanding at 31 December 2010 under the group’s share schemes are shown below.

Long term Incentive Planthe following awards were made over ordinary shares of 1 pence each under this Plan on 15 April 2010. the market price of the Company’s shares at that date was 34.75 pence per share. As at 31 December 2010, no awards under this Plan had vested.

Award in year Vesting date of At 1 January to 31 December Date of 2010 Lapsed during At 31 December outstanding 20101 20101 award 20101 20102 awards

P Bazin 389,260 – – 389,260 – –

4,349,234 – – – 588,016 7 october 2011

6,637,205 – – – 897,350 20 March 2012

– 1,219,794 15 April 2010 – 164,916 15 April 2013

M Smith 540,983 – – 540,983 – –

1,943,462 – – – 262,756 7 october 2011

1,849,073 – – 249,994 20 March 2012

– 474,820 15 April 2010 – 64,195 15 April 2013

1 Awards outstanding at 1 January 2010 comprise awards over ordinary shares of 1 pence each.2 Awards outstanding at 31 December 2010 comprise awards over ordinary shares of 10 pence each, following the adjustments made following the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation (see page 36 for further information).

Performance conditionsthe performance conditions required for vesting purposes are based 50% on the Company’s three-year growth in earnings per share (EPS) and 50% on return on capital employed (RoCE), based on the group’s results under International Financial Reporting Standards. these targets are set such that shares will vest only if performance is between a minimum threshold level, where 20% of an award will vest, and the maximum level, where 100% of an award will vest.

At 31 December 2010, 53 qualifying employees and qualifying former employees, including executive Directors, held awards over 7,673,407 shares in total under this Plan. the market price of the Company’s ordinary shares of 10 pence at 31 December 2010 was 237.0 pence per share. During the period 1 January 2010 – 3 August 2010, the market price for each ordinary share of 1 pence ranged between 19.0 pence and 38.0 pence; during the period 4 August 2010 – 31 December 2010, the market price for each ordinary share of 10 pence ranged between 195.5 pence and 240.2 pence.

Share Retention PlanNo awards were made under this Plan in 2010. As at 31 December 2010, one-third of the total award has vested. the vesting date was 1 May 2010 and the shares were released on 4 May 2010. the market price of the Company’s ordinary shares of 1 pence at the date of award was 17.0 pence per share and the market price of the Company’s ordinary shares of 1 pence on the date of vesting was 36.75 pence per share.

Award in year to Vested in year to Vesting date of At 1 January 31 December 31 December At 31 December outstanding 20101 2010 20101 20102 awards3

P Bazin 1,055,662 – 351,887 95,150 1 May 2011 1 May 2012

1 ordinary shares of 1 pence each.2 Awards outstanding at 31 December 2010 comprise awards over ordinary shares of 10 pence each, following the adjustments made following the Company’s 9 for 8 Rights Issue and subsequent 10:1 share consolidation (see page 37 for further information).3 Accelerated vesting conditions are disclosed on page 37.

there are no performance conditions relating to awards under the Share Retention Plan.


PerformanceSharePlanAlloutstandingawardsunderthePerformanceSharePlanhavelapsedwitheffectfrom17March2010andnofurtherawardscanbemadeasthePlanhasnowexpired. Lapsed At1January during At31December 20101 20101 2010

WACathcart2 244,409 244,409 –

MSmith 270,466 270,466 –

1 Ordinary shares of 1 pence each.2TheawardsheldbyAlunCathcartweregrantedwhenhewasanexecutiveDirectoroftheCompany.

ShareOptionSchemesDirectors’interestsinshareoptionsgrantedundertheAvisEuropeplcshareoptionschemes,allofwhicharebeneficialexceptasnoted,areshownbelow.Alloptionsweregrantedfornilconsideration.Nooptionswereexercisedduringtheperiodunderrevieworthepreviousyear,norduringtheperiodbetween31December2010and25February2011.Thelastgrantsweremadein2004andtheschemeshavenowexpired.

AtJanuary At31December Exerciseprice Date 20101 20102 (pence) exercisablefrom Expirydate

Executive MSmith 35,897 4,792 626.3 September2005 September2012

202,702 27,405 618.3 September2005 September2012

238,599 32,197

Non-executive WACathcart3 17,222 2,299 1,305.1 March2005 March2012

340,677 46,059 1,288.4 March2005 March2012

71,580 9,677 618.3 September2005 September2012

429,479 58,035

1 Options outstanding at 1 January 2010 comprise options over ordinary shares of 1 pence each.2Optionsoutstandingat31December2010compriseoptionsoverordinarysharesof10penceeach,followingtheadjustmentsmadefollowingtheCompany’s9for8RightsIssueandsubsequent10:1shareconsolidation(seepage37forfurtherinformation).3TheshareoptionsheldbyAlunCathcartweregrantedwhenhewasanexecutiveDirectoroftheCompany.

Theperformanceconditionsapplyingtotheshareoptionschemeshavebeenbasedonrealgrowthinearningspershare(EPS).Theawardsdisclosedaboverelatetooptionsgrantedbefore2004,theperformanceconditionbeingthatoptionswouldbecomeexercisablewhenrealgrowthinEPSexceeds3%perannum during any period of three consecutive years following the date of grant. The performance conditions relating to these options have been satisfied and the options have therefore vested.

At31December2010,103qualifyingemployeesheldoptionsover258,777shares.Nooptionsweregrantedin2010,theschemeshavingexpired.ThemarketpriceoftheCompany’sordinarysharesof10penceat31December2010was237.0pencepershare.Duringtheperiod1January2010–3August2010,themarketpriceforeachordinaryshareof1pencerangedbetween19.0penceand38.0pence.Duringtheperiod4August2010–31December2010, the market price for each ordinary share of 10 pence ranged between 195.5 pence and 240.2 pence.

SignedonbehalfoftheBoard

Judith NicholsonCompanySecretary25 February 2011

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the Directors present their report and the audited financial statements for the year ended 31 December 2010.

Principalactivitiesandbusinessreviewthe principal activity of the group is the supply of rental vehicle services. A full review of the group’s activities and a report on its business, including Key Performance Indicators, strategy and likely future developments are set out in the Chief Executive’s review and the Business review on pages 6 to 24, incorporated in this report by reference.

Resultsanddividendsthe results for the year are set out in the Consolidated Financial Statements on pages 45 to 78. the Directors do not recommend the payment of an interim or final dividend for the year (2009: nil). Directorsandtheirintereststhe names of the Directors of the Company as at 31 December 2010 appear in the Corporate governance report on page 26. there were no appointments during the period 1 January – 25 February 2011.

Details of the Directors’ interests in shares and options to purchase shares are detailed in the Remuneration report on 39 to 41. In addition, Jean-Pierre Bizet and Benoit ghiot are Directors of D’Ieteren Car Rental s.a., an indirect wholly-owned subsidiary of s.a. D’Ieteren n.v., which held 116,574,579 ordinary shares of 10 pence each in the capital of the Company as at 31 December 2010. Details of significant contracts entered into with s.a. D’Ieteren n.v. are disclosed below. there have been no changes in the above Directors’ interests between 31 December 2010 and 25 February 2011.

Except as noted above, none of the Directors had any interests in the shares of the Company or in any material contract or arrangement with the Company or any of its subsidiary undertakings.

AppointmentofDirectorsandArticlesofAssociationthe Company’s Articles of Association provide that the Company may appoint Directors by ordinary resolution. the Company’s Articles of Association themselves may be amended by special resolution of the shareholders. Details of the Relationship Agreement with s.a. D’Ieteren n.v., which includes rights for s.a. D’Ieteren n.v. to appoint and remove up to three Directors, are set out below.

Directors’liabilitycoverAs recommended by the Combined Code the Company carries directors’ and officers’ liability insurance which is arranged under an umbrella policy effected by s.a. D’Ieteren n.v. the Company has entered into indemnities to the extent permitted by English law, indemnifying the Directors against claims brought against them.

Conflictsofinterestthe Company has implemented procedures to deal with any Directors’ conflicts of interest which may arise, and considers that these procedures are operating effectively. the Company carries out an annual review of authorisations given by the Board.

SharecapitalDetails of the share capital of the Company and changes during the year covered by this Report are set out in Note 29 to the Consolidated Financial Statements. the rights and obligations attaching to the Company’s ordinary shares are set out in the Company’s Articles of Association. there are no restrictions on the voting rights attaching to the Company’s ordinary shares or on the transfer of securities in the Company.

the last Annual general Meeting authorised the Company to purchase up to 92,052,404 of its own ordinary shares of 1 pence each. this authority will expire, and is due to be renewed, at the next Annual general Meeting. the Company made no purchases of its own shares during 2010 pursuant to this authority. Details of the share capital of the Company are set out in Note 29 to the Consolidated Financial Statements.

SubstantialshareholdingsAt 25 February 2011, the Company had been advised of the following notifiable interests in its issued ordinary share capital, and the voting rights attached to those shares:

% of voting rights

D’Ieteren Car Rental s.a. 59.59odey Asset Management LLP 13.25Schroders plc 4.67

the Company entered into an agreement with s.a. D’Ieteren n.v. at the time of its flotation in 1997 which governs the relationship between s.a. D’Ieteren n.v. and the Company. the agreement includes restrictions on s.a. D’Ieteren n.v.’s power to appoint Directors and obligations on those Directors to ensure that the majority of the Board is independent of s.a. D’Ieteren n.v. It also provides that all transactions between the Company and s.a. D’Ieteren n.v. will be on an arm’s length basis. the agreement also contains certain anti-dilution rights for s.a. D’Ieteren n.v. provided that the D’Ieteren group owns more than 30% of the issued ordinary share capital of the Company.

During the year, the group has entered into transactions with the D’Ieteren group on an arm’s length basis with respect to the purchase and sale of vehicles and the provision of finance. Further details of these transactions are set out in Note 37 to the Consolidated Financial Statements.

EmployeeinvolvementandshareschemesDetails of employee involvement are included in the Corporate social responsibility report on pages 12 to 17. Details of the Company’s employee share schemes, including any provisions relating to a change of control, are set out in the Remuneration report on pages 34 to 41.

Healthandsafetyatworkthe Company has a health and safety policy approved by the Board. the Chief Executive is responsible for oversight of policy and each operating unit in the uK has a nominated member of senior management who has overall responsibility for setting goals and performance targets. Measures of performance are reviewed regularly, and include work-related accidents and ill health, health and safety training and risk assessment activities.

governanceDirectors’ report for the year ended 31 December 2010


CharitableandpoliticaldonationsDuring the year, the group made charitable donations totalling €22,872; £19,682 (2009: €14,000; £13,000). the group made no political donations during the year (2009: nil).

Paymentstocreditorsgiven the number of countries in which the group operates it is practice to agree the terms of payment at the start of business with each supplier and to pay in accordance with contractual and other legal obligations. the Company had no trade creditors at 31 December 2010 (2009: nil) and hence the number of creditor days outstanding for the Company was nil (2009: nil).

Postbalancesheeteventsthere are no significant events affecting the group since year end.

Financialinstrumentsthe group’s financial risk management objective is set out in Note 26 to the Consolidated Financial Statements.

Significantagreementsthe group has entered into the following significant agreements which are subject to change of control provisions: (1) trademark and System Licences dated 4 April 1997 for use of the Avis trademarks and operating system in Europe, Africa, the Middle East and Asia which can be terminated in the event that a major competitor obtains control of 35% or more of voting capital, whereupon associated agreements, including the Computer Services Agreement dated 1 January 1991 for use of the Wizard system, would also terminate. (2) trademark Licence dated 11 March 2003 for use of the Budget trademarks in Europe, Africa and the Middle East which can be terminated in the event that a major competitor obtains control of 35% or more of voting capital. (3) A €375,000,000 Facilities Agreement dated 24 June 2010 under which lenders have the right to cancel their commitments in the event of a change of control. (4) €250,000,000 Senior Floating Rate Notes due 2013 dated 21 July 2006 which can be accelerated in the event of a change of control.

DisclosureofinformationtoauditorsSo far as each Director is aware, there is no relevant audit information of which the Company’s auditors, PricewaterhouseCoopers LLP, are unaware and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of this information.

AuditorsPricewaterhouseCoopers LLP have expressed their willingness to continue in office and a resolution to reappoint them will be proposed at the Annual general Meeting.

By order of the Board

JudithNicholsonCompany Secretary 25 February 2011

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Financial statementsIndependent Auditors’ Report to the Members of Avis Europe plc

We have audited the group Financial Statements of Avis Europe plc for the year ended 31 December 2010 which comprise Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, the Significant Accounting Policies and the related notes. the financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European union.

RespectiveresponsibilitiesofDirectorsandauditorsAs explained more fully in the Directors’ responsibilities statement set out on page 34, the Directors are responsible for the preparation of the group Financial Statements and for being satisfied that they give a true and fair view. our responsibility is to audit and express an opinion on the group Financial Statements in accordance with applicable law and International Standards on Auditing (uK and Ireland). those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

this report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

ScopeoftheauditoftheFinancialStatementsAn audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. this includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements.

OpiniononFinancialStatementsIn our opinion the group Financial Statements:

• give a true and fair view of the state of the group’s affairs as at 31 December 2010 and of its profit and cash flows for the year then ended;

• have been properly prepared in accordance with IFRSs as adopted by the European union; and

• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the lAS Regulation.

OpiniononothermattersprescribedbytheCompaniesAct2006In our opinion:

• the information given in the Directors’ report for the financial year for which the group Financial Statements are prepared is consistent with the group Financial Statements; and

• the information given in the Corporate governance statement set out on pages 26 to 29 with respect to internal control and risk management systems and about share capital structures is consistent with the group Financial Statements.

MattersonwhichwearerequiredtoreportbyexceptionWe have nothing to report in respect of the following:

under the Companies Act 2006 we are required to report to you if, in our opinion:

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit; or

• a corporate governance statement has not been prepared by the Parent Company.

under the Listing Rules we are required to review:

• the Directors’ statement, set out on page 23 in relation to going concern; • the part of the Corporate governance statement relating to the company’s

compliance with the nine provisions of the June 2008 Combined Code specified for our review; and

• certain elements of the report to shareholders by the Board on Directors’ remuneration.

OthermatterWe have reported separately on the Parent Company Financial Statements of Avis Europe plc for the year ended 31 December 2010 and on the information in the Directors’ Remuneration report that is described as having been audited.

Stephen Wootten (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsReading25 February 2011

Notes:a) the maintenance and integrity of the Avis Europe plc website is the responsibility of the

Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

b) Legislation in the united Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.


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Financial statementsConsolidated Income Statementfor the year ended 31 December

2010 2009

Amounts Amounts excludedfrom excluded from underlying underlying Underlying1 (Note6) Total Underlying1 (Note 6) Total Notes €m €m €m €m €m €m

Revenue 2,3 1,521.9 – 1,521.9 1,395.5 – 1,395.5 Cost of sales (989.6) – (989.6) (875.8) – (875.8)

Grossprofit 532.3 – 532.3 519.7 – 519.7 Administrative expenses (424.1) (2.5) (426.6) (416.3) (33.5) (449.8)

Operatingprofit/(loss) 3,4,6 108.2 (2.5) 105.7 103.4 (33.5) 69.9 Finance income 6,7 1.1 0.2 1.3 1.0 4.4 5.4 Finance costs 6,7 (60.6) 1.0 (59.6) (69.3) (1.6) (70.9)Share of profit of joint ventures and associate 15 2.3 – 2.3 0.1 – 0.1

Profit/(loss)beforetaxation 51.0 (1.3) 49.7 35.2 (30.7) 4.5 Taxation 6,8 (23.1) 2.2 (20.9) (10.4) 6.1 (4.3)

Profit/(loss)aftertaxationfortheyearattributabletoequityholdersoftheCompany 27.9 0.9 28.8 24.8 (24.6) 0.2

Earningspershare(eurocents) As restated2 As restated2

Basic 10 17.8 18.4 20.0 0.2 Diluted 10 17.7 18.2 20.0 0.2

1 Underlying excludes net exceptional items, certain re-measurement items and economic hedges – see Basis of Preparation.2 Comparative restated following the Rights Issue and share consolidation (see Note 29).

The accompanying Notes form an integral part of these Consolidated Financial Statements.


2010 2009

Amounts Amounts excludedfrom excluded from Underlying1 underlying Total Underlying1 underlying Total Notes €m €m €m €m €m €m

Profit/(loss)aftertaxationfortheyearattributabletoequityholdersoftheCompany 27.9 0.9 28.8 24.8 (24.6) 0.2 Actuarial gains/(losses) on retirement benefit obligations 23 – 7.4 7.4 – (17.6) (17.6)Cash flow hedges: – net fair value losses – (7.4) (7.4) – (3.4) (3.4)– reclassified to Income Statement – 10.0 10.0 – 2.7 2.7 Exchange differences on translation of foreign operations – 9.4 9.4 – 5.5 5.5Tax (charge)/credit on other net comprehensive income/(expense) 8 – (1.1) (1.1) – 6.6 6.6 Othercomprehensiveincome/(expense)netoftaxationfortheyear – 18.3 18.3 – (6.2) (6.2)

Totalcomprehensiveincome/(expense)fortheyearattributabletoequityholdersoftheCompany 27.9 19.2 47.1 24.8 (30.8) (6.0)

1 Underlying excludes net exceptional items, certain re-measurement items and economic hedges – see Basis of Preparation.


Financial statementsConsolidated Statement of Comprehensive Incomefor the year ended 31 December


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2010 2009 Notes €m €m

Goodwill 11 0.2 0.2 Other intangible assets 12 11.1 13.1 Property, plant and equipment:– vehicles not subject to manufacturer repurchase agreements 13 353.5 364.5 – other property, plant and equipment 14 58.8 64.9 Investments accounted for using the equity method 15 16.3 12.2 Other financial assets:– investments held for sale 16 0.5 0.4 – derivative financial instruments 26 7.0 1.9 Deferred tax assets 17 41.4 42.5 Non-currentassets 488.8 499.7

Inventories 18 7.1 8.4 Trade and other receivables 19 1,026.1 989.6Current tax assets 1.6 1.7 Other financial assets:– held for trading 16 – 2.7 – derivative financial instruments 26 2.7 2.4 Cash and short-term deposits 20 231.7 60.6 Currentassets 1,269.2 1,065.4

Totalassets 1,758.0 1,565.1

Trade and other payables 21 463.5 422.7 Other taxes and social security 64.8 42.6 Current tax liabilities 20.3 41.2 Obligations under finance leases 24 184.3 167.9 Other financial liabilities:– borrowings 25a) 112.9 74.0 – deferred consideration 25c) 0.3 0.3 – derivative financial instruments 26 19.0 32.1 Provisions 22 20.9 18.6 Currentliabilities 886.0 799.4

Deferred tax liabilities 17 6.9 6.4 Provisions 22 27.4 32.7 Retirement benefit obligations 23 68.0 89.1 Obligations under finance leases 24 0.1 – Other financial liabilities:– borrowings 25a) 435.6 509.5 – deferred consideration 25c) 24.8 23.8 – derivative financial instruments 26 17.3 41.8 Non-currentliabilities 580.1 703.3

Totalliabilities 1,466.1 1,502.7

Netassets 291.9 62.4

EquityCalled-up share capital 29 25.6 13.1 Share premium 381.5 381.5 Own shares held 30 (3.9) (2.5)Retained deficit (91.5) (295.6)Translation reserve (11.6) (24.3)Hedging reserve (9.0) (10.6)Shareholders’equity 291.1 61.6 Non-controllinginterest 0.8 0.8 Totalequity 291.9 62.4

The accompanying Notes form an integral part of these Consolidated Financial Statements.The Consolidated Financial Statements, including accompanying Notes, were approved by the Board on 25 February 2011 and were signed on its behalf by:

PascalBazin MartynSmithChief Executive Group Finance Director Avis Europe plc Registered No. 3311438

Financial statementsConsolidated Balance Sheetas at 31 December


AttributabletoequityholdersoftheCompany

Own Share shares Non- capital Share held Retained Merger Translation Hedging controlling Total (Note29) premium (Note30) deficit reserve reserve reserve Total interest equity Notes €m €m €m €m €m €m €m €m €m €m

At1January2009 13.1 381.5 (0.4) (283.9) – (30.8) (10.2) 69.3 0.8 70.1 Profit for the year attributable to equity holders of the Company – – – 0.2 – – – 0.2 – 0.2 Net actuarial losses on retirement benefit obligations – – – (17.6) – – – (17.6) – (17.6)Cash flow hedges:– net fair value losses – – – – – – (3.4) (3.4) – (3.4)– reclassified to Income Statement – – – – – – 2.7 2.7 – 2.7 Taxation 8 – – – 5.3 – 1.0 0.3 6.6 – 6.6

Exchange differences on translation of foreign operations – – – – – 5.5 – 5.5 – 5.5

Totalcomprehensive(expense)/incomefortheyear – – – (12.1) – 6.5 (0.4) (6.0) – (6.0)

Increase in equity reserve arising from charge to income for share options in the year 5 – – – 0.4 – – – 0.4 – 0.4 Purchase of own shares – – (2.0) – – – – (2.0) – (2.0)Other exchange movements – – (0.1) – – – – (0.1) – (0.1)At31December2009 13.1 381.5 (2.5) (295.6) – (24.3) (10.6) 61.6 0.8 62.4

At1January2010 13.1 381.5 (2.5) (295.6) – (24.3) (10.6) 61.6 0.8 62.4Profit for the year attributable to equity holders of the Company – – – 28.8 – – – 28.8 – 28.8 Net actuarial gains on retirement benefit obligations – – – 7.4 – – – 7.4 – 7.4 Cash flow hedges:– net fair value losses – – – – – – (7.4) (7.4) – (7.4)– reclassified to Income Statement – – – – – – 10.0 10.0 – 10.0Taxation 8 – – – (3.4) – 3.3 (1.0) (1.1) – (1.1)

Exchange differences on translation of foreign operations – – – – – 9.4 – 9.4 – 9.4

Totalcomprehensiveincomefortheyear – – – 32.8 – 12.7 1.6 47.1 – 47.1

Net proceeds of Rights Issue 29 12.5 – – – 168.1 – – 180.6 – 180.6Purchase of own shares upon Rights Issue 30 – – (1.4) – – – – (1.4) – (1.4)Realisation of merger reserve 29 – – – 168.1 (168.1) – – – – –Increase in equity reserve arising from charge to income for share options in the year 5 – – – 2.1 – – – 2.1 – 2.1 Decrease in equity reserve and own shares released on vesting of share awards – – 0.1 (0.1) – – – – – –Deferred tax credit on share-based payments – – – 1.2 – – – 1.2 – 1.2Other exchange movements – – (0.1) – – – – (0.1) – (0.1)At31December2010 25.6 381.5 (3.9) (91.5) – (11.6) (9.0) 291.1 0.8 291.9

Goodwill of €1,080.4 million arising before 1 March 1998 is fully written off to reserves. The hedging reserve reflects changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows.


Financial statementsConsolidated Statement of Changes in Equity


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2010 2009 Notes €m €m

Operatingprofit 105.7 69.9 Reverse amortisation of other intangible assets 4 5.1 4.8 Reverse depreciation on vehicles and other property, plant and equipment 4 118.5 129.1 Reverse adjustments arising on differences between sales proceeds and depreciated amounts 4 (2.9) (1.0)Reverse non-cash operating lease charge on manufacturer repurchase agreements 4 143.4 135.7 Payments in respect of manufacturer repurchase agreements (838.9) (865.5)Receipts in respect of manufacturer repurchase agreements 739.2 998.3 Purchase of vehicles not subject to manufacturer repurchase agreements (387.0) (293.4)Proceeds on disposal of vehicles not subject to manufacturer repurchase agreements 336.2 249.9 (Increase)/decrease in non-vehicle inventories (1.0) 1.7 (Increase)/decrease in receivables (35.6) 36.6 Increase in payables 52.9 2.5 Decrease in provisions (3.8) (9.0)Decrease in retirement benefit obligations (15.4) (1.5)Reverse share-based payment charges 5 2.1 0.4 Reverse exceptional impairment – 0.6 Reverse re-measurement items and economic hedging adjustments 6 2.8 4.0 Cash flow on derivative financial instruments – non-debt (3.9) (2.2)

Netcashgeneratedfromoperatingactivitiesbeforetaxation 217.4 460.9 Tax paid (40.4) (12.0)Netcashgeneratedfromoperatingactivities 177.0 448.9

InvestingactivitiesPurchase of other intangible assets 12 (2.6) (2.2)Purchase of other property, plant and equipment (7.2) (8.7)Proceeds on disposal of other property, plant and equipment 0.9 0.6 Purchase of financial assets – available for sale investments (0.1) –Sale/(purchase) of financial assets held for trading 32a) 2.7 (2.7)Investment in associate 33 – (0.4)Netcashusedininvestingactivities (6.3) (13.4)

FinancingactivitiesNet proceeds of Rights Issue 29 180.6 – Finance revenue received 1.1 1.0 Finance costs paid (52.9) (61.6)Finance cost element of finance lease payments (7.8) (10.6)Net capital element of finance lease payments 32a) (46.7) (54.3)Purchase of own shares 30 (1.4) (2.0)Repayment of bank and other loans 32a) (46.9) (261.4)Cash flow on derivative financial instruments – debt 32a) (29.1) (19.4)Netcashusedinfinancingactivities (3.1) (408.3)

Increaseincashandcashequivalents(excludingexchangeratechanges) 167.6 27.2 Effects of exchange rate changes 32a) 0.5 (0.1)

Netincreaseincashandcashequivalents 168.1 27.1 Cash and cash equivalents at 1 January 32a) 51.8 24.7

Cashandcashequivalentsat31December 32a) 219.9 51.8


Financial statementsConsolidated Cash Flow Statementfor the year ended 31 December


BasisofpreparationThe Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, International Financial Reporting Interpretations Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. Avis Europe plc is a public limited company incorporated, listed and domiciled in the UK. The Consolidated Financial Statements have been prepared under the historical cost convention as modified (as described below) by the revaluation of certain derivative instruments and borrowing balances, the recognition of retirement benefit obligations using the “projected unit method”, and the recognition in the Income Statement of the fair value of share based payments. The Consolidated Financial Statements are prepared in accordance with the accounting policies set out below.

These policies are consistent with those followed in the preparation of the Consolidated Financial Statements for the year ended 31 December 2009, except for the adoption of the following new standards, interpretations and amendments to published standards which are effective in year ended 31 December 2010, where applicable: The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2010 and have been applied by the Group where relevant and have had no significant impact on the Group’s Consolidated Financial Statements.

• IFRS 3 (revised 2008), Business combinations (effective from 1 July 2009).• IFRS 5 (Amendment), Non-current assets held-for-sale and discontinued

operations, and consequential amendment to IFRS 1, First-time adoption of International Financial Reporting Standards (effective from 1 July 2009).

• IFRIC 17, Distributions of non-cash assets to owners (effective from 1 July 2009).

• IFRIC 18, Transfers of assets from customers (effective from 1 July 2009).

Note that the following new standards, interpretations and amendments to published standards are effective for annual periods beginning on or after the stated effective date, and have therefore not been adopted to date:

• IFRS 9, Financial instruments (effective 1 January 2013).• IAS 24 (revised), Related party disclosures (effective 1 January 2011).• IAS 32, Financial instruments: presentation (amendment – ‘Classification of

rights issues’) (effective 1 February 2010).• IFRIC 14 (Amendment), Prepayments of a minimum funding requirement

(effective 1 January 2011).• IFRIC 19, Extinguishing financial liabilities with equity instruments

(effective 1 July 2010).

Management are currently reviewing the impact of the above. The application of IFRS9, Financial Instruments, and IAS24, Related party disclosures, will result in further disclosure amendments once those standards become effective. The other new standards, interpretations and amendments are not currently expected to have a material impact on the Group’s financial statements.

UnderlyingmeasuresIn addition to total performance measures, the Group also discloses additional underlying performance measures, including underlying profit and underlying earnings per share. The Group believes that these underlying performance measures provide additional useful information on business trends. The term “underlying” is not defined under IFRS, and may therefore not be comparable

with similarly titled profit measurements reported by any other company. It is not intended to be a substitute for, or superior to, IFRS measures of profit.These underlying measures are calculated based on reported profit before exceptional items, certain re-measurement items and adjustments to reflect the realised gains and losses on foreign exchange forward contracts and accrued interest cash flows on certain derivative financial instruments (economic hedge adjustments). These are detailed below. Exceptional itemsThese are material non-recurring items that derive from events or transactions that fall within the ordinary activities of the Group, and which individually or, if of a similar type, in aggregate, are separately disclosed by virtue of their size or incidence.

Certain re-measurement itemsItems that represent re-measurement of underlying assets or liabilities (for example due to interest rate or exchange rate changes) are presented as certain re-measurement items. Events which may give rise to the classification of gains and losses as certain re-measurement items include fair value gains and losses on derivatives in accordance with the financial instruments and hedge accounting policy below; and exchange gains and losses arising upon the translation of foreign currency borrowings at the closing rate.

Economic hedge adjustmentsUnder IAS 39, the Group applies hedge accounting to hedge relationships (primarily forward exchange contracts, cross currency interest rate swaps and interest rate swaps) where it is both permissible and practicable to do so. Due to the nature of its economic hedging relationships, in a number of circumstances the Group is unable to apply hedge accounting to these derivatives. The Group continues, however, to enter into these arrangements as they provide certainty of the exchange rates applying to the foreign currency transactions entered into by the Group and the interest rate on the Group’s debt. These arrangements result in fixed and determined cash flows. The Group believes that these arrangements remain effective as economic hedges, and therefore adjustment is made to reported profit measures such that the underlying profit reflects full application of hedge accounting.

BasisofconsolidationThe Consolidated Financial Statements comprise a consolidation of the accounts of the Company and its subsidiary undertakings.

The accounting reference dates of certain of the Group’s subsidiary undertakings and its associated undertaking are governed by local requirements and are not coterminous with the Group’s 31 December year end. For those companies with non-coterminous year ends, management accounts for the relevant period to 31 December have been consolidated. The main subsidiary undertaking with such a non-coterminous year end is Avis Autonoleggio SpA (30 June). In the opinion of the Directors, the expense of providing such additional coterminous statutory accounts, together with potential consequential delay in producing the Group’s Consolidated Financial Statements, would outweigh any benefit to the shareholders.

Subsidiary undertakingsSubsidiary undertakings are those entities in which the Group has, directly or indirectly, an interest of more than half of the voting rights or otherwise has the power to exercise control over the operations. Subsidiaries are accounted for using the acquisition method of accounting. The amount of profits or losses for a reporting period allocated to non-controlling interests is adjusted (and separately disclosed in the Income Statement) against income of the Group for the year.

Financial statementsSignificant Accounting PoliciesApplicable to the Consolidated Financial Statements for the year ended 31 December 2010


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Joint ventures and associate undertakingJoint ventures are undertakings in which the Group has an interest and which are jointly controlled by the Group and one or more other parties. Associates are undertakings in which the Group has an investment and can exercise significant influence. Such interests are accounted for using the equity method and are stated in the Consolidated Balance Sheet at cost, adjusted for movement in the Group’s share of their net assets and liabilities. The Group’s share of the profit or loss after tax of joint ventures and associates is included in the Group’s share of profit before taxation.

Functional currency and foreign exchangeThe functional currency of the Company is sterling. However, as a significant proportion of the Group’s revenues, costs, assets and funding arise in euro, the Consolidated Financial Statements of the Group are presented in euro.

Foreign exchange translation:The Group consolidation is prepared in sterling. Income statements of foreign operations are translated into sterling at the weighted average exchange rates for the period and balance sheets are translated into sterling at the exchange rate ruling on the balance sheet date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as local currency assets and liabilities of the foreign entity and are translated at the closing rate.

Foreign currency transactions are accounted for at the exchange rate prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. Exchange movements arising from the retranslation at closing rates of the Group’s net investment in subsidiaries, joint ventures and associates are taken to the translation reserve. The Group’s net investment includes the Group’s share of net assets of subsidiaries, joint ventures and associates, and certain inter-company loans. The net investment definition includes certain loans between Group companies and other inter-company items denominated in any currency. Other exchange movements are taken to the Income Statement.

The Consolidated Financial Statements are presented in euro. The consolidated sterling assets and liabilities at each balance sheet date are recalculated into euro at the closing rate at that balance sheet date. The consolidated sterling income and expenses are recalculated into euro at the average monthly exchange rates. All resulting exchange differences are taken to the translation reserve. Net investment hedges:Where the Group hedges net investments in foreign operations, the gains and losses relating to the effective portion of the hedging instrument is recognised in the translation reserve in equity. The gain or loss relating to any ineffective portion is recognised in the Income Statement. Gains and losses accumulated in equity are included in the Income Statement when the foreign operation is disposed of.

SegmentreportingIn accordance with IFRS8, Operating segments, the Group adopts a “management approach” to segment reporting such that segmental information is in the form which management uses internally for assessing segment performance and deciding how to allocate resources to operating segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker being the Group Chief Executive.

Consistent with presentation in its management accounts, the Group separately discloses the results of its corporately-owned operations, Avis Licensee and Budget Licensee businesses. The Chief Executive focuses on these separate business segments given their relative contribution to overall Group profitability, and with their significantly different risks and rewards.

Due to the network nature of the Group’s operations and the extensive interdependencies within that network, the corporately-owned business unit is managed under a matrix structure with key management personnel responsible for both functions across the whole of the corporately-owned business segment, as well as for the performance of certain geographies.

RevenueRevenue includes both vehicle rental income and income from the disposal of vehicles not subject to manufacturer repurchase agreements, and excludes inter-company sales, value added and sales taxes. Revenue is recognised when the outcome of a transaction involving the rendering of services (including the provision of licence rights) can be estimated reliably by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all of the following are satisfied: a) the amount of revenue can be measured reliably; b) it is probable that the economic benefits associated with the transaction will flow to the Group; c) the stage of completion of the transaction at the balance sheet date can be measured reliably; and d) the cost incurred for the transaction and the costs to complete the transaction can be measured reliably.

Rental incomeRental revenue comprises charges for the rental of a vehicle and is recognised on a daily rental basis. Other revenue including charges arising from the provision of services incidental to vehicle rental (such as the sale of fuel and the provision of foreign exchange services to rental customers) are recognised in line with underlying rental revenue. Other revenue also includes fees receivable from sub-licensees which is ordinarily recognised as a contracted percentage of the rental revenue of each individual sub-licensee.

Licensee fees from Avis and Budget Licensees are ordinarily recognised as a contracted percentage of the rental revenue of each individual licensee. Where licensee arrangements include both up-front and ongoing fees, the components are assigned across accounting periods based on the relative fair value of the service provided. The Group generally determines the fair value of individual elements based on prices at which the service component is regularly sold on a standalone basis.

Charges recovering the cost of damages incurred to vehicles are not recognised as revenue, but are netted against the related damage repair costs within cost of sales.

Disposal of vehicles not subject to manufacturer repurchase agreementsIncome from the disposal of vehicles not subject to manufacturer repurchase agreements, is recognised in revenue upon the transfer of legal title of the vehicle.

Customer loyalty programmesThe Group operates a small number of customer loyalty/reward programmes of its own, whereby certain regular customers can accumulate credits that entitle them to a choice of various awards and discounts, primarily free future rentals. In accordance with IFRIC 13, Customer loyalty programmes, the fair value attributed to the awarded credits is netted against revenue, deferred as a liability and recognised as revenue on redemption of the rewards.


CostofsalesCost of sales includes selling, revenue and rental related costs (e.g. commissions and credit card fees) and vehicle costs. Cost of sales also includes the book value of vehicles not subject to manufacturer repurchase agreements disposed in the period. The Group participates in third party reward schemes (primarily airline frequent flyer loyalty programmes) which involves the purchasing of ‘air miles’ or ‘points’ which are then used in promotional activity. These costs are recognised as part of selling costs upon customers qualifying to receive these rewards.

AdministrativeexpensesAdministrative expenses primarily comprise staff costs, non-vehicle related rental charges and other overheads, and are recognised as an expense in the period in which they are incurred.

FinancecostsAny finance costs directly attributable to capital projects are capitalised as part of the individual project costs. All other finance costs are recognised as an expense in the period in which they are incurred.

TaxationThe current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years. It further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

Current tax for current and prior periods, to the extent unpaid, is recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as a current asset. The benefit relating to a tax loss that can be carried back to recover current tax of a previous period is recognised as an asset.

Deferred tax is provided in full using the balance sheet liability method, on temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the corresponding tax bases for taxation purposes. Deferred taxes are not calculated on the following temporary differences: (i) the initial recognition of goodwill and (ii) the initial recognition of assets and liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected basis of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets previously recognised are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax is not recognised in relation to temporary differences associated with unremitted earnings of the Group’s overseas subsidiaries where the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.

Current and deferred tax are charged or credited to the Income Statement except when they relate to items charged or credited directly to equity, in which case the tax is also dealt with in equity.

GoodwillGoodwill (being the difference between the fair value of consideration paid for new interests in group companies and the fair value of the Group’s share of their identifiable net assets and contingent liabilities at the date of acquisition) is capitalised. Goodwill is not amortised, but is subject to annual review for impairment (or more frequently if necessary). Any impairment is charged to the Income Statement as it arises.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether assets or liabilities of the acquired business are assigned to those units or group of units. Each unit, or group of units to which the goodwill is allocated represents the lowest level within the Group at which goodwill is monitored for internal management purposes, and is not larger than an operating segment.

OtherintangibleassetsOther intangible assets are valued at cost less any accumulated amortisation and any accumulated impairment losses. Costs that are directly associated with identifiable and unique software products, and which have probable economic benefits exceeding the cost beyond one year, are recognised as intangible assets. Costs associated with maintaining computer software, or that are not directly associated with identifiable and unique software products, are expensed as incurred. Computer software programmes are amortised on a straight-line basis over periods varying between two and 10 years.

VehiclesnotsubjecttomanufacturerrepurchaseagreementsVehicles are initially measured at cost, comprising the purchase price (including any import duties and non-refundable purchase taxes, after deducting trade discounts and rebates), plus any costs directly attributable to bringing the vehicle to the location and condition necessary for it to be capable of operating. After initial recognition, the vehicle is carried at its cost less any accumulated depreciation and any provisions for accumulated impairment losses. Straight-line depreciation is based on initial cost, after consideration of expected holding periods (ordinarily between 6 months and 3 years) and estimated residual values. Where the carrying amount of a vehicle is greater than its estimated recoverable amount, it is written down immediately to its anticipated recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use.

Vehicles not subject to manufacturer repurchase agreements are transferred to inventories when a disposal is highly probable, the vehicle is available for immediate sale in its present condition and management are committed to the asset disposal which is ordinarily imminent.

Otherproperty,plantandequipmentOther property, plant and equipment is stated at cost less depreciation and impairment. Cost comprises the purchase price (including any import duties and non-refundable purchase taxes, after deducting trade discounts and rebates), plus any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. If applicable, initial estimates of the cost of dismantling and removing the item and restoring the site are also included in the cost of the item. Depreciation is provided on a straight line basis based on the expected average useful lives of the assets and the residual values. The main useful lives are as follows:

Financial statementsSignificant Accounting Policies continuedApplicable to the Consolidated Financial Statements for the year ended 31 December 2010


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a) Buildings: 40 to 50 yearsb) Plant and equipment: 3 to 15 yearsc) Leased assets: depending on the length of the lease

Other property, plant and equipment is subject to review for impairment at each balance sheet date or if triggering events or circumstances indicate this is necessary. Any impairment is charged to the Income Statement as it arises.

Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

Operating leases for which the Group is the lessorRental income is recognised on a straight-line basis over the lease term. Vehicles leased out under operating leases are classified within “property, plant and equipment – vehicles not subject to manufacturer repurchase agreements”, unless they are held under operating leases for which the Group is the lessee (see below). These vehicles are depreciated over their expected useful lives.

Operating leases for which the Group is the lesseeLease payments under operating leases (net of any incentive received from the lessor) are recognised as expenses in the Income Statement on a straight-line basis over the lease term.

Vehicles subject to manufacturer repurchase agreementsVehicles subject to manufacturer repurchase agreements are not recognised as non-current assets since these arrangements are accounted for as operating leases (lessee accounting). The difference between the initial payment and the fair value at inception of the final repurchase price (the obligation of the manufacturer) is considered as a deferred charge and is classified as prepaid vehicle operating lease charges within trade and other receivables. This deferred charge is recognised within cost of sales on a straight line basis over the relevant vehicle holding period as “hire of vehicles under repurchase agreements”. At inception of the arrangement, a separate repurchase agreement receivable is recognised within “trade and other receivables” for the fair value of the final repurchase price. Thereafter this repurchase agreement receivable is recognised at amortised cost with the unwinding of the initial fair value discount also recognised within cost of sales as part of the “net operating lease charge on manufacturer repurchase agreements”, reflecting the substance of the overall arrangement.

Finance leases for which the Group is the lesseeLeases of vehicles (including vehicles subject to manufacturer repurchase agreements) and other property, plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset or the present value of the minimum lease payments. Each lease payment is allocated between the liability and the finance charge so as to achieve a constant rate of return on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in interest-bearing liabilities. The interest element of the finance cost is charged to the Income Statement over the lease period. The leased assets are depreciated over their expected useful lives on a basis consistent with similar owned vehicles or other property, plant and equipment. If there is no reasonable certainty that ownership will be acquired by the end of the lease term, the asset is depreciated over the shorter of the lease term and its useful life.

InventoriesVehicles not subject to manufacturer repurchase agreementsVehicles not subject to manufacturer repurchase agreements are classified within inventories if their carrying amount will be recovered through a sale transaction rather than through continuing use. Vehicles classified within inventories cease to be depreciated and are measured at the lower of carrying amount and fair value less selling costs.

Fuel and vehicle partsInventories are measured at the lower of cost and net realisable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their location and condition at the balance sheet date. Items are valued using the first in, first out method. When inventories are used, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised.

Financial InstrumentsFinancial assetsThe classification of financial assets is determined at initial recognition depending on the purpose for which they were acquired. Any impairment is recognised in the Income Statement as it arises.

Trade and other receivables:Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Cash and short term deposits:Cash comprises cash in hand, demand deposits and bank overdrafts. Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within “borrowings” in “current liabilities” in the Balance Sheet.

Impairment of financial assets:At each balance sheet date the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount is reduced through the use of an allowance account, and the amount is recognised in the Income Statement within administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables, with any subsequent recoveries credited to administrative expenses.

Financial liabilitiesFinancial liabilities (including borrowings) are recognised initially at fair value, net of transaction costs. They are subsequently held at amortised cost unless part of a fair value hedge. Any difference between the amount on initial recognition and redemption value is recognised in the Income Statement using the effective interest method. Short-term liabilities (including trade and other payables) are measured at original invoice amount.


DerivativesThe fair values of derivative financial instruments are determined using a number of methods and assumptions based on prevailing conditions at the balance sheet date including market forward interest rates and exchange rates at the balance sheet date. Changes in fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Income Statement as they arise.

Where hedge accounting is applied, the Group documents at the inception of the transaction: the relationship between the hedging instruments and hedged item; its risk management objectives and strategy for undertaking the transaction; its assessment (both at inception and then ongoing) of whether the derivatives are highly effective in offsetting changes in fair values or cash flows of the related hedged items. The fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Cash flow hedges:Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and any ineffective portion is recognised immediately in the Income Statement. If the cash flow hedge is a firm commitment or the forecast transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the Income Statement in the same period in which the hedged item affects net profit or loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to the Income Statement.

Fair value hedges:For an effective hedge of an exposure to changes in the fair value of a hedged item, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with a corresponding entry in the Income Statement. Gains or losses from re-measuring the derivative, or for non-derivatives the foreign currency component of its carrying amount, are also recognised in the Income Statement. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the Income Statement over the period to maturity.

Embedded derivatives:Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. Embedded derivatives are held at fair value, with unrealised gains and losses recognised in the Income Statement as they arise.

ProvisionsA provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the value of the expenditures expected to be required to settle the obligation. Where the time value of money is material, provisions are discounted using an appropriate rate that takes into account the risks specific to the liability. Uninsured claimsThe Group limits its exposure to the cost of motor, employer and public liability claims through insurance policies issued by third parties, but self insures subject to excess limits and annual aggregate stop losses for total claims. A provision is made for the estimated cost to the Group to settle claims for incidents occurring prior to the balance sheet date, together with an estimate of settlements that will be made in respect of incidents occurring prior to the balance sheet date but that have not yet been reported to the Group (subject to the overall stop losses) based on an assessment of the expected settlement on known claims, and after taking appropriate professional advice.

RetirementbenefitobligationsThe Group operates various defined benefit and defined contribution retirement benefit plans.

The charges to the Income Statement for defined contribution plans are the Group contributions payable, and the assets and liabilities of such plans are not included in the balance sheet of the Group.

All defined benefit schemes are subject to regular actuarial review by external consultants using the “projected unit method”. Service costs are systematically allocated over the service lives of employees, and financing costs are recognised in the periods in which they arise. The costs of individual events such as past service benefit enhancements, settlements and curtailments are recognised immediately in the Income Statement. Variations from expected costs, arising from experience of the plans, or changes in actuarial assumptions, are recognised immediately in the Statement of Comprehensive Income. The defined benefit deficit or surplus in the balance sheet comprises the value for each plan of the fair value of the plan assets less the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds). EquityOwn shares heldWhere the Company (or its subsidiaries) re-acquires its own equity instruments, those instruments are deducted from equity as own shares held. Where such equity instruments are subsequently sold, any consideration received is recognised in equity.

Share-based paymentsThe economic cost of awarding shares and share options is reflected by recording a charge in the Income Statement equivalent to the fair value of the benefit awarded over the relevant performance period. Fair value is determined with reference to the share price at the date of grant. Employer national insurance contributions which are expected to be paid upon vesting of such options are also recognised in the Income Statement over the relevant performance period.

Financial statementsSignificant Accounting Policies continuedApplicable to the Consolidated Financial Statements for the year ended 31 December 2010


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CriticalaccountingpoliciesandjudgementsThe preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosure of contingencies at the date of the Consolidated Financial Statements. If the original estimates and assumptions are different to the subsequent actual outcome, they are modified as appropriate in the period in which the circumstances change. The following policies are considered to be particularly complex and/or subject to the exercise of considerable judgement.

Exceptional itemsExceptional items are those that, by virtue of their size or incidence, should be separately disclosed in the Income Statement. The determination of which items should be separately disclosed as exceptional items requires judgement. FleetGiven the nature of the Group’s business, the main asset in the Balance Sheet is the vehicle fleet, a proportion of which has no guaranteed residual value and therefore the value at the end of the rental life will depend on the market for those vehicles at the time of disposal. Judgement is therefore required in the estimation of residual values, with reference made to recent disposal experience, and external market data. Trade and other receivablesThe Group regularly assesses the recoverability of its trade and other receivable balances. Where there is evidence that the Group will not be able to collect all amounts outstanding, a provision for impairment is recognised. The Group utilises previous customer history, debtor ageing profiles and other relevant information in assessing the level of provision required.

Retirement benefit obligationsJudgement is required in the setting of assumptions used by the actuaries in assessing the financial position of each defined benefit scheme. The Group determines the assumptions to be adopted in discussion with its actuaries, and believes these assumptions to be in line with generally accepted practice, but the application of different assumptions could have a significant effect on the amounts reflected in the Income Statement and Balance Sheet in respect of post-employment benefits. The sensitivity of principal scheme liabilities to changes in the assumptions used by actuaries is set out in Note 23.

ProvisionsThe Group continues to carry provisions against exposures that arise in the normal course of trading, which include uninsured losses for which there is self-insurance using management’s best estimate of the likely settlement of incidents. The estimated settlement is reviewed on a regular basis and the amount provided is adjusted as required. Provisions also cover areas such as termination and reorganisation activities and property reserves. Judgement is involved in assessing the exposures in these areas and hence in setting the level of the required provision.

TaxationThe Group is subject to taxation in a number of jurisdictions. Significant judgement is required in determining the Group’s provision for current tax as there are many transactions and calculations for which the ultimate tax determination is uncertain in the ordinary course of business. Further judgement is used when assessing the extent to which deferred tax assets and liabilities should be recognised with consideration given to the timing and level of future taxable income.

Share-based paymentsThe cost of options granted to employees is measured by reference to the fair value at the date at which they are granted. This cost is recognised in the Income Statement over the period from grant to vesting date, being the date on which the relevant employees become fully entitled to the award, with a corresponding increase in equity. The cumulative expense recognised at each reporting date, reflects the extent to which the period to vesting has expired and the Directors’ best estimate of the number of options that will ultimately vest.


1Generalinformation

The Company is a public limited company with a premium listing on the London Stock Exchange. The address of its registered office is Avis House, Park Road, Bracknell, Berkshire, RG12 2EW. The Company’s ultimate majority shareholder is s.a. D’Ieteren n.v. which is incorporated in Belgium. The ultimate controlling party of s.a. D’Ieteren n.v. is the D’Ieteren family.

This set of Consolidated Financial Statements was approved for issue on 25 February 2011.

2Revenue

The Group provides international vehicle rental services. Revenue is derived entirely from continuing activities. The Group experiences a natural increase in demand from Leisure customers over the European summer holiday months which generally results in lower revenue generated in the first half of the year as compared to the second half.

Revenue is analysed below and comprises rental income, licensee income and the disposal of vehicles not subject to manufacturer repurchase agreements.

2010 2009Revenue €m €m

Rental income (see Note 3) 1,200.3 1,162.4 Disposal of vehicles not subject to manufacturer repurchase agreements 321.6 233.1 Total 1,521.9 1,395.5

3Segmentinformation

(a) Operating segments 2010 2009Rentalincome1 €m €m

Corporately-ownedoperations:Rental revenue 1,034.8 1,011.4 Other revenue2 118.6 107.8 1,153.4 1,119.2Licensees:Avis licensee fees 37.3 32.9 Budget licensee fees 9.6 10.3 46.9 43.2 Rentalincome1 1,200.3 1,162.4

1 For management purposes the Group does not apply IAS 16 in terms of reporting revenue from disposal of vehicles not subject to manufacturer repurchase agreements, and instead nets such revenue against the related net book value arising upon disposal in cost of sales. The revenue from the sale of such vehicles was €321.6 million (2009: €233.1 million) (see Note 2).

2 Other revenue includes income from the sale of fuel, sub-licensee income, the provision of foreign exchange services to rental customers and other incidental operating income.

2010 2009

Amounts Amounts excluded excluded from from Underlying1 underlying Total Underlying1 underlying TotalOperatingprofit/(loss) €m €m €m €m €m €m

Corporately-ownedoperations: 68.5 (2.5) 66.0 68.1 (32.2) 35.9 Licensees:Avis 34.6 – 34.6 31.0 – 31.0Budget 5.1 – 5.1 4.3 (1.3) 3.0 39.7 – 39.7 35.3 (1.3) 34.0 Operatingprofit/(loss) 108.2 (2.5) 105.7 103.4 (33.5) 69.9 Finance income2 1.1 0.2 1.3 1.0 4.4 5.4 Finance costs2 (60.6) 1.0 (59.6) (69.3) (1.6) (70.9)Share of profit of joint ventures and associate 2.3 – 2.3 0.1 – 0.1 Profit/(loss)beforetaxation 51.0 (1.3) 49.7 35.2 (30.7) 4.5

1 See Basis of Preparation.2 Arise in the corporately-owned business segment.

No adjustment is made between segments to recharge in the Income Statement the value of the Avis brand, licence rights, or to allocate the value of goodwill written off to reserves in previous periods. Avis goodwill of €1,080.4 million arising before 1 March 1998 was fully written off to reserves, and Budget goodwill of €33.9 million arising on 12 March 2003 was fully impaired and charged to the Income Statement in previous periods. The remaining book value of goodwill at 31 December 2010 is allocated to the corporately-owned segment. Had the value of Avis goodwill, brand or licence rights been charged to the segments, the individual segment results would be materially affected. An element of the value of Budget brand rights is recharged between corporately-owned and Budget Licensee operations where the Budget brand is used, amounting to €1.2 million (2009: €0.8 million).

Assets Liabilities Netassets 2010 2009 2010 2009 2010 2009Balancesheet €m €m €m €m €m €m

Corporately-ownedoperations: 1,732.3 1,544.4(1,462.9) (1,501.1) 269.4 43.3 Licensees:Avis 6.8 5.4 – – 6.8 5.4 Budget 2.6 3.1 (3.2) (1.6) (0.6) 1.5 9.4 8.5 (3.2) (1.6) 6.2 6.9Share of joint ventures and associate (see Note 15) 16.3 12.2 – – 16.3 12.2 Total 1,758.0 1,565.1(1,466.1) (1,502.7) 291.9 62.4

Segment assets include software, vehicles, other property, plant and equipment, inventories, receivables (including vehicles under manufacturer repurchase agreements) and operating cash, goodwill (see Note 11) and investments. Segment liabilities include operating liabilities and certain corporate borrowings.

Capital expenditure, depreciation/amortisation and impairment losses arise only in the corporately-owned segment. Accordingly, a tabular analysis is not presented. Capital expenditure comprises other intangible assets of €2.6 million (2009: €2.2 million), vehicles not subject to manufacturer repurchase agreements of €421.4 million (2009: €316.5 million) and other property, and other plant and equipment of €7.3 million (2009: €8.7 million).

b) Geographical segments Revenue Non-currentassets1 Capitalexpenditure 2010 2009 2010 2009 2010 2009 €m €m €m €m €m €m

France 274.9 270.1 53.4 66.5 50.9 51.6 Germany 298.9 288.5 29.4 50.5 74.4 88.1 Italy 291.4 250.7 113.3 137.0 105.1 82.1 Spain 251.7 215.3 89.4 104.2 95.3 66.3 United Kingdom 250.5 221.3 81.4 28.7 90.8 25.0 Other Europe 182.2 173.7 32.4 33.5 25.4 23.1 Rest of the world 6.4 7.1 14.3 11.0 4.3 3.1 1,556.0 1,426.7 413.6 431.4 446.2 339.3 Share of joint ventures and associate (see Note 15) – – 16.3 12.2 – – Elimination of inter-segment (34.1) (31.2) – – (16.5) (16.1)Headquarters – – 10.0 11.3 1.6 4.2 Total 1,521.9 1,395.5 439.9 454.9 431.3 327.4

1 In accordance with IFRS 8, other financial assets and deferred tax assets are excluded from non-current assets for the purpose of segmental reporting. Both categories of asset are included within non-current assets in the Group Consolidated Balance Sheet.

Financial statementsNotes to the Consolidated Financial Statementsfor the year ended 31 December


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4 Operating profit/(loss) 2010 2009 Analysis by nature €m €m

Operating profit is stated after charging/(crediting): Underlying profit1: On balance sheet fleet charges: – Hire of vehicles under repurchase agreements 177.1 168.4 – Unwinding of discount on vehicle repurchase agreements (33.7) (32.7)– Net operating lease charge on manufacturer repurchase 143.4 135.7

agreements – Depreciation on vehicles – owned (see Note 13) 94.5 101.6 – Depreciation on vehicles – under finance lease (see Note 13) 10.8 12.6 – Adjustments arising on differences between sales proceeds and

depreciated amounts – fleet (2.7) (1.1)On balance sheet fleet charges 246.0 248.8 Other fleet charges:– Hire of motor vehicles 74.1 59.6 Non-fleet fixed asset charges: – Amortisation of other intangible assets (see Note 12) 5.1 4.8 – Depreciation on other property, plant and equipment (see Note 14) 13.2 14.9 – Adjustments arising on differences between sales proceeds and

depreciated amounts – non fleet (0.2) 0.1 Non-fleet fixed asset charges 18.1 19.8 Hire of other plant and equipment 1.5 1.1 Contingent operating lease rentals2 52.0 51.3 Other operating lease rentals 51.5 54.9 Exchange movements 3.4 (0.6) Net amounts excluded from underlying1: Total net exceptional items, certain re-measurement items and economic hedge adjustments (see Note 6) 2.5 33.5

1 See Basis of Preparation.2 Contingent operating lease rentals primarily arise with respect to airport concessions, and are

typically based on the level of revenue generated by the individual concession.

2010 2009 Auditors’ remuneration is analysed as follows: €m €m

Fees payable to the Company’s auditor for the audit of the Company’s: – annual accounts 0.6 0.6 – subsidiaries pursuant to legislation 0.8 0.9 1.4 1.5 Fees payable to the Company’s auditor and its associates for other services: – taxation services 0.2 0.3 – litigation 0.2 0.1 – other 0.1 0.2 0.5 0.6

Auditors’ remuneration 1.9 2.1

In addition to the remuneration above, the auditors received fees of €0.5 million in respect of professional services connected with the Rights Issue and which has been charged against the Merger Reserve (see Note 29).

5 Directors and employees 2010 2009 €m €m

Staff costs Retirement benefit charges under defined contribution schemes 6.1 6.1 Retirement benefit charges under defined benefit schemes (see Note 23) 7.4 8.0 Retirement benefit charges 13.5 14.1 Wages and salaries 208.2 205.2 Social security costs 41.7 41.2 Share-based payments 2.1 0.4 Underlying Directors’ and employee costs 265.5 260.9 Exceptional staff costs (see Note 6) Retirement benefit charges – exceptional curtailments (see Note 6a) – 0.1 Severance and other (0.1) 15.6 (0.1) 15.7

Directors’ and employee costs 265.4 276.6

Further details of Directors’ remuneration for the year are provided in Note 37 and the audited part of the Remuneration Report on pages 39 to 41 which forms part of these Financial Statements. There were no employee costs in respect of the Company (2009: nil), excluding Directors’ costs. 2010 2009 Number Number

Staff numbers (average full time equivalent) France 1,253 1,283 Germany 594 642 Italy 514 528 Spain 906 897 United Kingdom 937 948 Others 959 1,021 Staff numbers 5,163 5,319

There were no staff employed by the Company (2009: nil).


6Amountsexcludedfromunderlying 2010 2009

Adminis- Adminis- trative Finance trative Finance expenses items Total expenses items Total €m €m €m €m €m €m

Netexceptionalexpenses:a) Refinancing and capital

restructuring costs 4.6 0.9 5.5 – – – b) Disposal of

leasehold interest (4.8) – (4.8) – – – c) Restructuring costs (0.1) – (0.1) 21.8 – 21.8 d) Securitisation

preparation costs – – – 7.8 – 7.8 Other – – – (0.1) – (0.1) (0.3) 0.9 0.6 29.5 – 29.5 Certainre-measurementitemsandeconomichedges: Re-measurement gains

on derivative financial instruments (0.2) (0.2) (0.4) (1.7) (4.4) (6.1)

Re-measurement losses on derivative financial instruments 3.3 4.8 8.1 7.4 6.7 14.1

e) Net re-measurement losses on derivative financial instruments 3.1 4.6 7.7 5.7 2.3 8.0

f) Economic hedge adjustments (0.3) (8.7) (9.0) (1.7) (7.6) (9.3)

Foreign exchange loss on borrowings (see Note 7) – 2.0 2.0 – 2.5 2.5

2.8 (2.1) 0.7 4.0 (2.8) 1.2 Netamountsexcludedfromunderlyingprofitbeforetax 2.5 (1.2) 1.3 33.5 (2.8) 30.7 Tax on amounts excluded from underlying profit (see Note 8) (0.7) (1.5) (2.2) (3.8) (2.3) (6.1)Netamountsexcludedfromunderlyingprofitaftertax 1.8 (2.7) (0.9) 29.7 (5.1) 24.6

a) Professional, legal, consultancy and other costs were incurred in the year in conjunction with a refinancing and Rights Issue. Certain of these costs, together with the write-off of unamortised issue costs arising upon cessation of existing facilities, have been recognised as exceptional costs.

b) The Group disposed of a leasehold interest in a UK property. Prior to sale, a carrying amount of €2.0 million regarding the Group’s interest in the property was recognised as a current asset. The total disposal proceeds, net of expenses, were €6.8 million. Accordingly, a premium of €4.8 million has been recognised.

c) During the year, a re-assessment of remaining restructuring provisions which had previously been recognised led to a €0.1 million exceptional credit. In the prior year, €21.8 million of restructuring costs were recognised in respect of a rationalisation of the Group’s operations.

d) In the prior year, €7.8 million of advisory, legal and other costs were expensed in the development of corporate and operational structures to support a potential securitisation of the Group’s fleet.

e) During the year, the Group recognised realised losses of €3.8 million (2009: losses of €2.2 million) and unrealised gains of €0.7 million (2009: losses of €3.5 million) on non debt-related financial instruments, and realised losses of €29.2 million (2009: losses of €19.3 million) and unrealised gains of €24.6 million (2009: gains of €17.0 million) on debt-related financial instruments.

f) Economic hedging arrangements have been entered into for which the Group is unable to apply hedge accounting under IAS 39. To the extent that IAS 39 does not permit hedge accounting, economic hedge adjustments are applied to recognise in the Group’s underlying results those movements in the fair value of derivatives that offset movements in the value of the items being economically hedged (which themselves are recognised in the Group’s underlying results).

7Financeincome,financecostsandforeignexchangeonnetdebt 2010 2009

Amounts Amounts excluded excluded from from Underlying1 underlying Total Underlying1 underlying Total €m €m €m €m €m €m

FinanceincomeInterest receivable 1.1 – 1.1 1.0 – 1.0 Re-measurement gains on debt-related derivative financial instruments – 0.2 0.2 – 4.4 4.4 1.1 0.2 1.3 1.0 4.4 5.4 FinancecostsInterest payable under finance lease obligations (7.8) – (7.8) (10.6) – (10.6)Interest payable on bank loans, overdrafts and loan notes (42.1) (0.9) (43.0) (49.2) – (49.2)Interest payable on deferred consideration (2.0) – (2.0) (1.9) – (1.9)Re-measurement losses on debt-related derivative financial instruments – (4.8) (4.8) – (6.7) (6.7)Economic hedge adjustment on interest payable2 (8.7) 8.7 – (7.6) 7.6 – Foreign exchange loss on net debt – (2.0) (2.0) – (2.5) (2.5) (60.6) 1.0 (59.6) (69.3) (1.6) (70.9) Netfinancecosts (59.5) 1.2 (58.3) (68.3) 2.8 (65.5)

1 See Basis of Preparation.2 Economic hedging arrangements have been entered into for which the Group is unable to apply

hedge accounting under IAS 39. To the extent that IAS 39 does not permit hedge accounting, economic hedge adjustments are applied to recognise in the Group’s underlying results those movements in the fair value of derivatives that offset movements in the value of the items being economically hedged (which themselves are recognised in the Group’s underlying results).

Financial statementsNotes to the Consolidated Financial Statements continuedfor the year ended 31 December


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8Taxation

a) Analysis of tax charge 2010 2009


CurrentUKtaxUK corporation tax on profits for the year before exceptional items 5.4 – 5.4 13.2 (0.3) 12.9 Tax on exceptional items – (2.2) (2.2) – (3.0) (3.0)Adjustments in respect of prior years 0.5 (0.3) 0.2 0.7 (0.4) 0.3 Current UK tax 5.9 (2.5) 3.4 13.9 (3.7) 10.2 CurrentforeigntaxForeign corporation tax on profits for the year before exceptional items 11.2 – 11.2 13.2 – 13.2 Current tax on exceptional items – – – – (0.1) (0.1)Adjustments in respect of prior years 3.9 – 3.9 (3.4) – (3.4)Current foreign tax 15.1 – 15.1 9.8 (0.1) 9.7 Currenttax 21.0 (2.5) 18.5 23.7 (3.8) 19.9 Analysedas:Corporation tax on profits for the year before exceptional items 16.6 – 16.6 26.4 (0.3) 26.1 Tax on exceptional items – (2.2) (2.2) – (3.1) (3.1)Adjustments in respect of prior years 4.4 (0.3) 4.1 (2.7) (0.4) (3.1)Currenttax 21.0 (2.5) 18.5 23.7 (3.8) 19.9 DeferredtaxOrigination and reversal of temporary differences 4.9 – 4.9 (14.2) – (14.2)Deferred tax on exceptional items – 0.2 0.2 – (2.7) (2.7)Adjustments in respect of prior years (2.8) 0.1 (2.7) 0.9 0.4 1.3 Deferredtax(seeNote17) 2.1 0.3 2.4 (13.3) (2.3) (15.6)

Taxation 23.1 (2.2) 20.9 10.4 (6.1) 4.3

1 See Basis of Preparation.

The Group’s share of tax charge on joint ventures and associate (included within Group profit/(loss) before taxation) is €0.3 million (2009: €0.3 million).

b) Tax charge/(credit) taken directly to the Statement of Comprehensive Income

2010 2009


Deferred tax charge/(credit) on cash flow hedges – 1.0 1.0 – (0.3) (0.3)Current tax credit on exchange movements offset in reserves – (3.3) (3.3) – (1.0) (1.0)Tax charge/(credit) on actuarial gains – 3.4 3.4 – (5.3) (5.3) – 1.1 1.1 – (6.6) (6.6)


c) Reconciliation of tax charge 2010 2009


Profit/(loss) before taxation 51.0 (1.3) 49.7 35.2 (30.7) 4.5 Tax at the UK corporation tax rate of 28% (2009: 28%) 14.3 (0.4) 13.9 9.9 (8.6) 1.3 Differing rates applied to overseas profits (2.8) – (2.8) (4.3) (0.4) (4.7)Expenses not deductible for tax purposes 3.9 (1.3) 2.6 0.2 0.3 0.5 Utilisation of tax losses (9.2) (0.3) (9.5) (1.5) 0.2 (1.3)Adjustments in respect of prior years 1.6 (0.2) 1.4 (1.8) – (1.8)Deferred tax assets not recognised 11.3 – 11.3 9.0 4.9 13.9 Business and other taxes 3.1 – 3.1 – – – Re-measurement of deferred tax – change in tax rate 0.9 – 0.9 – – – Joint ventures and associate (0.3) – (0.3) (0.3) – (0.3)Other 0.3 – 0.3 (0.8) (2.5) (3.3)Taxation 23.1 (2.2) 20.9 10.4 (6.1) 4.3


As announced in the 2010 UK Budget, the UK corporation tax rate will decrease to 27% from the current rate of 28% (2009: 28%) with effect from 1 April 2011. Further reductions are proposed to reduce the main rate of UK corporation tax by 1% per annum to 24% by 1 April 2014.

9Dividends

No interim dividend was paid during the year (2009: nil). The Directors do not propose the payment of a final dividend for the year ended 31 December 2010 (2009: nil).


10Earningspershare

Basic and diluted earnings per share are based on the earnings for the year and the weighted average number of shares in issue for the year attributable to equity holders of the Company.

Options have been granted to certain Directors and employees over ordinary shares of the Company and constitute the only category of potentially dilutive ordinary shares. These options increased the weighted average number of shares in 2010 as certain related performance conditions were fully satisfied and the prevailing market price was in excess of the option exercise price. In 2009, either the option exercise prices were in excess of the prevailing market share price or exercise of the options was subject to performance conditions which had not been fully satisfied by the period end.

The weighted average number of shares is as follows:

2009 2009Millionsofshares 2010 As restated1 As reported

Basic 156.3 124.1 917.7Dilutive ordinary shares – share options 1.7 – –Diluted 158.0 124.1 917.7

After adjusting for the Rights Issue and own shares held, the weighted average number of shares in issue for the year was 156,345,847 (2009 restated: 124,072,781) (see Notes 29 and 30).

Basic and diluted earnings per share is as follows:

2009 2009 2009 2009 2010 As restated1 As reported 2010 As restated1 As reportedUnderlying Euro Euro Euro Sterling Sterling Sterling

Earnings for the year attributable to equity holders of the Company (million) 27.9 24.8 24.8 24.0 22.1 22.1

Earningspershare: Cents Cents Cents Pence Pence Pence

Basic 17.8 20.0 2.7 15.4 17.8 2.4 Diluted 17.7 20.0 2.7 15.2 17.8 2.4

2009 2009 2009 2009 2010 As restated1 As reported 2010 As restated1 As reportedTotal Euro Euro Euro Sterling Sterling Sterling

Earnings for the year attributable to equity holders of the Company (million) 28.8 0.2 0.2 24.8 0.2 0.2

Earningspershare: Cents Cents Cents Pence Pence Pence

Basic 18.4 0.2 – 15.9 0.2 – Diluted 18.2 0.2 – 15.7 0.2 –

1 Restated following the Rights Issue and share consolidation (see Note 29).

11Goodwill 2010 2009 €m €m

CostAt1January 37.2 37.2 Disposals – (1.5)Exchange movements 1.4 1.5 At31December 38.6 37.2 AccumulatedimpairmentprovisionsAt1January 37.0 37.0 Disposals – (1.5)Exchange movements 1.4 1.5 At31December 38.4 37.0 NetbookamountAt31December 0.2 0.2

Goodwill of €1,080.4 million arising before 1 March 1998 is fully written off to reserves.

Accumulated impairment provisions represent amounts provided in respect of acquired former Budget operations, and certain former Avis sub-licensee operations in France, Germany and Holland. The remaining net book amount of goodwill as at both 31 December 2009 and 31 December 2010 relates to the acquisition of a former sub-licensee operation in France and is part of the corporately-owned segment.

The Directors review at each year end the carrying values of the capitalised goodwill disclosed above, together with goodwill relating to the joint venture in China (see Note 15). This review (undertaken by calculating value in use) did not result in the need for any impairment provision to be recognised as at 31 December 2009 or 31 December 2010.

In determining the value in use, the Directors calculated the present value of the estimated future cash flows expected to arise from the continuing use of the assets using a pre-tax discount rate of 7.9% based upon the Group’s weighted average cost of capital with appropriate adjustment for the relevant risks associated with the businesses. Estimated future cash flows are based on management’s five-year plans for each cash-generating unit, with extrapolation thereafter based on long-term average nominal growth rate of 4.0% into perpetuity and the introduction of a notional royalty rate to Avis Budget Group, Inc. as from 2036.



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12Otherintangibleassets

Other intangible assets comprise internally generated software development costs and externally acquired software. Amortisation charged in the year is reported in the Income Statement within “administrative expenses”. The average remaining amortisation period of such software is approximately 2.2 years (2009: 2.6 years).

Software Software

Internally Externally Internally Externally generated acquired Total generated acquired Total 2010 2010 2010 2009 2009 2009 €m €m €m €m €m €m

CostAt1January 18.9 12.7 31.6 17.0 11.1 28.1 Additions 1.0 1.6 2.6 0.9 1.3 2.2 Disposals (1.0) (2.8) (3.8) – – – Exchange movements 1.1 0.4 1.5 1.0 0.3 1.3 At31December 20.0 11.9 31.9 18.9 12.7 31.6 AmortisationAt1January 6.7 11.8 18.5 3.9 9.5 13.4 Charges for the year (see Note 4) 4.0 1.1 5.1 2.8 2.0 4.8 Exceptional impairment loss1 – – – – 0.1 0.1 Disposals (1.0) (2.8) (3.8) – – – Exchange movements 0.6 0.4 1.0 – 0.2 0.2 At31December 10.3 10.5 20.8 6.7 11.8 18.5 NetbookamountAt31December 9.7 1.4 11.1 12.2 0.9 13.1

1 The exceptional impairment loss of €0.1 million in the prior year was classified within “exceptional restructuring costs” in the Income Statement (see Note 6).

13Property,plantandequipment–vehiclesnotsubjecttomanufacturerrepurchaseagreements

2010 2009 €m €m

CostAt1January 472.9 526.5 Additions 421.4 316.5 Transfers to “inventories” (504.3) (385.3)Transfers from “vehicles subject to manufacturer repurchase agreements” 34.5 12.7 Exchange movements 8.0 2.5 At31December 432.5 472.9 DepreciationandimpairmentAt1January 108.4 85.5 Charges for the year 105.3 114.2 Transfers to “inventories” (139.4) (97.4)Transfers from “vehicles subject to manufacturer repurchase agreements” 2.7 5.8 Exchange movements 2.0 0.3 At31December 79.0 108.4 NetbookamountAt31December 353.5 364.5

Vehicles held under finance leases are included in the above at 31 December at the following amounts:

2010 2009 €m €m

Cost 45.1 65.0 Depreciationandimpairment (4.9) (11.4)Netbookamount 40.2 53.6

At 31 December 2010, the Group had capital commitments for vehicles contracted, but not provided for, amounting to €46.8 million (2009: €54.4 million).

14Otherproperty,plantandequipment Assets Freehold Short Plant inthe landand leasehold and courseof buildings property equipment construction Total €m €m €m €m €m

CostAt1January2009 38.8 43.4 60.5 2.2 144.9 Additions 0.5 1.6 5.9 0.7 8.7 Disposals (0.7) (5.3) (4.0) – (10.0)Transfers 0.3 0.2 2.2 (2.7) – Exchange movements 0.1 1.2 1.3 0.1 2.7 At31December2009 39.0 41.1 65.9 0.3 146.3 At1January2010 39.0 41.1 65.9 0.3 146.3Additions 0.2 2.3 4.1 0.7 7.3Disposals (0.1) (3.7) (9.1) – (12.9)Transfers 0.2 0.6 – (0.8) –Exchange movements – 1.2 1.9 – 3.1At31December2010 39.3 41.5 62.8 0.2 143.8 DepreciationandimpairmentAt1January2009 6.1 22.0 45.1 – 73.2 Charges for the year 1.9 4.1 8.9 – 14.9 Exceptional impairment loss1 – 0.4 0.1 – 0.5 Disposals (0.7) (5.1) (3.5) – (9.3)Exchange movements 0.1 0.8 1.2 – 2.1 At31December2009 7.4 22.2 51.8 – 81.4 At1January2010 7.4 22.2 51.8 – 81.4Charges for the year 1.8 3.9 7.5 – 13.2Disposals (0.1) (3.3) (8.8) – (12.2)Exchange movements 0.3 1.1 1.2 – 2.6 At31December2010 9.4 23.9 51.7 – 85.0 NetbookamountAt31December2010 29.9 17.6 11.1 0.2 58.8At31December2009 31.6 18.9 14.1 0.3 64.9

1 The exceptional impairment losses of €0.5 million in the prior year were classified within

“exceptional restructuring costs” in the Income Statement (see Note 6).

Other property, plant and equipment held under finance leases are included in the above at 31 December at the following amounts:

2010 2009 €m €m

Cost 3.4 4.1 Depreciationandimpairment (0.7) (1.5)Netbookamount 2.7 2.6

At 31 December 2010, the Group had capital commitments for other property, plant and equipment contracted, but not provided for, amounting to €0.6 million (2009: €1.2 million).


15Investmentsaccountedforusingtheequitymethod Joint ventures Associate Total €m €m €m

At1January2009 11.7 0.5 12.2 Acquisitions (see Note 33) – 0.4 0.4 Share of profit/(loss) 0.4 (0.3) 0.1 Exchange movements (0.7) 0.2 (0.5)At31December2009 11.4 0.8 12.2 At1January2010 11.4 0.8 12.2Share of profit 2.5 (0.2) 2.3Exchange movements 1.9 (0.1) 1.8At31December2010 15.8 0.5 16.3

During the year, the Group held a 50% share in both its joint ventures, Anji Car Rental and Leasing Company Limited (incorporated in China) and OKIGO (incorporated in France). Subsequent to the year end, the Group purchased the remaining 50% share of OKIGO, which is being re-branded as ‘Avis on Demand’. The consideration paid and net assets acquired were not material to the Group. The Group also held a 33% share in its associate Mercury Car Rentals Limited (incorporated in India). The Group’s share of results for the year were as follows:

Jointventures Associate Total 2010 2009 2010 2009 2010 2009Shareof: €m €m €m €m €m €m

Revenue 26.1 19.9 4.1 3.7 30.2 23.6 Expenses (22.0) (18.3) (4.1) (3.9) (26.1) (22.2)Operating profit/(loss) 4.1 1.6 – (0.2) 4.1 1.4 Net finance costs (1.1) (0.8) (0.2) (0.2) (1.3) (1.0)Profit/(loss) before tax 3.0 0.8 (0.2) (0.4) 2.8 0.4 Taxation (0.5) (0.4) – 0.1 (0.5) (0.3)Net profit/(loss) for the year 2.5 0.4 (0.2) (0.3) 2.3 0.1

At the year end, the Group’s interest in Anji Car Rental and Leasing Company Limited, OKIGO and Mercury Car Rentals Limited, comprised:

Jointventures Associate Total 2010 2009 2010 2009 2010 2009Shareof: €m €m €m €m €m €m

Non-current assets 37.9 26.5 1.9 1.7 39.8 28.2 Current assets 9.7 4.7 1.1 1.7 10.8 6.4 Current liabilities (32.7) (20.7) (0.6) (0.8) (33.3) (21.5)Non-current liabilities – – (1.9) (1.8) (1.9) (1.8) 14.9 10.5 0.5 0.8 15.4 11.3 Goodwill (see Note 11) 0.9 0.9 – – 0.9 0.9 15.8 11.4 0.5 0.8 16.3 12.2

At the year end there were no capital commitments or contingent liabilities relating to the joint ventures in China and France, and the associate in India (2009: €nil).

16Otherfinancialassets 2010 2009 €m €m

Non-current assets – available for sale investments 0.5 0.4 Current assets – held for trading – 2.7

Non-current financial assets of €0.5 million (2009: €0.4 million) primarily comprises an equity non-controlling interest in overseas companies. In the prior year, current financial assets comprised finance lease collateral of €2.7 million which attracted interest at 0.6%.

17Deferredtax Temporarydifferences Accelerated Losses tax Employee available depreciation Fairvalue benefits Other foroffset TotalDeferredtaxprovided €m €m €m €m €m €m

At1January2009 (6.5) 4.6 8.8 (13.8) 12.5 5.6 Recognised in Income Statement (see Note 8) 19.2 – (1.6) 1.1 (3.1) 15.6 Transfer to current tax (0.2) – – 10.1 – 9.9 Recognised in Statement of Comprehensive Income (see Note 8) – 0.3 5.3 – – 5.6 Exchange movements (0.4) 0.1 (0.2) (0.1) – (0.6)At31December2009 12.1 5.0 12.3 (2.7) 9.4 36.1 At1January2010 12.1 5.0 12.3 (2.7) 9.4 36.1Recognised in Income Statement (see Note 8) 2.3 (0.2) (5.2) 0.9 (0.2) (2.4)Transfer to current tax 0.1 – – 1.7 – 1.8Recognised in Statement of Comprehensive Income (see Note 8) – (1.0) (3.4) – – (4.4)Recognised in equity reserve – – 1.2 – – 1.2Exchange movements 1.4 (0.1) 0.8 0.1 – 2.2 At31December2010 15.9 3.7 5.7 – 9.2 34.5 Analysed as: At31December2010Deferred tax assets 19.1 3.4 9.0 8.4 1.5 41.4Deferred tax liabilities (3.2) 0.3 (3.3) (8.4) 7.7 (6.9)Net 15.9 3.7 5.7 – 9.2 34.5 At31December2009Deferred tax assets 22.2 4.8 12.7 2.3 0.5 42.5 Deferred tax liabilities (10.1) 0.2 (0.4) (5.0) 8.9 (6.4)Net 12.1 5.0 12.3 (2.7) 9.4 36.1

Deferred tax assets have been recognised in respect of tax losses and other temporary differences where it is probable that these assets will be recovered. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

At the year end, the Group had unused tax losses of €211.2 million (2009: €236.8 million) available for offset against future profits. A deferred tax asset has been recognised in respect of €31.9 million (2009: €33.1 million) of such losses. No deferred tax asset has been recognised in respect of the remaining unused tax losses of €179.3 million (2009: €203.7 million) due to the unpredictability of future profit streams.

Deferred tax has not been recognised in respect of other temporary differences which would give rise to deferred tax assets of €12.7 million (2009: €20.6 million) due to the unpredictability of future profit streams.

At the year end, the aggregate amount of other temporary differences associated with unremitted earnings of the Group’s overseas subsidiaries for which deferred tax liabilities have not been recognised was €208.5 million (2009: €246.2 million). No liability has been recognised in respect of these differences because it is likely that the majority of overseas earnings would qualify for the UK dividend exemption and therefore no tax liability is expected to arise.



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18Inventories 2010 2009 €m €m

Vehicles 0.7 3.1 Fuel 5.9 4.9 Vehicle parts 0.5 0.4 Other inventories 6.4 5.3 7.1 8.4

Vehicles comprise ex-rental vehicles formerly used in the corporately-owned segment, where the Group is committed to the disposal of the vehicle. Adjustments arising on differences between sales proceeds and depreciated amounts totalled a gain of €2.7 million (2009: gain of €1.1 million).

The cost of fuel and vehicle parts inventories recognised as an expense in the Income Statement in the year totalled €47.0 million (2009: €44.9 million).

19Tradeandotherreceivables 2010 2009 €m €m

Repurchase agreement receivables 555.3 530.9 Prepaid vehicle operating lease charges 43.5 43.6 Vehicles subject to manufacturer repurchase agreements 598.8 574.5 Other vehicle receivables (after the end of vehicle holding period) 110.0 141.4 Amounts due from leasing companies 49.6 35.8 Vehicle related receivables 758.4 751.7 Other trade debtors 147.7 136.4 Other debtors 40.0 45.4 Other prepayments 80.0 56.1 1,026.1 989.6

Vehicles subject to manufacturer repurchase agreements effectively reflects the book value of such vehicles held on the Group’s rental fleet – see Significant Accounting Policies.

Other vehicle receivables include amounts due after exercising of manufacturer repurchase agreements. The carrying amounts of trade and other receivables are denominated primarily in euros.

Vehicle related receivables include €151.4 million (2009: €125.4 million) held under finance lease arrangements in respect of repurchase agreements.

Credit risk with regard to vehicle related receivables is concentrated with the main European vehicle manufacturers. Concentrations of credit risk with respect to non-vehicle related receivables are limited by the diversity of the Group’s customers. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. Carrying values are stated net of any provisions made for bad and doubtful debts, and accordingly, the Directors believe that the maximum credit risk exposure is the carrying amount of the receivables in the balance sheet, as shown below.

The main categories of trade and other receivables that are subject to credit risk are: other vehicle receivables (after the end of vehicle holding period), amounts due from leasing companies, other trade debtors and other debtors. These categories are analysed on an aged basis as follows:

2010 2009 €m €m

Trade and other receivables subject to credit risk 374.4 385.2 Neither past due nor impaired (281.9) (301.6)Past due 92.5 83.6 Provision for bad and doubtful debts (27.1) (26.2)Past due but not impaired 65.4 57.4

The ageing analysis of past due but not impaired is as follows:

2010 2009 €m €m

Up to three months past due 59.1 51.3 Three to six months past due 2.1 4.3 Over six months past due 4.2 1.8 65.4 57.4

The other classes within trade and other receivables do not contain impaired assets.

The provision for bad and doubtful debt has been determined by reference to past experience. Movements in the provision are as follows:

2010 2009 €m €m

At 1 January (26.2) (19.7)Bad and doubtful bad debt expense recognised in the Income Statement (10.2) (8.7)Receivables written off as uncollectible 9.7 2.5 Exchange movements (0.4) (0.3)At 31 December (27.1) (26.2)

20Cashandshort-termdeposits 2010 2009 €m €m

Cash at bank and in hand 92.3 38.7 Short-term deposits 139.4 21.9 231.7 60.6

Cash and short-term deposit balances are floating rate assets which earn interest at various rates set with reference to the prevailing EURIBID and LIBID or equivalent. The majority of the Group’s cash and short-term deposits are held with banks and financial institutions that have a minimum Standard and Poor’s credit rating of A.

Short-term deposits mature within five months (2009: three months) and include €nil (2009: €0.6 million) of deposits required by insurers to be held by Aegis Motor Insurance Limited (a subsidiary of the Group) to settle claims.

21Tradeandotherpayables 2010 2009 €m €m

Vehicle payables 109.0 108.9 Amounts due to leasing companies 42.9 27.2 Vehicle related payables 151.9 136.1 Other trade payables 56.0 46.6 Finance cost creditors 6.0 6.0 Other creditors 16.5 16.4 Accruals and deferred income 233.1 217.6 463.5 422.7


22Provisions Tradeprovisions Dilapidation and Onerous Other Uninsured Total environmental lease trading Sub-total losses provisions €m €m €m €m €m €m

At1January2010 7.2 4.2 3.7 15.1 36.2 51.3Charged 1.1 0.2 2.8 4.1 18.3 22.4Utilised in the year (0.3) (1.1) (2.2) (3.6) (22.8) (26.4)Exchange movements 0.1 0.2 0.1 0.4 0.6 1.0At31December2010 8.1 3.5 4.4 16.0 32.3 48.3 Non-current 9.0 18.4 27.4Current 7.0 13.9 20.9At31December2010 16.0 32.3 48.3

Trade provisions Dilapidation and environmental represents provisions to cover the costs of the remediation of certain properties held under operating leases. Onerous lease represents provisions to cover future lease payments due in respect of vacant office space. These property provisions are primarily euro denominated and non-interest bearing, and the ultimate expenditure is expected to be coterminous with the underlying remaining lease periods (see Note 35).

Other trading provisions comprise: a) Loyalty scheme provisions of €1.0 million (2009: €0.5 million), which represent amounts due under Group-operated customer loyalty programmes. These provisions are expected to crystallise within two years of the balance sheet date.b) Other provisions of €3.4 million (2009: €3.2 million), which primarily comprise reorganisation, employee termination and legal claim provisions to cover certain claims that arise in the normal course of business. These provisions have been discounted where applicable at the rate commensurate with the underlying risk, and are expected to crystallise within five years of the balance sheet date. In the Directors’ opinion, after taking appropriate legal advice, the outcomes of these claims are not expected to give rise to any significant loss beyond amounts provided at 31 December 2010.

The (undiscounted) maturity profile of trade provisions is detailed in Note 26.

Uninsured losses Uninsured losses represent provisions for losses under third party liabilities or claims primarily in respect of third party motor liability insurance programmes. Provisions are made for claims incurred but not reported at each year end, allowing for potential claims for a number of years after policy inception, and measured at the value of the expenditure expected to be required to settle the obligation. The expected maturity of such uninsured losses based on historic claims experience was as follows:

DuebetweenDuebetween Duewithin oneand twoand Dueafter oneyear twoyears fiveyears fiveyears Total €m €m €m €m €m

At31December2010 13.9 8.2 9.7 0.5 32.3At 31 December 2009 12.6 10.1 12.2 1.3 36.2

23Retirementbenefitobligations

The Group operates funded defined benefit pension schemes for qualifying employees in the United Kingdom, France, Spain and Austria. In addition, there is an unfunded defined benefit pension scheme for employees in Germany which is closed to new employees and a statutorily determined unfunded defined benefit termination scheme for employees in Italy. The principal schemes are in the United Kingdom and Germany. The Group’s main defined benefit scheme, being in the United Kingdom, was closed on 31 March 2007 when it was replaced by a hybrid scheme, the Retirement Capital Plan, whereby the Group underwrites the investment risk and members are responsible for the effects of any changes to longevity.

a) Valuation and assumptionsValuations of the defined benefit obligations have been based on the most recent actuarial funding valuations, taking into account the financial and demographic assumptions at each of the balance sheet dates.

Fundedschemes– Unfundedschemes– UK GermanyMainassumptions(weightedaverage) 2010 2009 2010 2009

Discount rate 5.4% 5.7% 5.4% 6.0%Inflation rate 3.1%1 3.7%1 2.0% 2.0%Expected rate of salary increases 5.4% 5.5% 2.5% 2.5%Rate of pension increases in payment 2.6% 2.9% 2.0% 2.0%Rate of pension increases in deferment 3.1% 3.9% 0.0% 0.0%Expected return on plan assets: – equities 7.7% 8.0% n/a n/a– bonds 5.0% 5.8% n/a n/a– other 4.2% 3.8% n/a n/a– weighted average 5.8% 7.2% n/a n/a

1 The inflation assumption is based on the consumer price index (2009: retail price index).

The assumptions relating to other defined benefit schemes are not material to the Group. Regarding the principal schemes, the expected rates of return on plan assets are based on market expectations at the beginning of each year for returns over the expected period of the related obligation. The expected return on equities is based on qualitative and quantitative market analysis including consideration of market equity risk premiums. The expected return on bonds is based on most applicable long-term bond yields.

Assumptions regarding future longevity experience are set based on professional advice. The longevity assumption for the principal funded scheme reflects the “2000” series tables along with certain improvements (known as “medium cohort”) whereby the Group recognises a further 1% per annum minimum level of improvement. The longevity assumption in the principal schemes applied a post retirement life expectancy for a member aged 65 in 2010 as follows:

Fundedschemes– Unfundedschemes– UK GermanyPostretirementlifeexpectancy(years) 2010 2009 2010 2009

Males 22 21 18 18Females 24 24 22 22



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23Retirementbenefitobligationscontinued

b) Income StatementThe amounts recognised in the Income Statement are as follows:

2010 2009

Funded Unfunded Funded Unfunded schemes schemes Total schemes schemes Total €m €m €m €m €m €m

Current service costs 3.2 0.5 3.7 2.9 0.5 3.4 Past service costs 0.1 – 0.1 0.1 – 0.1 Interest on scheme liabilities 10.4 2.0 12.4 9.0 2.0 11.0 Expected return on scheme assets (8.8) – (8.8) (6.5) – (6.5)Underlying charge before tax to Income Statement (see Note 5) 4.9 2.5 7.4 5.5 2.5 8.0 Exceptional curtailments (see Note 6) – – – 0.1 – 0.1 Exceptional charge before tax to Income Statement – – – 0.1 – 0.1 NetchargebeforetaxtoIncomeStatement 4.9 2.5 7.4 5.6 2.5 8.1

Scheme settlements had no impact on the amounts recognised in the Income Statement. The charge before tax is reported in “administrative expenses” in the Income Statement.

c) Statement of Comprehensive IncomeAmounts recognised through the Statement of Comprehensive Income are as follows:

2010 2009


Actual return less expected return on assets 7.2 – 7.2 11.3 – 11.3 Experience gain/(loss) on liabilities 1.1 (0.1) 1.0 3.2 0.4 3.6 Gain/(loss) on change of assumptions (financial and demographic) 2.9 (3.7) (0.8) (32.5) – (32.5) 11.2 (3.8) 7.4 (18.0) 0.4 (17.6)

Cumulative actuarial losses recognised in the Statement of Comprehensive Income since 1 January 2004 (the date of adoption of IAS 19) are €26.1 million (at 31 December 2009: €33.5 million).

The contributions paid by the Group into funded schemes during 2010 were €21.8 million (2009: €8.4 million), which include certain accelerated one-off payments in the United Kingdom scheme of €9.5 million to fund the net actuarial obligations over time. The cash contributions expected to be made by the Group into funded schemes during the 2011 annual period are €1.6 million.

d) Balance SheetThe amounts recognised in the Balance Sheet are analysed as follows:

2010 2009


Fair value of scheme assets 161.6 – 161.6 123.4 – 123.4 Present value of defined benefit obligations (189.7) (39.9) (229.6) (177.5) (35.0) (212.5)Retirementbenefitobligation (28.1) (39.9) (68.0) (54.1) (35.0) (89.1)

2010 2009

Funded Unfunded Funded Unfunded Analysisofmovements schemes schemes Total schemes schemes Total

intheschemeassets €m €m €m €m €m €m

At1January 123.4 – 123.4 97.2 – 97.2 Expected return on assets 8.8 – 8.8 6.5 – 6.5 Actuarial gain: experience gain on assets 7.2 – 7.2 11.3 – 11.3 Actualreturnonschemeassets 16.0 – 16.0 17.8 – 17.8 Contributions by the Group 21.8 1.4 23.2 8.4 1.5 9.9 Contributions by employees 0.8 – 0.8 0.8 – 0.8 Benefits paid from the fund (3.5) (0.9) (4.4) (3.6) (0.8) (4.4)Settlements paid (3.7) (0.5) (4.2) (3.3) (0.7) (4.0)Exchange gain 6.8 – 6.8 6.1 – 6.1 At31December 161.6 – 161.6 123.4 – 123.4

Analysisofmovements 2010 2009inthepresentvalueof

Funded Unfunded Funded Unfunded definedbenefit schemes schemes Total schemes schemes Total

schemeobligations €m €m €m €m €m €m

At1January (177.5) (35.0) (212.5) (133.9) (34.2) (168.1)Current service costs (3.2) (0.5) (3.7) (2.9) (0.5) (3.4)Past service costs (0.1) – (0.1) (0.1) – (0.1)Exceptional curtailments (see Note 6) – – – (0.1) – (0.1)Interest on scheme liabilities (10.4) (2.0) (12.4) (9.0) (2.0) (11.0)Actuarial gain/(loss): – experience gain/(loss)

on liabilities 1.1 (0.1) 1.0 3.2 0.4 3.6 – gain/(loss) on change

of assumptions 2.9 (3.7) (0.8) (32.5) – (32.5)Contributions by employees (0.8) – (0.8) (0.8) – (0.8)Benefits paid from the fund 3.5 0.9 4.4 3.6 0.8 4.4 Other benefits paid 0.2 – 0.2 – – – Settlements paid 3.7 0.5 4.2 3.3 0.7 4.0 Exchange loss (9.1) – (9.1) (8.3) (0.2) (8.5)At31December (189.7) (39.9) (229.6) (177.5) (35.0) (212.5)

Fundedschemes 2010 2009

Definedbenefitschemeassets €m % €m %

Equities 82.9 51% 74.3 60%Corporate bonds and index linked gilts 56.3 35% 42.6 35%Other 22.4 14% 6.5 5%Fairvalueofschemeassets 161.6 100% 123.4 100%

The fair value of scheme assets did not include any property or other assets used by the Group, nor any financial instruments of the Group.


23Retirementbenefitobligationscontinued

The indicative sensitivity of principal scheme liabilities as at 31 December 2010 to changes in the above assumptions is as follows:

Changein Indicativeincreasein assumption schemeliabilities(€m)Assumption UK Germany

Discount rate –0.1% 3.7 0.6Inflation rate +0.1% 2.6 0.3Real rate of salary increases +0.5% 1.4 0.2Longevity +1year 4.1 0.9

The sensitivity of other defined benefit scheme liabilities to the changes in the assumptions shown above is not material to the Group.

e) Retirement benefit obligation historyAn analysis of the retirement benefit obligation history is below:

Fundedschemes 2010 2009 2008 2007 2006Retirementbenefitobligationhistory €m €m €m €m €m

Fair value of scheme assets 161.6 123.4 97.2 146.7 140.4 Present value of defined benefit obligation (189.7) (177.5) (133.9) (209.2) (220.5)Retirementbenefitobligation (28.1) (54.1) (36.7) (62.5) (80.1) Actual return less expected return on assets 7.2 11.3 (27.0) (2.5) (0.6)Percentage of scheme assets at year end 4.5% 9.2% (27.8)% (1.7)% (0.4)%Experience gain/(loss) on liabilities 1.1 3.2 1.5 (0.5) (2.0)Percentage of scheme liabilities at year end (0.6)% (1.8)% (1.1)% 0.2% 0.9%

Unfundedschemes 2010 2009 2008 2007 2006Retirementbenefitobligationhistory €m €m €m €m €m

Retirement benefit obligation (39.9) (35.0) (34.2) (35.0) (41.9)Experience gain/(loss) on liabilities (0.1) 0.4 (0.5) 0.1 1.5 Percentage of scheme liabilities at year end 0.3% (1.1)% 1.5% (0.3)% (3.6)%

24Obligationsunderfinanceleases Presentvalueofminimum Minimumleasepayments leasepayments 2010 2009 2010 2009 €m €m €m €m

AmountspayableunderfinanceleasesWithin one year 189.8 172.6 184.3 167.9Between two and five years 0.1 – 0.1 – 189.9 172.6Less: future finance charges (5.5) (4.7)Present value of finance lease obligations 184.4 167.9 184.4 167.9

Analysed as:Current liabilities (due for settlement within one year) 184.3 167.9Non-current liabilities (due for settlement after more than one year) 0.1 – 184.4 167.9

It is the Group’s policy to fund certain of its vehicles (including certain vehicles held under repurchase arrangements) and some plant and equipment under finance leases. The average lease term is less than one year. For the year ended 31 December 2010 the average effective interest rate was 2.9% (2009: 3.7%). All finance leases are on a fixed repayment basis and interest rates are fixed at the contract date. No arrangements have been entered into for contingent rental payments.

The fair value of the Group’s obligations under finance leases approximates to their carrying amount, and is secured by the lessors either having legal title or charges over the leased assets. In the prior year, collateral was held against certain of the leases (see Note 16).

25Otherfinancialliabilities

a) Borrowings 2010 2009 €m €m

Bank overdrafts 11.8 8.8Bank loans and other loans 8.5 5.2Commercial paper 1.0 26.7Loan notes 527.2 542.8 548.5 583.5

Analysed as:Current liabilities (due for settlement within one year) 112.9 74.0Non-current liabilities (due for settlement after more than one year) 435.6 509.5 548.5 583.5

All borrowings were unsecured as at both 31 December 2010 and 31 December 2009. Covenants, all of which were complied with in both years, are attached to certain of the borrowing facilities.

Bank overdraftsBank overdrafts are primarily denominated in euros and sterling and attract floating rate interest by reference to EURIBOR and LIBOR plus margins ranging from 2.0% to 6.0%.

Bank loans and other loansBank loans and other loans are primarily floating rate, with a weighted average cost at 31 December 2010 of 2.1% (2009: 2.1%).

Commercial paperAvis Finance Company plc, an indirect wholly owned subsidiary of the Company, has a commercial paper facility in Belgium, guaranteed by the Company, which can provide borrowings of up to €200.0 million (2009: €200.0 million). Amounts drawn under the facility attract interest at floating rates by reference to EURIBOR plus a margin which varies depending upon market conditions at the time of issue.



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25Otherfinancialliabilities continued

Loan notesAt 31 December, Avis Finance Company plc has outstanding the following loan notes:

2010 2009

Principal PrincipalIssued m Maturing m Maturing

August 2000 – – $48.0 2010June 2002 €26.8 2012 €26.8 2012June 2004 $240.0 2011, $240.0 2011, 2012 2012 and and 2014 2014June 2004 €65.0 2012 €65.0 2012July 2006 €250.0 2013 €250.0 2013

The US$ loan notes bear interest at an average fixed rate of 5.9% (2009: 6.3%). The euro denominated loan notes issued prior to July 2006 bear interest at an average fixed rate of 5.8% (2009: 5.8%). These loan notes are at fixed rates such that their contractual repricing profile is coterminous with their maturity profile.

The €250.0 million Senior Floating Rate Notes bear interest at EURIBOR plus 2.625%. These notes reprice EURIBOR quarterly and include a call option, permitting the Group to repay the notes with effect from 31 July 2008. This option is separately recognised as an embedded derivative at fair value (see Note 26).

Proceeds of the loan notes issued in June 2004 totalling US$240.0 million (2009: US$240.0 million) are swapped to a fixed rate euro liability. Proceeds of the Senior Floating Rate Notes issued in July 2006 totalling €200.0 million (2009: €200.0 million) are swapped into a fixed rate euro liability. In the prior year, the proceeds of the loan notes issued in August 2000 totalling US$48.0 million were swapped into a fixed rate euro liability.

Further details are provided in Note 26.

b) Undrawn borrowingsThe committed borrowing facilities of the Group, drawn and undrawn, are as follows:

2010 2009

Drawn Undrawn Total Drawn Undrawn Total €m €m €m €m €m €m

Revolving syndicated credit facility 24.6 350.4 375.0 26.5 553.5 580.0 Bilateral facilities and finance leases 195.4 230.8 426.2 172.2 296.1 468.3 220.0 581.2 801.2 198.7 849.6 1,048.3

The drawn amount of the revolving syndicated credit facility includes €24.6 million in respect of letters of credit (2009: €26.5 million).

The maturity profile of the Group’s undrawn committed borrowing facilities at 31 December is as follows:

2010 2009 €m €m

Expiring within one year 160.1 192.1Expiring within one and two years – 629.5Expiring within two and five years 421.1 28.0 581.2 849.6

At 31 December 2010 there were additional uncommitted facilities available to the Group of €338.4 million (2009: €312.4 million).

c) Deferred consideration 2010 2009 €m €m

Current liabilities (due for settlement within one year) 0.3 0.3Non-current liabilities (due for settlement after more than one year) 24.8 23.8 25.1 24.1

Deferred consideration comprises €25.1 million (2009: €24.1 million) arising on the acquisition of shares in Avis Europe Investment Holdings Limited from Avis Inc in 1997. The liability is denominated in sterling, attracts an interest rate of 8.0% (2009: 8.0%) fixed for 27 years (2009: 28 years) and is repayable in annual instalments (including interest) of £1.9 million.

26Financialriskmanagement

a) Financial risk management objectives and policiesThe Group’s financial risk management objective is to reduce the financial risks and exposures facing the business with respect to changes in interest and foreign exchange rates, and to ensure constant access to sufficient liquidity. To achieve this the Group undertakes an active hedging policy, including the use of derivatives (interest rate and foreign exchange swaps, options, forward rate agreements and caps and collars), which are entered into under policies approved and monitored by a sub-committee of the Board, chaired by the Group Finance Director. These transactions are only undertaken to reduce exposures arising from underlying commercial transactions and at no time are transactions undertaken for speculative reasons.

ForeigncurrencyriskThe majority of business is transacted in euros, sterling, US dollars and Swiss francs. The principal commercial currency of the Group is the euro and the Group seeks to manage currency exposure wherever possible.

In each country within the corporately-owned business unit, revenue generated and costs incurred are primarily denominated in the relevant local currency, so providing a natural currency hedge. In addition, intra-group trading transactions are netted and settled centrally. Any remaining material foreign currency transaction exposures are hedged as appropriate into either euro or sterling.

With regard to translation exposures the policy is to match where possible the average assets to the equivalent average liabilities in each major currency and thus minimise any impact. To the extent that this cannot be fully achieved, then the Group borrows in currencies to match average currency assets.

Long-term borrowings undertaken to benefit from the liquidity of the US dollar denominated capital markets are swapped into euros.

InterestrateriskThe Group’s interest rate risk primarily arises from the Group’s cash and short-term deposits and borrowings which, after foreign currency hedging, principally arises in euro and sterling. Cash and short-term deposits/borrowings, held/issued at variable rates, expose the Group to cash flow interest rate risk. Short-term deposits/borrowings, held/issued at fixed rates, expose the Group to fair value interest rate risk.

To manage these risks, the Group finances its business through a combination of fixed and floating rate facilities and enters into various derivatives. The Group’s policy is to ensure that the proportion of fixed rate debt to the annual average net debt (defined for this purpose to include the net book value of fleet under operating leases) for the next three years will be maintained in the range of 65% to 85%, 55% to 80%, and 45% to 75% respectively.

LiquidityriskThe Group ensures that it has a core level of long-term funding in place with maturities spread over a variety of dates. The seasonal nature of the business necessitates higher fleet levels in the summer months and hence proportionately higher debt requirements. The core funding is supplemented by shorter term committed revolving facilities to cover requirements through the year, together with a range of uncommitted facilities, including operating leases.


CapitalriskmanagementThe Group’s objectives when managing capital are to safeguard the ability to continue as a going concern, help facilitate returns to shareholders and appropriate benefits for other stakeholders. The Group seeks to maintain debt and equity structures to optimise the cost of capital.

During the year the Group undertook a Rights Issue to strengthen the Group’s balance sheet. The net proceeds of the Rights Issue are being used to ensure that the Group has sufficient financial flexibility to meet its investment needs going forward and to provide for the repayment of loan notes that mature during 2011.

The Group monitors the use of capital on the basis of return on capital employed (“ROCE”) and average fleet utilisation. The Group’s ROCE is based on the underlying operating profit of the business plus the operating result of joint ventures and associates, adjusted to reverse: any non-exceptional goodwill impairments; the interest cost of retirement benefit obligations; and the expected return on retirement benefit scheme assets. Capital employed comprises the following:

2010 2009 €m €m

Goodwill (see Note 11) 0.2 0.2 Other intangible assets (see Note 12) 11.1 13.1 Property, plant and equipment – vehicles not subject to manufacturer repurchase agreements (see Note 13) 353.5 364.5 Other property, plant and equipment (see Note 14) 58.8 64.9 Investments accounted for using the equity method (see Note 15) 16.3 12.2 Inventories (see Note 18) 7.1 8.4 Trade and other receivables (see Note 19) 1,026.1 989.6 Trade and other payables (see Note 21) (463.5) (422.7)– exclude finance cost creditors included in the above (see Note 21) 6.0 6.0 Other taxes and social security (64.8) (42.6)Provisions (see Note 22) (48.3) (51.3)Capital employed 902.5 942.3

Average capital employed for a 12 month period is based on the current and previous two (semi-annually) reported period end closing balances. This definition of ROCE may not be comparable to other similarly titled measures used by other companies. Average fleet utilisation is calculated as the average period of time during which vehicles are on rent as a percentage of their holding period.

OtherpricerisksAs part of the presentation of market risks, IFRS 7 requires disclosures on how hypothetical changes in risk variables affect the price of financial instruments. Important risk variables include stock exchange prices or indices. As at 31 December 2009 and 31 December 2010 the Group did not hold any such material investments to be classified as available for sale.

CreditriskThe Group’s principal financial assets comprise: vehicles classified within inventories; other financial assets held for trading; trade and other receivables; derivative financial instrument assets; and cash and short-term deposits which in aggregate represent the Group’s maximum exposure to credit risk at each year end.

The Group is exposed to credit risk from its operating activities and certain financing activities. The maximum exposure to credit risk is represented by the balance sheet values of the original loans and receivables, including derivatives with positive market values. This risk is controlled from a treasury perspective by only entering into transactions involving financial instruments with authorised counterparties of strong credit quality, and monitoring such positions regularly.

With regard to trade and other receivables, outstanding amounts are regularly monitored at an operational level. Bad debt provisions are made against known credit risks (see Note 19). The credit ratings of vehicle manufacturers, the key suppliers, are monitored separately. With respect to certain vehicle manufacturers, the Group has a natural hedge to its exposure to credit risk as vehicle receivables (after the end of the holding period)

(see Note 19) are ordinarily less than vehicle payables (see Note 21) for the majority of the year.

With regard to cash and short-term deposits, monies are only placed with approved financial institutions with strong credit ratings.

Where derivatives are settled gross, International Swaps and Derivatives Association (ISDA) based agreements are applied which include close-out netting provisions effective if the counterparty defaults. At the reporting date there were no other significant global offsetting agreements that reduce credit risk, nor were there any significant financial guarantees for third-party obligations that increase this risk.

b) Fair value of derivative financial instruments

Recognisedfairvalues 2010 2009ofderivativefinancial

Assets Liabilities Net Assets Liabilities Netinstruments €m €m €m €m €m €m

Hedging instruments:– forward foreign

exchange contracts – (1.2) (1.2) 0.4 (1.1) (0.7)Non-hedging instruments:– forward foreign

exchange contracts 2.3 (0.5) 1.8 2.0 (1.1) 0.9Non-debtderivatives 2.3 (1.7) 0.6 2.4 (2.2) 0.2

Hedging instruments:– interest rate swaps – (12.4) (12.4) – (13.0) (13.0)– cross currency interest

rate swaps 4.8 (13.8) (9.0) – (46.4) (46.4)Non-hedging instruments:– interest rate swaps 0.4 (2.0) (1.6) – (5.8) (5.8)– callable interest rate swaps – (5.8) (5.8) – (6.0) (6.0)– interest rate caps

and collars – (0.6) (0.6) – (0.5) (0.5)– embedded derivatives 2.2 – 2.2 1.9 – 1.9Debtderivatives 7.4 (34.6) (27.2) 1.9 (71.7) (69.8)

9.7 (36.3) (26.6) 4.3 (73.9) (69.6)

Non-currentportion:Hedging instruments:– interest rate swaps – (12.4) (12.4) – (13.0) (13.0)– cross currency interest

rate swaps 4.8 (4.9) (0.1) – (28.8) (28.8)Non-hedging instruments:– embedded derivatives 2.2 – 2.2 1.9 – 1.9Debtderivatives 7.0 (17.3) (10.3) 1.9 (41.8) (39.9)

Analysed as:Current assets/(liabilities) (due for settlement within one year) 2.7 (19.0) (16.3) 2.4 (32.1) (29.7)Non-current assets/(liabilities) (due for settlement after more than one year) 7.0 (17.3) (10.3) 1.9 (41.8) (39.9) 9.7 (36.3) (26.6) 4.3 (73.9) (69.6)

Non-hedging derivatives (excluding the embedded derivative) are classified as a current asset or liability. The full fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. The embedded derivative is classified as a non-current asset consistent with the maturity of the borrowing in which it is embedded.



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26Financialriskmanagementcontinued

Fair values of the derivative financial instruments are determined using a number of methods and assumptions based on conditions at the balance sheet date as none are traded in an active market. The fair values of interest rate swaps, forward rate agreements and cross currency interest rate swaps are calculated as the present value of future estimated cash flows. The fair value of the embedded derivative, callable interest rate swaps and interest rate caps and collars are valued using option valuation techniques. The fair value of forward exchange contracts is determined using forward

exchange market rates at the balance sheet date.

HedginginstrumentsThe effectiveness of hedging relationships is tested by means of statistical methods using either regression analysis (for forward foreign exchange contracts and cross currency interest rate swaps), or the closest offset method (for interest rate swaps). This involves defining the performance of the hedged item as the independent variable and the performance of the hedging item as the dependent variable. A hedging relationship is classified as effective when the value of the hedging item moves between 0.8% and 1.25% for each 1.0% movement in the hedged item. All hedging relationships, having been tested using statistical methods, were effective at the reporting date.

Forward foreign exchange contractsForward foreign exchange contracts as at 31 December 2010 with aggregate values of US$ nil (2009: US$6.0 million), South African rand 66.2 million (2009: South African rand 69.1 million), Israeli shekel 6.5 million (2009: Israeli shekel 7.2 million), Norwegian krone 10.1 million (2009: Norwegian krone 7.4 million) and Swedish krona 9.3 million (2009: Swedish krona 6.9 million) were used to hedge expected foreign currency income of US$ 1.3 million (2009: US$10.4 million), South African rand 83.0 million (2009: South African rand 88.0 million), Israeli shekel 10.7 million (2009: Israeli shekel 8.6 million), Norwegian krone 20.3 million (2009: Norwegian krone 14.0 million) and Swedish krona 18.5 million (2009: Swedish krona 12.7 million) into sterling of £8.6 million (2009: £11.1 million). Forward foreign exchange contracts as at 31 December 2010 with aggregate values of US$4.1 million (2009: US$ nil) were used to hedge expected foreign currency payments of US$5.1 million (2009: US$ nil) into sterling of £2.6 million (2009: £nil).

Forward foreign exchange contracts as at 31 December 2010 with aggregate values of US$1.9 million (2009: US$30.1 million) and Hungarian forint 2,295.0 million (2009: Hungarian forint 1,503.0 million) were used to hedge expected foreign currency income of US$3.8 million (2009: US$23.4 million) and expected foreign currency payments of Hungarian forint 2,862.0 million (2009: Hungarian forint 1,724.3 million) into euro of €1.4 million (2009: €16.3 million) and €8.2 million (2009: €5.2 million) respectively.

These forward exchange contracts and corresponding foreign currency receipts will mature within 12 months of each year end. Movements in the fair value of these forward foreign exchange contracts are recognised as cash flow hedges in the hedging reserve within equity. These amounts are then transferred to the Income Statement when the amounts are received at various dates between within 12 months of the year end. There was no material ineffectiveness of these hedges recorded as at the balance sheet date.

Interest rate swapsInterest rate swaps of aggregate notional principal amounts of €200.0 million (2009: €200.0 million) with average fixed interest payable of 4.03% (2009: 4.03%) were used to hedge variable quarterly interest payments arising under the Senior Floating Rate Notes due 2013. The aim of the hedge relationship is to convert the variable interest borrowing into a fixed interest borrowing, and result in cash flow hedges of €11.4 million (2009: €11.8 million). Credit risks do not form part of the hedge designation. There was no material ineffectiveness of these hedges recorded as at the balance sheet date.

Cross currency interest rate swapsCross currency interest rate swaps of aggregate notional principal amounts of US$240.0 million (2009: US$288.0 million) were used to hedge the Group’s US$ denominated loan notes (see Note 25).

Fair value hedge adjustments of €(1.8) million (2009: €(2.9) million) arise from the hedging of the principal value of the exposures to euro denominated liabilities. Equivalent (but opposite) fair value differences have been recognised on the hedging cross currency interest rate swaps for the same underlying risk. The whole of this adjustment in both the current and prior years relate to hedged items due for settlement after one year. Cash flow hedges of €0.1 million (2009: €3.6 million) arise from the conversion of the semi-annual US$ denominated interest payments to euro denominated interest payments. Amounts recognised within equity are reclassified to the Income Statement when the underlying fixed interest payments occur at various dates between the year end and 2014. There was no ineffectiveness of these hedges recorded at the balance sheet date.

Non-hedginginstrumentsIn certain circumstances, transactions to reduce economic exposure do not qualify for hedge accounting.

Forward foreign exchange contractsForward foreign exchange contracts as at 31 December 2010 were in place to convert foreign currency notional amounts of Swiss francs 25.2 million (2009: Swiss francs 41.4 million), Singapore dollar 10.2 million (2009: Singapore dollar 8.1 million), Hungarian forint 155.7 million (2009: Hungarian forint nil), US$3.3 million (2009: US$2.6 million) and sterling £186.9 million (2009: £178.0 million) into a total euro equivalent of €254.3 million (2009: €232.3 million).

Interest rate swapsThe notional principal amount of outstanding interest rate swap contracts not qualifying for hedge accounting as at the year end was €225.0 million (2009: €50.0 million) with fixed interest rates payable at 1.3%. The notional principal amounts of outstanding interest rate caps and collars as at the year end was €100.0 million (2009: €100.0 million).

The aggregate average notional principal amounts of outstanding variable principal interest rate swaps as at the end of the year was €40.8 million (2009: €99.2 million) with average fixed rates payable at 4.3%.

Callable interest rate swapsAt the year end the Group had outstanding variable principal callable interest rate swaps with aggregate average notional principals of €30.6 million (2009: €32.4 million). In each case the swap has an initial maturity in December 2011, at which time the counterparty has the option to extend the swap at no additional cost for a further three years. The fixed rate payable on the swaps is 3.9% if the swaps are not extended, and 4.3% if the extension option is exercised.

Forward rate agreementsIn 2010 the Group had outstanding forward rate agreements with aggregate notional principals of €50.0 million (2009: €nil) covering various three month periods during 2011. These converted the prevailing floating interest rate to an average fixed rate of 1.2%.

Embedded derivativeThe €250.0 million Senior Floating Rate Notes due 2013 include a call option permitting the Group to repay the notes with effect from 31 July 2008. Under the option, the notes may be redeemed at par with effect from 31 July 2010. In accordance with IAS 39, this option is separately recognised from the underlying Senior Floating Rate Notes as an embedded derivative.


26Financialriskmanagementcontinued

c) Risk and sensitivity analysisForeigncurrencyriskIn accordance with IFRS 7, foreign currency risk sensitivities are calculated by reference to the currency profile of the Group’s balance sheet as at each year end, with all other variables kept constant. These sensitivities do not therefore reflect any trading impacts arising from changes in exchange rates during the year, or any impacts arising from the translation of monthly non-euro Income Statement results.

The table below details the sensitivity to each of the Group’s profit after tax, translation reserve, and cash flow hedge reserve to a hypothetical 10% strengthening of the euro against sterling, US$ and Swiss francs from a translation perspective. Sensitivities to a 10% strengthening of the euro has been selected given the current level of exchange rates, exchange rate volatility observed on a historic basis and market expectations for future movements. Similar but opposite sensitivities would arise upon a 10% weakening of the euro against these currencies:

Profitaftertax Translationreserve Hedgingreserve 2010 2009 2010 2009 2010 2009(Profit)/loss €m €m €m €m €m €m

Euro/sterling (7.1) 1.6 8.3 1.3 – –Euro/US$ 0.4 0.3 – – (0.1) (1.3)Euro/Swiss francs 0.8 (3.6) 3.1 2.4 – –

Profit after tax sensitivities primarily arise from the revaluation of non-hedging derivatives comprising forward foreign contracts where the Group has not applied hedge accounting. The majority of these sensitivities do not affect the Group’s underlying profit after tax as they impact upon amounts excluded from the underlying result. Translation reserve sensitivities effectively arise from the retranslation of the net assets of head office and trading operations in the UK, and trading operations in Switzerland, from sterling and Swiss francs respectively, into euro. Hedging reserve sensitivities to sterling balances arise from the hedging of forward foreign exchange contracts, whilst the US$ sensitivities arise from both forward foreign exchange contracts and cross currency interest rate swaps.

InterestrateriskIn accordance with IFRS 7, interest rate sensitivities are calculated by reference to the interest rate profile of the Group’s balance sheet as at each year end, with all other variables kept constant. To manage interest rate risk the Group is financed through a combination of fixed and floating rate facilities and enters into various interest rate derivatives, as outlined in section (a), above. Sensitivities to a 1% increase in interest rates have been selected given the current level of market interest rates, interest rate volatility observed on a historic basis and market expectations for future movements. Similar but opposite sensitivities would arise upon a 1% reduction in interest rates. The interest rate sensitivities are calculated based on the following:

(a) Changes in the market interest rates of non-derivative financial instruments with fixed interest rates only affect income if these are recognised at their fair value. As such, all financial instruments with fixed interest rates that are carried at amortised cost are not subject to interest rate risk as defined in IFRS 7.

(b) Changes in the market interest rate of financial instruments that were designated as hedging instruments in a cash flow hedge, to hedge payment fluctuations resulting from interest rate movements, affect the cash flow hedge reserve in shareholder’s equity and are therefore taken into consideration in the equity-related sensitivity calculations.

(c) Changes in market interest rates affect the interest income or expense of non-derivative variable interest financial instruments. As a consequence, they are included in the calculation of income-related sensitivities, other than where the interest payments are designated as part of a cash flow hedge against interest rate risk.

(d) Changes in the market interest rate of interest rate derivatives (interest rate swaps, callable interest rate swaps, caps and collars) that are not part of a hedging relationship as set out in IAS 39, affect other financial income or expense (net gain/loss from remeasurement of the financial fair value) and are therefore taken into consideration in the income-related sensitivity calculations.

(e) Currency derivatives are not directly exposed to interest rate risks and therefore do not affect the interest rate sensitivities.

The sensitivity of profit after tax, translation reserve and cash flow hedge reserve to a 1% change in the interest rate are detailed in the table below:

Profitaftertax Translationreserve Hedgingreserve 2010 2009 2010 2009 2010 2009 €m €m €m €m €m €m

Loss arising from 1% increase in interest rates (post tax) 0.5 1.6 – – 20.4 21.1

The decrease in profit after tax partly arises due to the revaluation of non-hedging derivatives. The increase/(decrease) in underlying profit after tax to a 1% increase in market interest rates is €0.9 million (2009: €(0.7) million).

Liquidity riskThe following is an analysis of the contractual undiscounted cash flows payable under financial liabilities together with derivative financial instrument assets and liabilities at the balance sheet date:

Due Due between between Duewithin oneand twoand Dueafter oneyear twoyears fiveyears fiveyears TotalAt31December2010 €m €m €m €m €m

Non-derivativefinancialliabilitiesBorrowings (112.9) (107.0) (326.1) – (546.0)Interest payments on borrowings (15.5) (10.9) (4.8) – (31.2)Trade and other payables (including Finance cost creditors) (see Note 21) (463.5) – – – (463.5)Trade provisions (7.0) (3.1) (4.1) (2.1) (16.3)Obligations under finance leases (see Note 24) (184.3) (0.1) – – (184.4)Interest payments on finance leases (5.5) – – – (5.5)Deferred consideration (0.3) (0.3) (1.1) (23.4) (25.1)Derivativefinancialinstrumentassetsandliabilities–grosssettledDerivative contracts – receipts 220.9 11.3 70.9 – 303.1Derivative contracts – payments (225.9) (10.0) (66.9) – (302.8)Derivativefinancialinstrumentassetsandliabilities–netsettledDerivative contracts – payments (13.2) (4.8) (3.6) – (21.6)

The following comparative analysis has been restated to disclose components consistent with those above: Due Due between between Due within one and two and Due after one year two years five years five years TotalAt 31 December 2009 €m €m €m €m €m

Non-derivativefinancialliabilitiesBorrowings (74.0) (82.6) (424.4) – (581.0)Interest payments on borrowings (33.4) (29.6) (33.1) – (96.1)Trade and other payables (including Finance cost creditors) (see Note 21) (422.7) – – – (422.7)Trade provisions (6.0) (3.2) (3.8) (2.5) (15.5)Obligations under finance leases (see Note 24) (167.9) – – – (167.9)Interest payments on finance leases (4.7) – – – (4.7)Deferred consideration (0.3) (0.3) (0.9) (22.6) (24.1)Derivativefinancialinstrumentassetsandliabilities–grosssettledDerivative contracts – receipts 115.1 90.0 93.6 – 298.7Derivative contracts – payments (133.7) (108.8) (104.9) – (347.4)Derivativefinancialinstrumentassetsandliabilities–netsettledDerivative contracts – payments (16.8) (4.5) (7.8) – (29.1)



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27Netdebt

The maturity profile of the Group’s net debt balances (excluding deferred consideration) is as follows:

Lessthan Oneto Twoto oneyear twoyears fiveyears TotalAt31December2010 €m €m €m €m

Derivative financial instrument assets (see Note 26) 0.4 – 7.0 7.4Derivative financial instrument liabilities (see Note 26) (17.3) (1.7) (15.6) (34.6)Derivative financial instruments (see Note 26) (16.9) (1.7) (8.6) (27.2)Bank overdrafts (see Note 25) (11.8) – – (11.8)Bank loans and other loans (see Note 25) (8.5) – – (8.5)Commercial paper (see Note 25) (1.0) – – (1.0)Loan notes (see Note 25) (91.6) (107.0) (328.6) (527.2)Obligations under finance leases (see Note 24) (184.3) (0.1) – (184.4)Grossdebt(includingnetderivatives) (314.1) (108.8) (337.2) (760.1)

Cash and short-term deposits (see Note 20) 231.7 – – 231.7Interestbearingassets 231.7 – – 231.7

Netdebt (82.4) (108.8) (337.2) (528.4)

Less than One to Two to one year two years five years TotalAt 31 December 2009 €m €m €m €m

Derivative financial instrument assets (see Note 26) – – 1.9 1.9Derivative financial instrument liabilities (see Note 26) (29.9) (11.8) (30.0) (71.7)Derivative financial instruments (see Note 26) (29.9) (11.8) (28.1) (69.8)Bank overdrafts (see Note 25) (8.8) – – (8.8)Bank loans and other loans (see Note 25) (5.2) – – (5.2)Commercial paper (see Note 25) (26.7) – – (26.7)Loan notes (see Note 25) (33.3) (89.3) (420.2) (542.8)Obligations under finance leases (see Note 24) (167.9) – – (167.9)Gross debt (including net derivatives) (271.8) (101.1) (448.3) (821.2)

Current assets – held for trading (see Note 16) 2.7 – – 2.7Cash and short-term deposits (see Note 20) 60.6 – – 60.6Interest bearing assets 63.3 – – 63.3

Net debt (208.5) (101.1) (448.3) (757.9)

Interest rate and currency profileThe interest rate and currency profile of the Group’s net debt balances is as follows:

2010 2009

Fixed Floating Fixed Floating rate rate Total rate rate Total €m €m €m €m €m €m

Grossdebt(excludingimpactofderivatives)Euro (91.8) (456.9) (548.7) (91.8) (457.4) (549.2)Sterling – (0.1) (0.1) – (1.9) (1.9)US$ (182.2) – (182.2) (197.4) – (197.4)Other – (0.1) (0.1) – – – (274.0) (457.1) (731.1) (289.2) (459.3) (748.5)

NetimpactofderivativesEuro (537.4) 419.1 (118.3) (596.4) 338.6 (257.8)Sterling – (101.0) (101.0) – 14.0 14.0US$ 182.7 – 182.7 198.2 1.8 200.0Other – 7.6 7.6 – (28.9) (28.9) (354.7) 325.7 (29.0) (398.2) 325.5 (72.7)

Grossdebt(netofderivatives)Euro (629.2) (37.8) (667.0) (688.2) (118.8) (807.0)Sterling – (101.1) (101.1) – 12.1 12.1US$ 0.5 – 0.5 0.8 1.8 2.6Other – 7.5 7.5 – (28.9) (28.9) (628.7) (131.4) (760.1) (687.4) (133.8) (821.2)

InterestbearingassetsEuro – 223.2 223.2 – 55.6 55.6Sterling – 4.7 4.7 – 6.3 6.3Other – 3.8 3.8 – 1.4 1.4 – 231.7 231.7 – 63.3 63.3

NetdebtEuro (629.2) 185.4 (443.8) (688.2) (63.2) (751.4)Sterling – (96.4) (96.4) – 18.4 18.4US$ 0.5 – 0.5 0.8 1.8 2.6Other – 11.3 11.3 – (27.5) (27.5) (628.7) 100.3 (528.4) (687.4) (70.5) (757.9)

The net impact of derivatives in 2010 of €(29.0) million (2009: €(72.7) million), comprises the recognition of the fair value of the debt-related derivative financial instruments of €(27.2) million (2009: €(69.8) million), adjusted for the fair value hedge adjustment of €(1.8) million (2009: €(2.9) million) (see Note 26).

The above fixed/floating rate analysis excludes the impact of interest rate caps and collars. Including the impact of such caps and collars, a further €100.0 million (2009: €100.0 million) of net debt would be classified as fixed rate.

The range of interest rates applicable to euro-denominated gross debt (net of derivatives) is as follows:

2010 2009 % %

Fixed interest rate charge 5.7–6.8 5.7–6.8Floating rate interest charge margin above: – EURIBOR 0.3–2.6 0.3–2.6– LIBOR n/a n/a


28Additionaldisclosuresonfinancialinstruments

Measurement of financial instruments by category Fairvalue Fairvalue recognised Book Amortised recognised inIncome amount cost inequity StatementAt31December2010 €m €m €m €m

Assets:Other financial assets:

Derivative hedging instruments (held for trading) 4.8 – – 4.8Derivative non-hedging instruments (held for trading) 4.9 – – 4.9 Cash and short-term deposits 231.7 231.7 – –Trade and other receivables1 902.6 902.6 – –

Liabilitiesandshareholders’equity:Other financial liabilities:

Derivative hedging instruments (held for trading) (27.4) – (12.7) (14.7)Derivative non-hedging instruments (held for trading) (8.9) – – (8.9)Bank overdrafts (11.8) (11.8) – –Bank loans and other loans (8.5) (8.5) – –Commercial paper (1.0) (1.0) – – Loan notes (527.2) (527.2) – –Obligations under finance leases (184.4) (184.4) – –Deferred consideration (25.1) (25.1) – – Trade and other payables (463.5) (463.5) – – Trade provisions (16.0) (16.0) – –

The following comparative analysis has been restated to disclose components consistent with those above: Fair value Fair value recognised Book Amortised recognised in Income amount cost in equity StatementAt 31 December 2009 €m €m €m €m

Assets:Other financial assets:

Derivative hedging instruments (held for trading) 0.4 – – 0.4 Derivative non-hedging instruments (held for trading) 3.9 – – 3.9 Cash and short-term deposits 60.6 60.6 – –Trade and other receivables1 889.9 889.9 – –

Liabilitiesandshareholders’equity:Other financial liabilities:

Derivative hedging instruments (held for trading) (60.5) – (16.2) (44.3)Derivative non-hedging instruments (held for trading) (13.4) – – (13.4)Bank overdrafts (8.8) (8.8) – – Bank loans and other loans (5.2) (5.2) – –Commercial paper (26.7) (26.7) – – Loan notes (542.8) (542.8) – – Obligations under finance leases (167.9) (167.9) – – Deferred consideration (24.1) (24.1) – – Trade and other payables (422.7) (422.7) – – Trade provisions (15.1) (15.1) – –

1 Excludes “prepaid vehicle operating lease charges” and “other prepayments” as these are not financial assets under IFRS 7, Financial instruments: disclosures.

IFRS 7 requires disclosure of how the above fair value measurements fit within the fair value measurement hierarchy. The following table presents the Group’s financial assets and liabilities measured at fair value within the hierarchy.

Other financial assets: Level2 Level3 TotalAt31December2010 €m €m €m

Assets:Other financial assets:– cross currency interest rate swaps

(cash flow hedges) 4.8 – 4.8Derivativehedginginstruments(heldfortrading) 4.8 – 4.8– forward foreign exchange contracts 2.3 – 2.3– interest rate swaps 0.4 – 0.4– embedded derivative – 2.2 2.2Derivativenon-hedginginstruments(heldfortrading) 2.7 2.2 4.9

Liabilitiesandshareholders’equity:Other financial liabilities:– forward foreign exchange contracts

(cash flow hedges) (1.2) – (1.2)– interest rate swaps (cash flow hedges) (12.4) – (12.4)– cross currency interest rate swaps

(cash flow hedges) (0.1) – (0.1)– cross currency interest rate swaps

(fair value hedges) (13.7) – (13.7)Derivativehedginginstruments(heldfortrading) (27.4) – (27.4)– forward foreign exchange contracts (0.5) – (0.5)– interest rate swaps (2.0) – (2.0)– callable interest rate swaps (5.8) – (5.8)– interest rate caps and collars (0.6) – (0.6)Derivativenon-hedginginstruments(heldfortrading) (8.9) – (8.9)

Total (28.8) 2.2 (26.6)

Level 2 Level 3 TotalAt 31 December 2009 €m €m €m

Assets:Other financial assets:– forward foreign exchange contracts

(cash flow hedges) 0.4 – 0.4 Derivative hedging instruments (held for trading) 0.4 – 0.4 – forward foreign exchange contracts 2.0 – 2.0 – embedded derivative – 1.9 1.9 Derivative non-hedging instruments (held for trading) 2.0 1.9 3.9

Liabilitiesandshareholders’equity:Other financial liabilities:– forward foreign exchange contracts

(cash flow hedges) (1.1) – (1.1)– interest rate swaps (cash flow hedges) (13.0) – (13.0)– cross currency interest rate swaps

(cash flow hedges) (3.0) – (3.0)– cross currency interest rate swaps

(fair value hedges) (43.4) – (43.4)Derivative hedging instruments (held for trading) (60.5) – (60.5)– forward foreign exchange contracts (1.1) – (1.1)– interest rate swaps (5.8) – (5.8)– callable interest rate swaps (6.0) – (6.0)– interest rate caps and collars (0.5) – (0.5)Derivative non-hedging instruments (held for trading) (13.4) – (13.4)

Total (71.5) 1.9 (69.6)



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28Additionaldisclosuresonfinancialinstrumentscontinued

Measurementoffinancialinstrumentsbycategory (continued)Level1financialinstrumentsLevel 1 comprises those financial instruments measured at fair value where the valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities. As at 31 December 2010 the Group had no such instruments.

Level2financialinstrumentsLevel 2 comprises those financial instruments measured at fair value where the valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The fair values of all the Group’s derivative hedging instruments, and derivative non-hedging instruments are determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available, and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. In cases where a valuation technique for these instruments is based on one or more significant unobservable inputs, such instruments are included in Level 3.

The fair value of the Group’s derivative hedging instruments, and derivative non-hedging instruments (other than the embedded derivative) are calculated as the present value of the estimated future cash-flows based on observable yield curves, and are therefore included in Level 2.

Level3financialinstrumentsLevel 3 comprises those financial instruments measured at fair value where the valuation is based on inputs for the asset or liability that are not based on observable data. The fair value of the embedded derivative contract is determined using option valuation techniques which are based on both observable market rates, but also assumptions with respect to estimates of exercise probabilities. The embedded derivative is therefore included in Level 3. Movements in the fair value of the embedded derivative are recognised within gains/(losses) on debt-related financial instruments in the Consolidated Income Statement. The following table presents the changes in Level 3 instruments for the year ended 31 December 2010.

Non-hedginginstruments –embeddedderivative

2010 2009 €m €m

At1January 1.9 0.7Gains reported within “finance costs” in the year 0.3 1.2At31December 2.2 1.9

2010 2009

Book Fair Book Fair amount value amount value €m €m €m €m

Fairvalueoffinancialassetsandfinancialliabilities:Non-current assets – available for sale investments (see Note 16) 0.5 0.5 0.4 0.4Trade and other receivables1 902.6 902.6 889.9 889.9Current assets – held for trading (see Note 16) – – 2.7 2.7Cash and cash equivalents (see Note 20) 231.7 231.7 60.6 60.6Trade and other payables (see Note 21) (463.5) (463.5) (422.7) (422.7)Obligations under finance leases (see Note 24) (184.4) (184.4) (167.9) (167.9)Financial liabilities – borrowings: – Current (see Note 25) (112.9) (113.4) (74.0) (63.0)– Non-current (see Note 25) (435.6) (428.1) (509.5) (339.8)Financial liabilities – deferred consideration:– Current (see Note 25) (0.3) (0.3) (0.3) (0.3)– Non-current (see Note 25) (24.8) (23.1) (23.8) (23.9)

1 Excludes “prepaid vehicle operating lease charges” and “other prepayments” as these are not financial assets under IFRS 7, Financial instruments: disclosures.

The above comparative analysis has been restated to disclose components consistent with those disclosed as at 31 December 2010.

The Directors consider that the book value of non-current assets – available for sale investments; trade and other receivables; current assets – held for trading; cash and cash equivalents; and trade and other payables, approximate to their fair value.

The fair value of obligations under finance leases approximates to their book value as the majority of these obligations are due within one year (see Note 24).

The fair value of borrowings and deferred consideration for disclosures are based either on tradable market values, or where such market values are not readily available are estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

29Called-upsharecapital 2010 2009

Number €m Number €m

Issuedandfullypaidsharecapital–ordinarysharesof10pence(2009:1pence)eachAt 1 January 920,524,047 13.1 920,524,047 13.1Issued during the year 1,035,583,564 12.5 – –Share consolidation (1,760,496,850) – – –At 31 December 195,610,761 25.6 920,524,047 13.1

On 25 June 2010, the Board announced that the Company proposed to raise approximately £151 million (net of estimated expenses), by way of a Rights Issue. The basis of the Rights Issue was nine new shares at a price of 15 pence per share for every eight existing shares held at the close of business on 9 July 2010. The Rights Issue was approved by the shareholders at an Extraordinary General Meeting on 12 July 2010.

A total of 1,035,583,564 new shares of 1 pence each were issued pursuant to the Rights Issue. The new shares issued rank equally in all respects with the existing shares. The proceeds of the issue were fully received by 2 August 2010 and have resulted in a strengthened balance sheet, a significant reduction in borrowings and improved credit ratios. Given the Group’s euro functional currency, to mitigate the effect of any foreign exchange impact between launch and receipt of proceeds, the Group initially entered into a foreign exchange option contract to protect against any downside arising from an adverse movement in the euro:sterling exchange rate up to 13 July, when the Rights Issue was intended to become unconditional. A premium of €0.2 million on this option contract has been recognised as an exceptional charge in the year (see Note 6). Once the Rights Issue became unconditional on 13 July 2010, the Group then entered into forward exchange contracts to fix the euro:sterling exchange rate for the expected proceeds.

The proceeds of the Rights Issue, net of expenses and associated purchase of own shares (see Note 30), have been recognised as follows:

RightsIssue £m €m

Share capital 10.4 12.5 Merger reserve 139.8 168.1 Netproceeds 150.2 180.6 Own shares (1.2) (1.4)Netproceedsincludingownshares 149.0 179.2

The merger reserve was recognised as a consequence of the Company taking merger relief under sections 612-613 of the Companies Act 2006, on shares issued to acquire, as part of the Rights Issue process, an investment in the ordinary and redeemable preference shares in Cirrus Capital (Jersey) One Limited and Cirrus Capital (Jersey) Two Limited (both companies incorporated in Jersey). Following the subsequent redemption of the preference shares acquired, the related amount previously standing to the credit of the merger reserve has become realised and has been transferred to retained earnings.

On 3 August 2010, the Company also completed a share consolidation of one ordinary share for every ten existing shares to ensure that following the Rights Issue the number of shares in issue and the share price is appropriate for a business of the Group’s size.


30Ownsharesheld

Own shares are held by the Avis Europe Employee Share Trust, a discretionary trust, to partially satisfy options and awards under a number of the Group’s share schemes. The Company’s shares have a nominal value of 10 pence (2009: 1 pence) per share.

At 31 December 2010, the Trust held 1,478,117 shares (2009: 7,307,735), which has been recognised as a reduction in shareholders’ equity. The movement in the number of shares held primarily comprises the full take-up of the Rights Issue allocation offset by an adjustment upon the share consolidation (see Note 31). The market price of the shares as at 31 December 2010 was 237 pence per share (2009 rebased: 197 pence per share; 2009 as reported: 26 pence per share). The market value of own shares held as at 31 December 2010 was £3.5 million (2009: £1.9 million). None of the shares held at the period end are under option to employees, nor have they been conditionally gifted to them. The Avis Europe Employee Share Trust has not waived its right to any dividends on these shares.

31Shareandshareoptionschemes

Details of the nature of all share and share option schemes can be found on pages 35 to 37 of the Remuneration Report.

At the year end, options outstanding under all schemes were as follows:

At31December2010 Noofoptions Exercisepricerange ExerciseperiodDateofgrant (’000) From To From To

ApprovedandUnapprovedShareOptionSchemes2001 80.4 912.5p 1021.9p 2004 20112002 141.1 626.3p 1305.1p 2005 20122003 37.3 567.1p 650.3p 2006 2013 258.8

ShareRetentionPlan2009 95.2 – – 2010 2012

Long-TermIncentivePlan2008 3,396.1 – – 2010 20112009 3,264.9 – – 2011 20122010 1,012.4 – – 2012 2013 7,673.4

Total 8,027.4

At31December2009 No of options1 Exercise price range1 Exercise period

Date of grant (’000) From To From To

ApprovedandUnapprovedShareOptionSchemes2000 371.0 166.6p 166.8p 2003 20102001 717.5 121.8p 136.4p 2004 20112002 1,177.5 83.6p 174.2p 2005 20122003 314.4 75.7p 86.8p 2006 2013 2,508.4

ShareRententionPlan2009 1,055.7 – – 2010 2012

Long-TermIncentivePlan2007 3,133.1 – – 2010 20112008 25,526.7 – – 2011 20122009 25,766.9 – – 2012 2013 54,426.7

Total 58,062.8

1 Comparative data has not been restated for the combined effect of the Rights Issue and share consolidation (see Note 29).

Approved and Share Unapproved Retention Performance Long-Term Share Plan Share IncentiveNumber(’000)1 Schemes 2009 Plan Plans Total

Outstandingoptionsasat1January2009 2,899.2 – 514.9 31,274.3 34,688.4Granted in the year – 1,055.7 – 27,307.6 28,363.3Lapsed in the year (318.8) – – (4,155.2) (4,474.0)Expired in the year – – (514.9) – (514.9)Outstandingoptionsasat31December2009 2,580.4 1,055.7 – 54,426.7 58,062.8Exercisableoptionsasat31December2009 2,580.4 – – – 2,580.4

Outstandingoptionsasat1January2010 2,580.4 1,055.7 – 54,426.7 58,062.8Granted in the year – – – 7,920.3 7,920.3Lapsed in the year (670.1) – – (5,590.2) (6,260.4)Exercised in the year – (351.3) – – (351.3)Adjustment – Rights Issue2 677.7 247.6 – 19,977.2 20,902.6Adjustment – share consolidation2 (2,329.2) (856.8) –(69,060.6)(72,246.6)Outstandingoptionsasat31December2010 258.8 95.2 – 7,673.4 8,027.4Exercisableoptionsasat31December2010 258.8 – – – 258.8


2 Represents the effect of grant adjustments arising upon the Rights Issue and the share consolidation (see Note 29).

All movements in the number of outstanding share options and conditional share awards under the Share Retention Plan, Performance Share Plan and the Long-Term Incentive Plans during both the current and prior year had zero weighted average exercise prices. Share options exercised in the year were exercised pre the Rights Issue and share consolidation. The weighted average share price at the date of exercise was 26 pence. There were no share options exercised in the prior year. Exercisable options comprise outstanding options where the vesting period has completed, irrespective as to whether the option exercise price is above or below the current share price.

Movements in the weighted average exercise prices of the Approved and Unapproved Share Schemes during the year are as follows:

Approvedand UnapprovedWeightedaverageexerciseprice(pence)1 ShareSchemes

Outstandingoptionsasat1January2009 127.6Lapsed in the year 122.8Outstandingoptionsasat31December2009 128.2

Exercisableoptionsasat31December2009 128.2

Outstandingoptionsasat1January2010 950.4Lapsed in the year 1,077.5Outstandingoptionsasat31December2010 845.1

Exercisableoptionsasat31December2010 845.1


Weightedaverage Approved

and Long-Term Long-Term Long-Term

Unapproved Share Incentive Incentive Incentiveremainingcontract Share Retention Plan Plan Plan

lives(years): Schemes Plan 2008 2009 2010

At31December2010 1.1 0.3 0.7 1.3 2.3At 31 December 2009 2.1 1.3 1.7 2.3 n/a



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31Shareandshareoptionschemescontinued

IFRS 2, Share-Based Payment, requires that the fair value of all share options and conditional share awards issued after 7 November 2002 is charged to the Income Statement. Certain options from the approved and unapproved schemes were issued before 7 November 2002 and therefore the fair values of these granted options are not recognised. For options issued after 7 November 2002, the fair value of the option must be assessed on the date of each issue. The Group uses a stochastic valuation model at each issue date, re-assessing the input assumptions on each occasion. The weighted average of the assumptions used in each valuation and the resulting weighted average fair value per option, for options issued in the year, were as follows:

Long-TermIncentivePlan

Weightedaverage 2010 2009

Option exercise price (pence) – – Vesting period (years) 3.0 3.0 Option life (years) 3.0 3.5 Expected volatility (%) 91.2% 84.5%Risk free rate of return (%) 2.3% 3.0%Share price (pence) – pre Rights Issue and share consolidation 34.8 5.1 Share price (pence) – post Rights Issue and share consolidation 257.0 37.7 Fair value per option (pence) – pre Rights Issue and share consolidation 34.8 5.1 Fair value per option (pence) – post Rights Issue and share consolidation 257.0 37.7

Expected volatility was determined by reference to the volatility in the share price using rolling one year periods for the five years immediately preceding the grant date. The risk free rate of return is based upon UK gilt rates with an equivalent term to the options granted.

For options issued prior to July 2003, an expected dividend yield of 6.4% was applied, based on historic dividend yield performance. For options issued after July 2003, future dividend assumptions were aligned to the dividend expectations publicly announced by the Group.

32Notestotheconsolidatedcashflowstatement

a) Analysis of changes in net debt At1 At31 January Cash Non-cash Exchange December 2010 flow movements movements 2010 €m €m €m €m €m

Cash and short-term deposits 60.6 170.6 – 0.5 231.7Bank overdrafts (8.8) (3.0) – – (11.8)Cash and cash equivalents 51.8 167.6 – 0.5 219.9Current assets – held for trading 2.7 (2.7) – – –Obligations under finance leases (167.9) 46.7 (63.2) – (184.4)Borrowings (excluding overdrafts) (see Note 26) (574.7) 46.9 (6.1) (2.8) (536.7)Derivative debt instruments (see Note 27) (69.8) 29.1 13.5 – (27.2)Netdebt (757.9) 287.6 (55.8) (2.3) (528.4)

Non-cash movements on obligations under finance leases represent the net effect of the inception and cessation of capital element of finance leases during the period. Other non-cash movements reflect changes in the fair value of derivatives and hedged items, which include inherently in their valuation certain spot and forward foreign exchange adjustments.

b) Reconciliation of net increase in cash and cash equivalents to movement in net debt

2010 2009 €m €m

Movement in net debt resulting from cash flows 287.6 365.0Net new finance leases (63.2) 11.4Re-measurement adjustments on borrowings and derivative debt instruments 7.4 4.3Exchange movements (2.3) (5.4)Total movement in net debt 229.5 375.3Netdebtat1January (757.9) (1,133.2)Netdebtat31December (528.4) (757.9)

Analysed as:Current net debt (82.4) (208.5)Non-current net debt (446.0) (549.4) (528.4) (757.9)

33Acquisition

During the year, as part of the Rights Issue (see Note 29), the Group acquired 100% of the ordinary and redeemable preference share capital of Cirrus Capital (Jersey) One Limited and Cirrus Capital (Jersey) Two Limited (both companies incorporated in Jersey).

The acquisition has been accounted for using the acquisition method of accounting and resulted in the recognition of a merger reserve (see Note 29). The results and cash flows arising subsequent to the acquisitions are not considered material and are accordingly not disclosed separately. The details of the net assets acquired, goodwill and consideration for the acquisition are set out below. There was no difference between the book value of net assets acquired and the provisional fair value.

Bookvalue €m

Amounts due from original shareholders 180.6 Netassetsacquired 180.6 Goodwill arising on acquisition –Consideration 180.6 Consideration satisfied by: Issue of share capital – called-up share capital (see Note 29) 12.5 – share premium recognised in merger reserve (see Note 29) 168.1 180.6

In the prior year, the Group further invested in its Indian associate undertaking, Mercury Car Rentals Limited, for cash consideration of €0.4 million. No goodwill arose upon this investment. The Group’s share of net assets were unchanged at 33%.


34Contingentliabilities

The Company and certain subsidiaries have provided unsecured guarantees to certain third parties within the normal course of business, the majority of which were in favour of certain lenders in respect of some of the Group’s loan notes and borrowing facilities, together with guarantees provided to certain vehicle suppliers and property lessors. As at 31 December 2010, these guarantees totalled €789.9 million (2009: €852.0 million) of which €613.6 million (2009: €693.5 million) related to the Group’s financing facilities and €67.2 million (2009: €56.3 million) related to insurance.

Certain Group companies are defendants in a number of claims and legal proceedings incidental to their operations. The Directors do not expect that any of these contingencies will have a material negative impact on the results or financial position of the Group.

Save as disclosed herein and excluding intra-group indebtedness and guarantees, no member of the Group had at the close of business on 31 December 2010 any outstanding loan capital (including loan capital created but unissued), term loans or any other borrowings or indebtedness in the nature of borrowings, including bank overdrafts, liabilities under acceptances (other than normal trade bills) or acceptance credits, hire purchase commitments, obligations under finance leases, guarantees or other contingent liabilities.

35Financialcommitments

At 31 December, the Group had the following minimum lease payment commitments under non-cancellable operating leases:

2010 2009

Landand Land and Buildings Vehicles Other Buildings Vehicles Other €m €m €m €m €m €m

Expiring:Within one year 50.1 24.9 0.6 49.2 13.6 0.1Later than one year and less than five years 98.3 4.4 1.5 100.3 3.4 0.1After five years 21.6 – – 36.2 – – Total 170.0 29.3 2.1 185.7 17.0 0.2

At each year end the Group also had prepaid various other operating lease commitments in relation to manufacturer repurchase agreements, as detailed in Note 19.

36Majorityshareholder

The Company’s ultimate majority shareholder is s.a. D’Ieteren n.v. which is incorporated in Belgium. The ultimate controlling party of s.a. D’Ieteren n.v. is the D’Ieteren family. Avis Europe plc is the smallest company that consolidates the results of the Company and its subsidiaries.

s.a. D’Ieteren n.v. is the largest company that consolidates the results of the Company and its subsidiaries. Copies of s.a. D’Ieteren n.v.’s financial statements are available from: The Investor Relations Department, Avis Europe plc, Avis House, Park Road, Bracknell, Berkshire RG12 2EW.

37Relatedpartytransactions 2010 2009 €m €m

Sales to joint ventures 1.7 1.4 Net current amounts owing from joint ventures 0.6 2.4 Purchases from majority shareholder 45.3 20.8Sales to majority shareholder 56.6 49.0 Sales to a subsidiary of a majority shareholder 0.1 – Purchases from a subsidiary of majority shareholder 2.6 2.2Interest payable to a subsidiary of majority shareholder 0.2 0.2 Current amounts owing to majority shareholder 12.6 12.6Current amounts owing from majority shareholder 22.8 13.0 Current amounts owing to a subsidiary of majority shareholder 0.4 –

The remuneration of the Directors, and other key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24, Related Party Disclosures. Salaries and short-term employee benefits include wages, salaries and social security costs.

Further information about the remuneration of individual Directors is provided in the audited part of the Remuneration Report on pages 39 to 41.

2010 2009

Key Key Directorsmanagement Total Directors management Total €m €m €m €m €m €m

Salaries and short-term employee benefits 2.6 4.4 7.0 2.4 4.3 6.7Post-employment benefits – 0.1 0.1 – 0.1 0.1Termination amount – 0.2 0.2 – – –Share-based payments 0.8 1.3 2.1 0.1 0.3 0.4 3.4 6.0 9.4 2.5 4.7 7.2

38Exchangerates

Monthly income statements and other period statements of overseas operations are translated at the relevant rate of exchange for that month. Except for the Balance Sheet which is translated at the closing rate, each line item in these condensed Consolidated Financial Statements represents a weighted average rate.

Exchange rates are provided below for the two principal currencies which impact the Group’s consolidation, with the presentation currency being Euro.

EurotoSterling SterlingtoEuro Yearended Yearended 31December 31December 2010 2009 2010 2009

Weighted average reported rate for rental income 1.166 1.125 0.858 0.889Weighted average reported rate for operating profit 1.185 1.161 0.844 0.861Year end rate 1.178 1.118 0.849 0.894



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39Principalsubsidiaries

A list of the principal subsidiaries including the name, country of incorporation, and proportion of ownership is detailed below: 2010 2009 %of % of indirect indirect ownership ownershipNameofcompany Country of incorporation interest interest

Avis Europe Holdings Limited England and Wales 100 100Avis Finance Company plc England and Wales 100 100Avis Management Services Limited England and Wales 100 100Avis Location de Voitures SAS France 100 100Avis Autovermietung GmbH & Co KG Germany 100 100Avis Autonoleggio SpA Italy 100 100Avis Alquile un Coche SA Spain 100 100Avis Rent A Car Limited England and Wales 100 100Avis Europe International Reinsurance Limited Isle of Man 100 100

In addition, the assets and liabilities of Europe Leisure Holdings NV and its subsidiary are consolidated in these Consolidated Financial Statements in accordance with SIC 12, Consolidation – Special Purpose Entities.

A complete list of all Group subsidiaries is available from: The Investor Relations Department, Avis Europe plc, Avis House, Park Road, Bracknell, Berkshire RG12 2EW.


We have audited the Parent Company Financial Statements of Avis Europe plc for the year ended 31 December 2010 which comprise the Parent Company Balance Sheet, the Parent Company Cash Flow Statement, the Significant Accounting Policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

RespectiveresponsibilitiesofDirectorsandauditorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 34, the Directors are responsible for the preparation of the Parent Company Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

ScopeoftheauditoftheFinancialStatementsAn audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements.

OpiniononFinancialStatementsIn our opinion the Parent Company Financial Statements: • give a true and fair view of the state of the Company’s affairs as at

31 December 2010;• have been properly prepared in accordance with United Kingdom Generally

Accepted Accounting Practice; and• have been prepared in accordance with the requirements of the

Companies Act 2006.

OpiniononothermattersprescribedbytheCompaniesAct2006In our opinion: • the part of the Directors’ Remuneration Report to be audited has been

properly prepared in accordance with the Companies Act 2006; and• the information given in the Directors’ Report for the financial year for

which the Parent Company Financial Statements are prepared is consistent with the Parent Company Financial Statements.

MattersonwhichwearerequiredtoreportbyexceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the Parent Company,

or returns adequate for our audit have not been received from branches not visited by us; or

• the Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

OthermatterWe have reported separately on the Group Financial Statements of Avis Europe plc for the year ended 31 December 2010.

Stephen Wootten (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsReading25 February 2011

Notes:a) The maintenance and integrity of the Avis Europe plc website is the responsibility of

the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Financial statementsIndependent Auditors’ Report to the Members of Avis Europe plc


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2010 2009 Notes £m £m

FixedassetsInvestments 1 202.2 202.0

CurrentassetsCash at bank and in hand 0.1 – Debtors 2 274.1 115.9 274.2 115.9

Creditors:amountsfallingduewithinoneyearCreditors 3 4.5 6.0Other financial liabilities – financial guarantees 0.1 –

Currentliabilities 4.6 6.0

Netcurrentassets 269.6 109.9

Totalassetslesscurrentliabilities 471.8 311.9

CapitalandreservesCalled-up share capital 5 19.6 9.2 Share premium 6 294.8 294.8 Reserves 7 157.4 7.9

Totalshareholders’funds–equity 8 471.8 311.9

The accompanying Notes form an integral part of these Parent Company Financial Statements.

The Parent Company Financial Statements, including the accompanying Notes, were approved by the Board on 25 February 2011 and were signed on its behalf by:

PascalBazin MartynSmithChief Executive Group Finance Director Avis Europe plc Registered No. 3311438

Financial statementsParent Company Balance SheetAs at 31 December


Financial statementsParent Company Cash Flow Statementfor the year ended 31 December

2010 2009 £m £m

Operatingprofit/(loss) 1.7 (8.4)(Increase)/decrease in debtors (0.5) 2.3Decrease in creditors (0.8) (1.2)Purchase of fixed asset investment (0.2) –Increase in financial guarantee contracts 0.1 –Netcashgeneratedfrom/(usedin)operatingactivities 0.3 (7.3)

FinancingactivitiesNet proceeds of Rights Issue 150.2 –Finance revenue received 8.6 7.2(Increase)/decrease in loans receivable from Group subsidiaries (157.8) 1.9Purchase of own shares (1.2) (1.8)Netcash(usedin)/generatedfromfinancingactivities (0.2) 7.3

Netmovementincashandcashequivalents 0.1 –Cash and cash equivalents at 1 January – –Cashandcashequivalentsat31December 0.1 –

The accompanying Notes form an integral part of these Parent Company Financial Statements.


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Financial statementsSignificant Accounting Policies Applicable to the Parent Company Financial Statements for the year ended 31 December 2010

BasisofpreparationThe Company’s functional currency is sterling, and the Balance Sheet, Cash Flow Statement and related notes are presented in sterling.

The Parent Company Financial Statements set out on pages 79 to 83 have been prepared under the historical cost convention, as modified (as described below) by the recognition in the Profit and Loss Account of the fair value of share-based payments, and in accordance with applicable UK accounting standards and the Companies Act 2006. A summary of the principal accounting policies is set out below, which are consistent with those followed in the preparation of the Company’s Financial Statements for the year ended 31 December 2009.

FixedassetinvestmentsFixed asset investments are shown at cost less provision for any impairment where the recoverable amount is less than cost. Fixed asset investments are initially stated at cost, being their purchase cost together with any incidental expenses of acquisitions. The carrying values of fixed asset investments are reviewed at each year end and if events or changes in circumstances indicate the carrying value may not be recoverable. Any impairment of fixed asset investments is charged to the Profit and Loss Account in the year in which it arises.

DebtorsDebtors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade debtors is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the debt. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount is reduced through the use of an allowance account, and the amount is recognised in the Profit and Loss Account. When a trade debt is uncollectible, it is written off against the allowance account for trade debtors. Subsequent recoveries of amounts previously written off are credited in the Profit and Loss Account.

CreditorsCreditors are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

DeferredtaxationDeferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS19, Deferred tax. A deferred tax asset is only recognised when there are expected to be suitable future taxable profits within the tax group against which to reverse the underlying timing differences.

ForeigncurrencyForeign currency assets and liabilities are translated at the rates of exchange ruling at the year end. Transactions during the year are recorded at rates of exchange in effect when the transaction occurs.

Share-basedpaymentsThe cost of options granted to employees is measured by reference to the fair value at the date at which they are granted. This cost is recognised in the Income Statement over the period from grant to vesting date, being the date on which the relevant employees become fully entitled to the award, with a corresponding increase in equity. The cumulative expense recognised at each reporting date, reflects the extent to which the period to vesting has expired and the Directors’ best estimate of the number of options that will ultimately vest.

The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised.

FinancialguaranteesFinancial guarantees, other than those previously asserted by the entity to be insurance contracts, are initially recognised at their fair value and subsequently measured at the higher of: (a) the unamortised balance of the related fees received and deferred; and (b) the expenditure required to settle the commitment at the balance sheet date.


1Fixedassetinvestments 2010 2009Investmentinsubsidiaries £m £m

CostAt1January 711.6 711.6 Additions 0.2 – At31December 711.8 711.6 ProvisionforimpairmentAt1Januaryand31December 509.6 509.6 NetbookamountAt1Januaryand31December 202.2 202.0

Details of the Company’s principal subsidiaries are provided in Note 39 of the Consolidated Financial Statements.

The Directors review at each year end the carrying value of the fixed asset investments in the principal subsidiaries by undertaking a value in use calculation. In determining the value in use, the Directors calculated the present value of the estimated future cash flows expected to arise based on management’s latest five-year plans, with extrapolation thereafter. The resultant value in use calculation at 31 December 2010 resulted in a value in use in excess of the carrying value of the fixed asset investment. No further impairment is therefore recognised at 31 December 2010. Furthermore, no reversal of the provision for impairment is performed at 31 December 2010 given the sensitivity of the calculations to a number of key assumptions, and continued macro-economic uncertainties. The sensitivity of the calculations to key assumptions are discussed in turn below. These potential changes in key assumptions fall well within historic variations experienced by the business and are therefore considered reasonably possible:

EBIT margin – The long-term EBIT margin is fixed by reference to management’s estimated EBIT margin as at 2015 (2009: 2015). An increase/(decrease) in the long-term EBIT margin by 50 basis points in 2015 and beyond would result in an increase/(decrease) in the value in use of £56 million/£(56) million and would have no impact on the impairment provision.

Discount rate – Future cash flows are discounted using a pre-tax discount rate of 7.9%. An increase/(decrease) in the discount rate of 50 basis points would result in a (decrease)/increase in the value in use of £(99) million/£108 million and would have no impact on the impairment provision.

Long-term growth rate – Cash flows beyond an initial five-year period are extrapolated using a long-term average nominal growth rate of 4.0% (2009: 4.0%) comprising a real growth rate of 2.0% and inflationary rate of 2.0%. An increase/(decrease) in the nominal growth rate of 1.0%/(1.0%) to 5.0%/3.0% would result in an increase/(decrease) in the value in use of £65 million/£(58) million and would have no impact on the impairment provision.

Exchange rate – The value in use calculation is performed in euros in line with the majority of the cash flows of the Company’s subsidiaries. The resultant euro valuation is translated into sterling at the closing exchange rate. The main forecasted non-euro cash flows are denominated in sterling and are converted to euro based on a long-term euro/sterling exchange rate expected to be in place at the time of the forecast transaction. Most sterling cash flows are forecast to be converted into euro at a forecast exchange rate of £1 : €1.18. An increase/(decrease) in the euro/sterling exchange rate by one euro cent would result in a (decrease)/increase in the value in use of £(11) million/£11 million arising upon the translation of sterling cash flows and would have no impact on the impairment provision. This analysis excludes any trading impacts which may arise from changes in exchange rates.

2Debtors 2010 2009 £m £m

Amounts owed by Group subsidiaries 273.6 115.7Other prepayments 0.5 –Deferred tax – 0.2 274.1 115.9

Included within “Amounts owed by Group subsidiaries” are both current account and intercompany loan balances. Current account balances are repayable on demand, have no security, and do not carry any interest. Certain intercompany loan balances are repayable on demand, have no security and carry an interest rate of 6.8% (2009: 6.3%).

3Creditors 2010 2009 £m £m

AmountsfallingduewithinoneyearAmounts due to Group subsidiaries 4.5 5.2 Other creditors – 0.8 4.5 6.0

Included within “Amounts due to Group subsidiaries” are both current account and intercompany loan balances. Current account balances are repayable on demand, have no security, and do not carry any interest. Intercompany loan balances are repayable on demand, have no security and carry an interest rate of 6.8% (2009: 6.3%).

4Otherfinancialliabilities 2010 2009 £m £m

Financial guarantee contracts 0.1 –

The fair values of financial guarantee contracts are calculated by discounted cash flow analysis based upon the probability of default of the underlying subsidiary undertaking and the expected loss to the Company arising upon default.

5Called-upsharecapital 2010 2009

Number £m Number £m

Issuedandfullypaidsharecapital–ordinarysharesof10pence(2009:1pence)eachAt 1 January 920,524,047 9.2 920,524,047 9.2Issued during the year1 1,035,583,564 10.4 – –Share consolidation1 (1,760,496,850) – – –At 31 December 195,610,761 19.6 920,524,047 9.2

1 Details of the movements in called-up share capital and share options schemes are provided respectively in Notes 29 and 31 of the Consolidated Financial Statements.

6Sharepremium 2010 2009 £m £m

At1Januaryand31December 294.8 294.8

Financial statementsNotes to the Parent Company Financial Statementsfor the year ended 31 December


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7Reserves Own Retained Merger sharesheld earnings reserve Total £m £m £m £m

At1January2009 (0.4) 11.0 – 10.6Retained loss for the year – (1.4) – (1.4)Increase in equity reserve arising from charge to income for share options in the year – 0.5 – 0.5 Purchase of own shares (1.8) – – (1.8) At31December2009 (2.2) 10.1 – 7.9

At1January2010 (2.2) 10.1 – 7.9Retained profit for the year – 9.3 – 9.3Increase in equity reserve arising from charge to income for share options in the year – 1.5 – 1.5Own shares released on vesting of share awards 0.1 – – 0.1Premium arising on share issue1 – – 139.8 139.8Transfer1 – 139.8 (139.8) –Own shares purchased upon Rights Issue1 (1.2) – – (1.2)At31December2010 (3.3) 160.7 – 157.4

1 Details of the movements are provided in Note 29 of the Consolidated Financial Statements.

As permitted under section 408 of the Companies Act 2006, no Profit and Loss Account is presented in respect of the Company. The profit of the Company for the year was £9.3 million (2009: loss of £1.4 million).

As detailed in Note 29 of the Consolidated Financial Statements, the merger reserve was recognised as part of the Rights Issue process, with amounts recognised transferred to the merger reserve upon realisation. As at the year-end the amounts transferred from the merger reserve are treated as non-distributable, but will become distributable in due course upon the receipt of qualifying consideration upon the settlement of amounts owed by Group subsidiaries.

In accordance with FRS 20, for share options that were issued after 7 November 2002, and which had not vested at 1 January 2005, the fair value of the employee service received in exchange for the grant of the option is recognised in the Profit and Loss Account over the related performance period. The Company recharges these expenses to the relevant Group company in which the individual is employed.

8Reconciliationofmovementsinshareholders’equity 2010 2009 £m £m

Retained profit/(loss) for the year 9.3 (1.4)Increase in equity reserve arising from charge to income for share options in the year 1.5 0.5Own shares released on vesting of share awards 0.1 – Purchase of own shares (1.2) (1.8) Net proceeds of Rights Issue 150.2 –Netincrease/(decrease)inshareholders’equity 159.9 (2.7)

At1January 311.9 314.6 At31December 471.8 311.9

Details of the net proceeds of Rights Issue are provided in Note 29 of the Consolidated Financial Statements.

9Auditor’sremuneration

Auditor’s remuneration is borne by Avis Management Services Limited, an indirect subsidiary undertaking.

10Directors’remuneration

Details of Directors’ remuneration for the year are provided in Note 37 of the Consolidated Financial Statements and the audited part of the Remuneration Report on pages 39 to 41.

11Majorityshareholder

Details of the majority shareholder are provided in Note 36 of the Consolidated Financial Statements.

12Relatedpartytransactions

The Company has taken advantage of the exemption within FRS 8, Related Party Disclosures, not to disclose transactions with other entities within the same group. Details of related party transactions involving Group undertakings are provided in Note 37 of the Consolidated Financial Statements.

13Contingentliabilities

The Company and certain subsidiaries have provided unsecured guarantees to certain third parties within the normal course of business, the majority of which were in favour of certain lenders in respect of some of the Group’s loan notes and borrowing facilities, together with guarantees provided to vehicle suppliers and property lessors. As at 31 December 2010, these guarantees in relation to drawn balances totalled £355.9 million (2009: £396.7 million).

Certain Group companies are defendants in a number of claims and legal proceedings incidental to their operations. The Directors do not expect that any of these contingencies will have a material impact on the results or financial position of the Company.

Financial statementsNotes to the Parent Company Financial Statements continuedfor the year ended 31 December


Financial statementsFive year summary

Basisofpreparation–continuingoperations 2006 2007 2008 2009 2010

Rentalincome €m 1,256 1,327 1,314 1,162 1,200Underlyingprofitbeforetaxation €m 30 38 38 35 51Netexceptionalcostsbeforetaxation €m 29 7 29 30 1Basicearningspershare:Total– as reported €cents (0.2) 1.6 (1.2) – 18.4– adjusted for 2010 Rights Issue and share consolidation €cents (1.0) 12.0 (9.0) 0.2 18.4Underlying– as reported €cents 2.3 2.9 2.4 2.7 17.8– adjusted for 2010 Rights Issue and share consolidation €cents 17.0 21.0 18.0 20.0 17.8Netdebt €m 1,008 981 1,133 758 528Shareholders’funds €m 85 97 70 62 292

Shareholder information

Designed by Tor Pettersen & Partners. Typesetting by Orb SolutionsPrinted by Park Communications on FSC certified paper. Park is an EMAS certified CarbonNeutral® Company and its Environmental Management System is certified to ISO14001:2004. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. This document is printed on Revive 50:50 Silk, a paper containing 50% recovered waste and 50% virgin fibre sourced from well managed, sustainable, FSC certified forests. The pulp used in this product is bleached using a Totally Chlorine Free (TCF) process.


Registered office and head officeAvis House, Park Road, Bracknell, Berkshire, RG12 2EWTel: +44 (0) 1344 426644Fax: +44 (0) 1344 485616Registered number: 3311438

WebsiteThe Avis Europe website, www.avis-europe.com, includes an Investor Centre and is continuously updated with announcements and Avis news.

RegistrarShareholders with queries relating to shareholdings, change of address, lost share certificates or dividend payments should contact the Company’s registrar, Equiniti, on 0871 384 2278 or write to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA.

The registrar provides a wide range of shareholder information online. Shareholders can check their holding and find practical help on transferring shares or updating their details at www.shareview.co.uk

Founders ClubFounders Club members and holders of other shareholder privileges should use the following dedicated phone line for all reservations and enquiries including queries about discounts – 0844 581 0173.

Since 1 January 2005 Avis Europe plc no longer offers discounts for new shareholders.

ShareGiftShareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to charity through ShareGift, a registered charity administered by The Orr Mackintosh Foundation. The share transfer form needed to make a donation may be obtained from the Company’s registrar, Equiniti. Further information about ShareGift is available at www.sharegift.org or by telephone: 020 7930 3737

OverviewAvis Europe at a glance

What We do

We are a leading vehicle rental company operating two of the main global brands, Avis and Budget, in Europe, Africa, the Middle East and Asia. Avis Europe operates the Avis and Budget brands in its territories under long-term licences from Avis Budget Group, Inc. (ABG), which operates the brands in the rest of the world. Although under separate ownership, Avis Europe and ABG have close commercial ties, joint marketing initiatives and technology to provide a global service to customers.

MaRket oveRvieW

We operate in 13 countries on a corporately-owned basis and have licensee operations across a further 102 countries. Together with the ABG network, we have over 7,600 locations across our worldwide network.

CuSTOMER OvERvIEW

Our customers can be characterised into three main groups: Individual, Corporate and Insurance/Replacement. The analysis of customers by customer type, location and country for our corporately-owned segment is as follows:

Rental revenue by country

France

24%

Germany

17%Italy

17%

UK

15%

Spain

13%

Other

14%

Rental revenue by customer

Individual

54%Corporate

34%

Insur/Rep.

12%

Rental revenue by location

Airport

53%Non-airport

47%


Avis Europe plc, Avis House, Park Road, Bracknell, Berkshire RG12 2EW

Telephone +44 (0)1344 426644Facsimile +44 (0)1344 485616www.avis-europe.com

Award winning

World Travel Awards, Europe’s leading business car rental company 2010

World Travel Awards, World’s leading business car rental company 2010

World Travel Awards, Asia’s leading car rental company 2010

World Travel Awards, Indian Ocean’s leading car rental company 2010

World Travel Awards, Middle East’s leading business car rental company 2010

British Travel Awards, best business car hire company 2010

British Travel Awards, best car hire company of the year 2010 (silver)

Business Travel Awards,best car rental company in Europe 2010

Business Travel Awards,best car rental company worldwide 2010

World Travel Awards, Africa’s leading business car rental company 2010

British Travel Awards, best holiday car hire company 2010




Grand Travel Award for Sweden’s best car rental provider 2010

avis europe ar2010 - · pdf filecar rental company 2010 ... for norway’s best car rental...

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