Zeda, the JSE-listed integrated mobility services company that operates the Avis and Budget car rental businesses in southern Africa, has delivered a strong financial performance in its first year as an independent listed entity.
Despite a challenging operating environment, with rising interest rates and a softening used car market, an improvement in inbound tourism and corporate business boosted the car rental business, while increased activity in the leasing business was supported by the corporate sector and the strategy to grow the heavy commercial fleet.
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The heavy commercial vehicle leasing segment grew its units by 44% compared to the prior year, which excluded the 337 units from the City of Johannesburg as a result of a contract coming to the end of its term.
Zeda group CEO Ramasela Ganda said on Monday the trading environment in the group’s 2023 financial year to end-September was “very tough”, but the group had produced stellar financial results.
This is Zeda’s first year of trading as a separately listed company on the JSE following its unbundling from Barloworld.
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Vehicle sales
Ganda said the financial year started with a lot of opportunities with international travel coming back, especially in Namibia and South Africa.
She said new vehicle sales returned to normality, which meant Zeda customers now had fleet, and the company could manage its vehicle residual values, mileages and time.
Ganda said for the car rental business, this meant it could now buy the fleet it wanted to procure and not necessarily just what was available, which was the case in the past two years.
However, she said there was always going to be a downside to the recovery in new vehicle sales, which was the decline of the used car margin because of the unprecedented margin increase over the past two years.
Ganda said the decline in the used car margin was always anticipated and foreseen in the group’s strategy but was exacerbated by a high inflation environment and high interest rates impacting and putting more pressure on the disposable income of consumers.
The numbers
Zeda on Monday reported a 12.4% increase in revenue to R9.1 billion in the year to end-September from R8.1 billion in the prior year.
Earnings before interest, tax, depreciation and amortisation (Ebitda) grew by 18% to R3.3 billion.
Operating profit increased by 22.8% to R1.55 billion, with the operating margin improving to 17% from 16%.
Headline earnings per share grew by 17.3% to 381 cents from 325 cents.
A dividend was not declared, with Zeda expecting to resume dividend payments in its 2024 financial year in line with its adoption in its pre-listing statement of a dividend policy payout ratio of 20-30% of net profit after tax from its 2024 financial year.
Post-unbundling headaches
Ganda said in addition to managing a tough trading environment in the financial year, Zeda had to navigate the impact of its unbundling.
She said that key among the issues was the potential loss of its broad-based black economic empowerment (B-BBEE) Level 1 rating from its previous shareholder.
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Ganda said Zeda also had a very expensive unbundling debt during the period when it was gearing up to take advantage of the opportunity from increased demand in the car rental industry and the group’s growth strategy for the leasing business.
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She said the group obtained B-BBEE Level 1 credentials for its trading and operating subsidiaries, car rental and leasing entities, which “is our licence to trade”.
Ganda said Zeda settled the unbundling debt of R1.55 billion two months ahead of schedule to close the financial year with a net debt of R4.8 billion and secured an investment grade rating in its first credit rating from Moody’s.
Outlook
Looking ahead, Ganda said Zeda has identified subscription services as one of its key growth areas, a strategic move aimed at diversifying and strengthening its off-airport model.
In line with this, Zeda has extended its subscription model and launched iLease, a new mobility leasing product aimed at individuals with a new long-term subscription for 12 to 48 months.
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“Subscription is one of our key growth areas. It diversifies and strengthens our mobility offerings.
“With our heavy commercial and van rental, we are well positioned to capture long-haul and last-mile opportunities in the market, and we believe we will maintain the current growth trajectory,” she said.
Shares in Zeda rose 4.33% on Monday to close at R13 per share.
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