Welcome to Zeda's first interim results presentation. My name is Babalwa George. I head up the Investor Relations portfolio. I will be facilitating today's session by taking you through the agenda. Introducing the first speaker is our Group CEO, Ramasela Ganda, who will take us through the business overview. Ramasela will then hand over to Thobeka Ntshiza, our Group FD, to take us through the financial overview. Thobeka will hand back to Ramasela to conclude and take us through the strategy update and the outlook. I will then come back and open the floor for questions, take questions from the webcast and the conference call. Without any further ado, I would like to call on stage our Group CEO, Ramasela Ganda.
Thank you very much Babalwa, Good morning, and thank you for joining us. As Babalwa has indicated, our very 1st interim results as a standalone listed company for the six months ended 31st March 2023. I am exceptionally pleased to be presenting these results, which we achieved under a very difficult trading environment. Key to note, especially in our environment, is increasing interest rate resulting from high inflationary environment. We saw the easing up of supply chain, which really softened the used car margin. This happened in the 1st quarter of our financial year. That was the same time when we saw an increasing business activity. In that case, we are able to procure the fleet as per our requirement.
No doubt, power supply disruption has affected all of us, and in our case as well, it has affected our value chain, especially with small, medium enterprises like panel beaters that really suffered significantly. Having said all of that, why am I still exceptionally pleased? Is that despite that, the decision that we took during the height of COVID-19 pandemic continued to benefit this business. We saw, you know, our strategy of diversifying our portfolio and proactive approach to fleet management resulting in this: solid financial performance. Revenue up 20% to ZAR 4.4 billion. This is really driven by strong car rental business, a solid leasing business that continued to give us good annuity, and yes, a very agile used car business. As our FD always remind us, that this business generate good cash from operation.
We've delivered a ZAR 1.4 billion EBITDA year-over-year, increase of 19% year-over-year, a 38% EBITDA margin, which really sustained our margin compared to prior, and operating profit up 1% from 17%-18%. The strong business activity and our culture of cost containment yielded positive result that notwithstanding the hikes that we saw on interest rate, in addition, the additional interest charge that we pay on legacy debt, our basic earnings per share up 27% and our HEPS up 4%. We continue to deliver strong ROE at 28%. We delivered these results in a very responsible manner. The safety of our customers and our employees is of the utmost importance, and it really warms my heart that in the last six months, we had 175 days consecutive with no incident.
That is testimony to the work that the team is doing on our behavioral change and safety measures that we've put in place. In addition, we have pushed the penetration on our Avis Car Save that is given to our customers to make sure that they continue to drive safely. You know, looking at the environment, I'm really pleased with the work that the executive for operation has been doing with upgrading our wash bays at major international airport, at OR, King Shaka, and Cape Town International Airports. We've deployed and upgraded this wash bay that we're starting to see the benefit on water and electricity saving of about 14% and 15% respectively. Environment is key, hence we have deployed 107 in our fleet of hybrid vehicle.
We will continue to invest in the skills development of our team, because during the height of COVID, we actually slowed down on that, and that has been the focal point in the 2023 financial year. Let me give you an overview of our business, starting with car rental. Short-term rental, we've delivered ZAR 3.3 billion revenue, which is an increase of 26% compared to prior year, driven by very strong Inbound and corporate market. Inbound has been very, very solid. You will see the growth in all business segment, it is important to remember that diversification of the portfolio is key for our business. With strong fleet management and easing up of supply chain and high business activity, we're able to achieve utilization at 75%. This falls within our target of 73% and 75%. Thobeka will unpack our good EBITDA of 31%.
Moving on to our Avis Fleet. The leasing business delivered ZAR 1.1 billion. As I've indicated in the past, that we are driving heavy commercial fleet, and this driving of heavy commercial fleet, our revenue has increased per unit, not per day. Per unit, has increased by 12% year-on-year, just an average revenue per unit in the Heavy Commercial space . This is a really good yielding business. We've achieved the 6% despite the winding down of public sector contract that we have communicated to you in the past. Diversifying our portfolio, whether it's on car rental or leasing or car sale, is very important to us. Looking at it, we have now increased asset-light business with additional maintenance and service plans unit going up by 17.8%. This is income that we receive in advance for the maintenance.
Again, a very solid 57% EBITDA margin that our FD will talk to it. COVID was about relooking at our business, making sure that we diversify our business. We focus on business that will give us long length of rental, equally, that will also give us good yield. Our contracted business has also been key to our business. When you look at it, last year when we spoke about subscription, we spoke about replacement, that this a very good business to give us that long length of rental. When you are with the replacement and subscription, if you see the car once or twice a month, you'll be very lucky. This is the business that is really giving us good length.
When you look at the short-term length of rental, they give you good yield, and this is what we're seeing in our local, in our corporate, and in our Inbound. As I've indicated, a very strong inbound activity, with inbound growing by 139% and corporate, 70%. We will continue to drive our subscription. As you've seen, it has still gone up by 7%. Moving on to our leasing business. If you look at our leasing business, 76% of our leasing business is from corporate, the theme and our focus is about diversification. When you look in that 76%, you're sitting with companies that are in mining and related services, that are in security, that are in other mobility service providers, fast-moving goods, and e-commerce. Combine this 5 category, they come between 45% and 55% of that revenue.
When you look at the product segment, you've got the FML, which is a Full Maintenance Lease, and you've got the operating lease. That contribute 84%, which is that 75 and the 9%. The revenue that we derive out of these two business, it's sitting on our balance sheet, so that is the asset that is on our balance sheet. Interesting to note that 16% of our revenue is on Asset-Light business, is on our maintenance plans that I've spoken about, that when you look at the growth and the penetration, we've grown by 17.8% year-on-year. It is important for us to continue growing in our Asset-Light business with the maintenance, and we're really working with different players in the market to make sure that we increase our penetration in the space. Car sales.
We sell cars that we know very well. We're in control of the upstream and downstream value chain. What do I mean by control of the upstream and downstream value chain? Is that we've got an integrated decision-making tools. We decide on the make, range, model before we procure the vehicle. Looking at the RVs, we monitor closely the RV tables, take into consideration the changes in the environment, market, and otherwise. That gives us ability to be very agile when we manage our fleet. deciding on what to defleet, which vehicle to defleet, at what time to defleet that vehicle. That ability is what makes us unique, and that ability also of disposal, which is very key. We dispose our fleet either in the 14 retail dealership branches or our trade channels.
When you look at that, at any point, we sit and we decide which vehicle goes on which channel. Our used car business get to be managed very closely. Looking at the product that are coming from your leasing business and that coming from your from short-term car rental, we've got diversity of portfolio that we generate. Hence, you will look here and say trade and retail, we're sitting at 71.29. Talk to me in 3 weeks' time, that ratio could easily change because of the close monitoring of what we're doing. Key to note, for the market and everybody else is that because of the uniqueness of how we do car sales, we saw a softening of our margin of only 1.5%, an average of 1.5%.
It is important to note that the cash that we generated out of our car sale improved by 73% to ZAR 1.2 billion. This is after disposing only 20% compare, more compared to prior year. We have a very strong car sale that gets its fleet from car rental and long-term lease. On this point, I would like to hand over to our FD.
Thank you Ramasela, and good morning. It is a pleasure to deliver to you the results for half year ended 31 March, 2023. When I stood here in front of you in November 2022, I shared with you what you should be looking forward to from this management and from Zeda. Our results for 2023, they boast of upper 20th percentile growth in top line and in our profitability. We have delivered strong earnings and quality earnings for our shareholders. We were able to sustain our EBITDA and operating profit margins. We have done this in the context of a disciplined balance sheet management approach and delivering strong cash from operations. Let me unpack this further for you. Starting with our long-term leasing business, there is an apparent decline on our fleet size.
When you look back from 2018 to 2022, that's where we expected the significant defleet from public sector contracts. We had about three significant public sector contracts, accounting for about 5,500 units that defleeted from 2018 to 2022. It had the uplift of increasing revenue in that period because of the sale of the used cars that would have been generated by the business. We knew this, and we understood it was going to happen. From 2021, we started to reset the business to understand where are the growth opportunities. In the absence of significant public sector contract, where is this business going? That is when we introduced diversified portfolios, introducing Heavy Commercial leasing.
The team was very deliberate in increasing the penetration of corporate segments, also looking at where the growth in corporate was coming from, especially the e-commerce market, looking for light and heavy commercial vehicles, and being targeted in going to grow our business in that area of the trading environment. We have also seen good increase coming from our Greater Africa operations. When you look at all of that combined, pleasing to see that the leasing operation has been able to increase their revenue by 6% year-on-year to ZAR 1.1 billion.
Ramasela has shared with you where we have seen the growth for the car rental operations, the return of Inbound, the increasing demand coming from corporate, that has contributed to an increase in the revenue for the car rental business to ZAR 3.3 billion, 26%. The business combined having increased by an impressive 20%. As we were growing the fleet, as we were successful in increasing the replacement ratio and the growth demand with the customer segments on the leasing business, we were also deliberate in making sure that we buy the right vehicle for the customer so that we could price it right, that allows us to be able to price at the right profit margin and not eroding value as we grow our business. Ramasela has touched on our cost-conscious culture.
The operating expenses that are variable to the increase in revenue, they have been measured and monitored to make sure that they increase in tandem to the increasing revenue. You see the results by our EBITDA margins sustained at 38% and the value uplift by 1% on our operating profit to 18%, with operating profit having increased by a total of 25% year-on-year. I want to unpack this slide in terms of enabling our stakeholders to understand that we are not just a car sales business. We are also not a car rental business only. We're an integrated mobility business, deriving revenue from car sales, car rental, car leasing, and the combined revenue pool, allowing the business to also withstand the variables in other revenue segments throughout the shocks of the various trading cycles. Let's look at these numbers closely.
An impressive 50% increase on our car rental operations, underpinned by the growth that we have shared with you coming from corporate, coming from the Inbound, and also knowing that that growth is still not near the pre-pandemic levels. Being able to see what is else available in the future, and how do we ready ourselves today to go and capture it? The car sales business, Ramasela has shared with you that we are already in a cycle of softening used cars margin. The consumers are facing significant pressure in terms of increased interest rates, increased inflation environment. Within that challenging environment, because we understand the vehicles that we have purchased, utilize it right.
Looking at our disposal channels, split between trade and retail supported by 14 branches, being deliberate every day in a decision of where do we dispose our vehicles, split on average at the end of this period, 29% retail, 71% wholesale trade, enabling the business to go fetch the maximum revenue per unit. You see that we have still managed to grow our car sales revenue 8% year-over-year. If you just look at the pure leasing operations, especially with the picture of the fleet size that I shared with you in the last slide, knowing that in 2018, 2019, we were at the peak in terms of our fleet size, which aided the business well in terms of generating revenue from used cars.
Fast-forward to 2023, in a business that we have reset our base with almost minimal public sector contracts, currently remaining fleet of 449, aggressive growth in light and heavy commercial vehicles, supporting the growing sectors like the e-commerce, our growth coming from the other Africa regions, we have been able to grow the leasing revenue 3% year-on-year. What is even more impressive is when you look at the H1 of 2019, we are sitting at 93% of 2019 levels. That also shows that the change in the mix and where we are focusing in fetching our revenue, that decision is allowing us to bring in richer fleet to support the different customer mix. Pleasing to see that year-on-year, all these customer segments having grown their revenue, giving us a combined revenue growth of 20%.
If we look at our effective tax rate, the 2022 effective tax rate, we were impacted by non-operating and capital items. We impaired a system that was being developed internally, and the impairment impact was ZAR 54.2 million, and we did not derive a tax relief from that. If you look at 2023, effective tax rate now sitting at 28.4%, we only have a profit on disposal impact from a non-capital item, which did have a CGT relief, sitting with a profit on disposal at ZAR 18 million. That relief of a effective tax rate being improved year-on-year, you will see it also giving the rewards back to the shareholders by the better earnings per share that I will share with you. These are the quality of earnings that Zeda has delivered.
If you look at our Headline Earnings Per Share for March 2022, we delivered Headline Earnings Per Share of ZAR 1.823. March 2023, we delivered a Headline Earnings Per Share of ZAR 1.891. We have also included the impact of a legacy debt. We declared a dividend of just under ZAR 1.1 billion in preparation for Unbundling. We paid the dividend in cash, which did have an adverse effect of a residual debt that needed to be safest in the following year. We have viewed this transaction as not in the ordinary course of business, it's extraordinary, will not be sustained in the future. We then said, notwithstanding that, we've now used the debt to fund our operations.
In the absence of the cash, what was the impact of that interest rate in our headline earnings for the period reported? The debt having a elevated interest charge of prime plus 1%, we see that being a ZAR 0.176 impact on headline earnings per share. If you remove that impact, you see an adjusted headline earnings per share of ZAR 2.0671. We have delivered a return on invested capital, which is almost 3% better than same time last year. We have done our review of the new weighted average cost of capital for Zeda Limited as a standalone business, and the new WACC for the business is currently estimated to be at 12.5%.
When you assess our delivered ROIC for 2023, we have delivered in excess of the expected new WACC for this business. Also pleasing to see that we've improved our WACC from our closing weighted average return on invested capital at 11.9 for September 2022. Return on equity at 28.3%, up 6% year-on-year. I did indicate in the previous slide that we had declared a dividend of just under ZAR 1.1 billion in September 2022, when you look back to H1 of 2022 to H1 of 2023, having returned to the same position of our average shareholder interest of ZAR 2.2 billion.
This does demonstrate that this is a business that generates strong equity internally, which we then use from balancing our capital structure to reinvest into the business from a shareholder total reward perspective, and also making sure that we balance the utilization of debt and equity in our business. I think these returns pictures, they also just highlight to you that in this period that we are reporting, we have generated a superior return to shareholders for each rand that we have invested into the business. That is coming off the high yield revenue growth areas that we've seen in both car leasing and car rental, having only withstood the impact of a 1.1% softening in the used cars margin, but also the overall overarching cost consciousness culture of our operation, and these returns are testament to that.
Where are we sitting in terms of our debt levels? We closed with a net debt of just under ZAR 5.1 billion. If you look at the net debt in March of 2022, it was just over ZAR 5.5 billion. In the period where we have increased fleet in excess of 3,000 on the car rental operations, having increased our replacement ratio with corporate segments on the leasing operations, buying new fleet, we have been able to do that mainly from cash generated from operations, with a much lower impact in substituting with the debt funding and showing that debt decreasing year-on-year from the 2022 to 2023 levels. This speaks to that continued focus in terms of managing and having a disciplined approach to our balance sheet.
Our net debt to EBITDA ratio has improved from 2.2 to 1.6. In this period of elevated interest rates, and ours being a business that is funded by a mix of debt to equity, having a debt proportion of about 70% in our capital structure, we were not immune to the interest rates increases. Those interest rate increases, we have been able to still deliver superior EBITDA returns that in that elevated heart, still sitting with a healthy interest cover of 6.2 times. We have also just highlighted for you in the bubble, the white bubbles at the bottom, what were the average prime interest rates ruling in the period under reporting?
I think you do start to see really the impact of the increasing interest rates between 2022 and 2023, in that context, still having delivered a headline earnings per share up 4% and sustained, or higher return on equity and return on invested capital. In November, we really also took the time to speak about looking to match our debt profile to the assets that it's going to be funding, so that you've got a close correlation between the maturity of the debt to the maturity or the defleet of the vehicle that it is funding. You see that with the financing split, as at end of March, long-term debt sitting at 30%. We have the residual value of the legacy debt sitting at 14% and the short-term debt at 56%.
How does that compare to the asset split that you see in our business? You've got the leasing asset categories at 42% and the rental business at 58%. If we just look at our movements in our net working capital, the receivable value of 2022 financial year of ZAR 3.9 billion, that was the value where the cash was sitting, and we were then using the cash, post the payment, to then declare as a dividend, with the receivables now sitting at ZAR 1.6 as at March 2023.
Also pleasing to see that when you look at where our closing receivable was, as at September 2022, that in the period where we are growing as a business, we are growing in terms of different Customer Mixes supporting our revenue, our receivables balance remaining stable at about ZAR 1.5 billion-ZAR 1.6 billion. You are seeing slightly elevated inventory levels, and that is really underpinned by our natural Defleeting cycle that we do start it just after Easter.
Also in the 2022 financial year, we had a higher proportion of vehicles that were owned on our balance sheet, that we knew that we could sell them well, and we went with the buying of the vehicles, and now we're looking to reap the rewards of the selling of those vehicles, as used cars. We expect that to be out of the working capital in the next two months. Our walk forward of the capital structure as at 31 March 2023. If you look at our cash that we generated cash of ZAR 641 million for the period, closing with a net debt of just under ZAR 5.1 billion. Pleasing to see that we have maintained our equity to net debt ratio of about 70/30, sitting at 29/71 for the period.
I did speak about our investment in fleet to support the revenue growth. That investment resulted in a net debt increase of about ZAR 900 million, moving our closing net debt as at September 2022 to just over ZAR 5.1 billion, increasing by a ZAR 900 million. That was the debt that supported the fleet investment. As we look forward into our H2, I share with you that we closed the period with a sufficient headroom of ZAR 2.6 billion. We continue to be deliberate about having a balanced funding mix to support all avenues of our business. I'm also pleased to share with you that being a first-year company out in the market, having gone to the market to raise our own funding facilities, supported by the various financial institutions, we have also met all our financial covenants.
In terms of the legacy debt and where we are sitting, we started the financial year, sitting at ZAR 1.5 billion. We have paid ZAR 721 million between December and March 2023. I'm pleased to share with you that in terms of the repayment schedule of the monthly payments and how we've performed, we have also paid in advance or an additional ZAR 220 million in excess of what was required as at 31 March, with the loan balance remaining at ZAR 822 million by March 2023. This is an area of focus because as we quickly extinguish the debt, we are going to then see a positive impact for the stakeholders in a reduced interest expense or cost impact, and thereby enabling us to continue to provide better earnings for the shareholders.
With that, I want to say thank you, and I hand back to Ramasela.
Thank you very much, Thobeka. We move on to our strategy and outlook. You know, driving Usership Economy is what we wake up every day to do. This is based on three themes: we fix, we optimize, and we grow the business. We have identified and are fix business that were not performing well. Our focus was to make sure that within 18 and 24 months, we either fix those businesses or we are out of those business. I'm pleased today to say the first of it was Mozambique car rental. On the leasing side, Mozambique is very strong. Car rental was really a point of concern.
We've put in measures in the last about 12 months now, where the outcome of it is really pleasing, that in this six months, for the first time, Mozambique car rental turned from a loss to a profit position, a 135% turn. We believe the measures that we have implemented are more sustainable, and they will take the Mozambique business to new heights. Ghana, a very challenging environment to trade in, and we have identified number of initiative in that environment. You know, looking at how we invoice our customers, all the other options to make sure that we hedge our risk in the Ghana business. Those initiatives are currently underway. We are now in the process, and we've been on our B-BBEE review. The board is sitting with a number of options and looking at this, the B-BBEE review.
Key to note is that all our options have no intent of diluting any shareholder's interest. Moving on to optimize. Thobeka spoke at length about what she's doing on the balance sheet management, the working capital management that we've seen. When you look at our accounts receivable, the great work that they've done with activity still going up. Really, a lot of work that is going under our balance sheet management. Under the leadership of our Chief Risk Officer, Tumi, we are on our way to introduce our ESG strategy that is aligned, you know, to even our principle and making sure that the mobility that we continuously drive will drive it in a very responsible way. Our strategy will be finalized before the end of June.
Key is our customers, and anything and everything that we can do to make sure that we improve the experience of our customer, and technology plays a very critical role. As you talk about usership, there's no usership without technology. Our digitalized process or digitization process is underway to improve our customer, and number of applications will be launched before the end of this financial year. When you look at growing the business, and you look at the fundamentals of our business, we've done a lot of work in the last 3 years, that when you look at the growth in the car rental, the activity level is still at 73% of pre-COVID level. Which then still give us a room for us to go and fetch that business, even to reach 2019 levels.
More importantly, is that when you look our Inbound, we're still trading just under 50% of pre-COVID level, and corporate, just under 63% of those levels. The introduction and the push of the product like subscription, have really made our activity quite high. The reconciliation will not make sense as to why we're sitting with 73% trading levels of 2019, but I'm still saying 50% of a business that predominantly used to drive our business, which is Inbound. You look at the leasing business, with the Heavy Commercial penetration that we are driving, you know, we're sitting with a very strong order book, the highest we've ever sit in when there's no supply chain challenge. Of an over order book of just under 900 units, that we need to make sure that we deliver within the next six months.
Heavy Commercial is really our bread and butter. As I've indicated to you, it has just improved the average rental by 12%, and we believe with more penetration, we're going to see that. The cost level predominantly, other than the cost of the vehicle, predominantly remain the same. Pleasing to indicate that we are incorporating our Avis Van Rental business into our business, which will then give us the last mile. As the Heavy Commercial is giving us the long haul, then we closing the whole value chain with our last mile on the Avis Van Rental. Subscription, I know most of you know I talk about subscription a lot. Our subscription has always been with a period of 12 months. Pleasing that in the next couple of weeks, we will be extending to over 12 months as we eye lease into this business.
What I would like to leave you with, there's no doubt that we've built a business with solid fundamentals. The work that we've done during the height of a challenging pandemic, has given us the muscles to be able to consistently emerge stronger. This is made clear by the results that we've just presented. When you look at our immediate initiative, we continue to drive settling the legacy debt that Thobeka mentioned. Optimizing the mix between lease and own in the car rental space, to make sure that we de-leverage our balance sheet. As our Executive car sale knows very well, the one thing we talk about every day is cash that we will generate and continue to generate from our used car business. What will be the outcome of our focus for this period? Reduced finance cost.
In this high interest cycle, that is really our focus, because the fundamental, if you look at our activity level, very solid and very strong. We optimize our balance sheet, and we deliver cash. We will remain resolute in driving our aspiration on deepening the Usership Economy through our integrated mobility solution, and I say, there's no opportune time to move to usership than the present. Thank you.
Thank you, Ramasela. Thank you, Thobeka. Just before I allow for questions, ladies and gentlemen, please note that we will have a minor interruption due to load shedding. The lights in the live venue will go off for a moment as the switch over happens, but our webcast, our stream, and conference call will continue to be connected. I just wanted to apologize upfront for the inconvenience. I would like to open the floor for questions. Any questions in the room?
Good morning or thank you. Shaun Chauke from Nedbank. You said it yourself, solid results, very impressive. I've got a couple of questions, so I'm just gonna shoot and then you will answer as appropriate. You spoke about the fleet utilization being a target around 71%-75%. I just want to understand, what is the appropriate level of that fleet utilization? I.e., what are the implications if it goes higher than that, and sort of the implications for the business? That's the first question. The second question is, obviously, a good effort in terms of the rebase for your fleet, and I wanted to understand what is the ideal mix for your customer segments, particularly in rentals? Obviously, Inbound given challenges, but where would you like to see...
What would be that ideal mix between the two businesses? The third one is, if I look at a lot of the work that has been done in terms of the de-fleeting, I just want to understand if at this level, when we look at or when we think about car sales, is this trajectory in terms of revenue for your car sales, kind of like the new base and you've sufficiently reset and we should consistently, kinda like your cars, expect car sales to be in these regions, or you will continue, you know, to modify and we're not gonna see another spike in this, et cetera? Thank you.
Thank you. Ramasela?
Thank you. I am accompanied by executive that will be able to take that. The first one on utilization, we'll give it to Kebonye, the Customer Mix to Litha, and then the car sale to David.
Thanks for the question on utilization. As the CE said, our target is pretty much between 73% and call it 75% or 76%. The impact of higher utilization on the business is then the fleet is too tight, right? The utilization is obviously a function of the actual bill days that we achieve as a business, divided by the available car days in that specific month. What we're trying to do is to have enough fleet so that we can open up the fleet for customers to rent. If the fleet is too tight, it just means that we're gonna have higher tear downs and denials, so the fleet will not be available. Thanks.
Thanks, Kebonye. Litha?
Thank you very much. Can you guys hear me? The starting point to explain the diversified revenue streams from our customers is to say that the contracted versus discretionary split is around 54 contracted, 46% discretionary. It allows us to have continued annuity income from the contracted side of the business. The 46% is discretionary, allows us to yield, because it's basically competition out there in the marketplace. If you double-click that in that space to look at behind. Who are the customers behind there? The replacement, which is the insurance, short-term insurance, as well as the subscription business, gives us the base load, in the sense that it's longer length, so it gives us the base load.
The ability to deliver that is very easy for us because we don't touch the car all the time because it's longer, the balance of the portfolio, we flex up and down, depending on the demand. The short answer is we want all the business from all the customers in all the segments. Thanks.
Thanks, Litha. Dave?
Thanks. I've got a question around car sales, I think we have to go back to COVID to unpack the current Defleeting. During COVID, we were unable to get any lease deals at all, so our fleet changed its composition, which was traditionally about 70% risk to 30% lease. It actually moved right up to over 95% risk and the balance in lease vehicles. Obviously, now when we start to defleet and go out of season, as Thobeka alluded to, it's obviously placed a lot more risk cars into our disposal channel.
In saying that, going forward, we will revert to a more traditional split on the fleet, reduce the risk volumes, increase the lease volumes, and then that way we'll avoid the bigger spike that you're currently seeing in the used car space.
Thank you, Dave. We have another question.
Thank you. Good morning, all t his is Tumi from Standard Bank. To start off with, congratulations on your first set of results as a standalone company. My question, I know you flagged that Inbound, there are still some issues. Yeah, there are still issues with Inbound. I wanted to ask, when do you expect seasonality trends to revert to normal? Or should we take these current results as pointing to a return to normality in terms of seasonality? In terms of rental rates, are you able to share that with us? What rates are you seeing currently? Lastly, your mobility subscription segment, do you mind unpacking your customer profile? How has subscriber numbers increased during this current period? Thank you.
Thank you, Tumi. Litha, can you take the questions?
Thank you very much, Tumi. Ramasela and Thobeka indicated that Inbound is still 50% of pre-COVID levels. The runway is still out there. Not all the flights that we used to have are back. We've got massive opportunities. Everything is coming back, and we're gonna capture that return of the Inbound and the return of the global international flights. Our affiliation with Avis Budget Group that signs global partnerships, will enable us to with airlines, will enable us to capture that market, and so it's gonna be massive into the future. Subscription, if you remember, at the peak, subscription saved us during the... At the height of the COVID. We were sitting at around 5,000 average customers per month.
As you know, subscription is around 28 days on average. It can run all the way up to 11 months. What we then did, we took learnings from that and we crowded out some of the customers that were not profitable in our pool. By the end of March, we're just under 4,000 average customers. The most important part of that is that if you are to look at our subscription segment, annualized revenue, it's ZAR 100 million more than pre-COVID as we speak. You saw there on the slides, Ramasela showed you that we are expanding that, and I'm not sure if we are at liberty to talk more about that, to be more than 12 months, and it's gonna be very, very exciting for us. Thanks.
Thank you Litha , I'll now move to the webcast. The first question from Charles reads as follows: "The profit before tax margins of the two divisions, i.e., allowing for funding costs, are 10.3% for car rental and 15.8% for fleet." I think this is the leasing business. "Why is the profit before tax margin so much lower for car rental? The car rental margin seems low for a period that was strong for the car rental industry.
Thank you. I think first, if you look at the car rental business, the operating profit margins are 15% in 2022, March, and it's 16% in 2023, March. Also importantly, if you look at. I showed it in my second slide, the operating profit margin for this business was 8.5% pre-COVID in 2019. If you put that into context in terms of having doubled the OP margins from 2019 to 2023, it is speaking testimony to the work that's been done in the car rental operations, in terms of making it a profitable business on a standalone basis, and then being supported by car sales. That even when the used cars margin are softening, we are growing car rental with good yield, revenue. Thank you.
Thank you, Thobeka. A question from Tinashe, from Laurium Capital: "Good morning, and well done on a strong result. Can you please give some color on the margin performance of the two different vehicle sales channels? Retail, which is 30% of sales, as compared to wholesale, which is 70% of sales. How is the 1.5% drop in overall margin split between the two channels?
The 1.5% softening of the margins, it is wholly attributable to the wholesale channel of our business. If you look at the retail on a standalone, we've seen those margins actually go up by 3%. You see almost a contra impact on the wholesale declining by 3%, and then the weighted average only impacting the business by 1.5%.
Thank you Thobeka. I'll take this question before I go to the conference call. A question from Ahmed. A lot of cash has been spent on the much needed refleeting in this period. Are you comfortable with the fleet size now? Can you expect de-gearing in H2 or early in the new financial year?
Yes, we can expect it. I think our COO, in his area response, spoke about how in the prior financial year, most of the available fleet that the OEMs were willing to sell was on own. Our mix then moved from traditional 70/30, from own and lease, to almost 97% all on balance sheet, which had the impact of the investment in fleet using cash and debt. We are expecting, as we move into H2, and Ramasela explained that the supply chain is starting to ease and be predictable, and you are going to start seeing an increase in that mix again of the lease versus own, moving closer to where we were pre-COVID, between 70 and 30, and that will have the impact of also de-gearing the balance sheet.
Thank you, Thobeka. Operator, can I check if there are questions from the conference call?
Yes, there is a question from Olwethu Peter from Prescient Securities. Please proceed with your question, Olwethu. Olwethu, you may proceed with your question. If your line is muted, please unmute your line so that you can pose your question. Unfortunately, we cannot hear anything from Olwethu's line. At this time, we don't have any other questions, ma'am.
Thank you. A question from Peter reads as follows: "Given that Zeda is defining its ESG strategy, is the company working on any ESG or green funding options?" Tumi?
Thanks, Babalwa G ood morning, everybody. With the current initiatives that we've identified within our ESG strategy, is that mainly we will be delivering them on a self-funding basis, and quite a few of them, that will be through partnerships with various stakeholders and role players within the industry. We do believe and are confident that this particular ESG strategy will enable us to be in a position to apply for green funding at a later stage.
Thank you Tumi, A follow-up question from Charles: The business has a history of high credit losses. For example, at 30 September 2023, provision for credit losses was ZAR 443 million, compared to 2022, where it was ZAR 542 million. Could you please provide some clarity as to why ECLs are so high? Thobeka?
Thanks, Babalwa. I think what I can definitely attest to is you've seen a reduced impact of new ECL into our balance sheet, particularly when you compare from 2021, 2022 to where we are in 2023. I agreed, in the past, we were seeing impact on ECL, particularly on the car rental side of the business. That was predicated by really the limited ability to vet our customer on the spot in the counter. It was that trade-off between fast service and being able to vet your customer. We have employed new methodologies, new processes, that there's a better understanding of who is renting our vehicle, whether it's a corporate or a walk-in customer, so that we are reducing that impact of unknown customers taking the vehicles and then unable to collect.
What the stakeholder can look to, going forward is really a better management on an ECL and the reduced impact of new ECLs coming into the balance sheet.
Thanks, Thobeka. I'll read two questions from Hayden Smith from Investec. The first question is: Can you please explain the composition of the sharp rise in admin and other costs year on year? How should we look at this going forward? That's his first question. His second question: Can you please explain your capital allocation strategy? Given how Barloworld shareholders have been selling down your share post the Unbundling, your rating is extremely depressed. You can buy back shares all the way back up to ZAR 16.70, where it listed at, and still have this being hugely accretive to shareholders. How do you look at buybacks compared to dividends, and also compared to repaying debt in terms of boosting returns to shareholders? Maybe you can take the first question, Thobeka, on cost.
Thanks, Babalwa. The 2022 March number does have a credit impact of the recoveries for fuel, refueling with the customer and the recoveries for e-tolls from the customer. It's about ZAR 121 million credit that sits in the other operating expenses line, if you normalize that or you exclude it from the OpEx of 2022, you then see your OpEx moving year-on-year by about 24%, which is in line with the revenue growth. That's why you are able to still see the margins being sustained year-on-year. That revenue, we still earn in the current period, but as we're looking at how do we best position our income statement, that it also aligns with what is there in the industry.
That revenue refueling, credit is now sitting in other income on the revenue line.
Thank you. On capital allocation, how do we look at dividends versus to share buyback versus to repaying our debt? Ramasela?
Thank you for that question. You know, capital allocation, framework that we have includes even buyback, it is important for us. I mean, our board, as I'm talking today, are looking at it. Granted, that we had a delay with regard to, you know, whether we do a buyback now, and the focus was really on addressing and tackling down the debt. What we are looking at now is all the option of returning to the shareholders the good returns, and capital buyback is by far on that list that the directors are currently looking at. It is just a pitch of timing that we believe that we could have done it earlier.
Thanks, Ramasela. Can I check again if there are questions in the room? You can go ahead, sir.
Thank you. Shaun Chauke again. Just final two questions from my side. If we look at particularly Inbound within the car rental business, how much of that would you say was impacted by the likes of Uber, Bolt? Are these levels kind of like the new norm? That's the first question. The second question is around your delivery-heavy commercial. I just want to get a sense of how big that market is, and what is the planned capital investment for that? Thank you.
Thank you. Dieter? Dieter?
Thank you. First of al let me explain what Inbound is. Inbound is international arrivals in South Africa. It has got nothing to do with the Uber and all of that stuff. The biggest source markets right now is the U.K, U.S.A, and Germany. Those are the people that come to South Africa, and they come and rent cars here in Johannesburg, Cape Town, Kruger National Park, Durban, all over, and we service those customers. On the question of Uber and Bolt, we actually are wholesalers to those people. In fact, they come to us to get vehicles, so we support them. They are complementary, they don't compete with us.
To illustrate this, try and get an Uber and drive it for the whole day and see how many thousands you're gonna pay and compare that to renting a car for a day or two. It's not the same thing. Thank you.
I think there was a part about Heavy Commercial.
Thank you, Shaun r egarding the Heavy Commercial markets, I think if you look at the naamsa stats, there are well in excess of 10,000 h eavy commercial vehicles that are sold on an annual basis. That just gives you a size perspective. These are vehicles that are used by freight operators, transporters, logistics companies, you know, all of the companies that are along the lines of distribution and transportation. As you can imagine, that these are vehicles that are used over long term, they've got a longer life than a normal vanilla vehicle. The average term for a heavy commercial vehicle is not four years or five years. It would be closer to eight or nine years.
Our planned investment, I mean, we're seeing some growth within various distribution areas, and we plan our capital as we get the orders from the customers. At this stage, I think we do have quite a number of ones that are already on back order within the 900 that Ramasela mentioned. You know, We plan the capital as the deals are confirmed within the customer base.
Thank you, Tlhabi. Going back to the conference call. Operator, can I check if Olwethu is back?
Yes, Olwethu is back. Olwethu, I'm opening up your line, and you may proceed with your questions.
Hi there. Can you guys hear me?
Yes, we can hear you.
Okay, I'll go ahead with my questions. My first one is just around seasonality. Yes, we do understand that rental is an H1 heavy division, but what about the lease and net debt? Is there a cyclicality to the lease business, and what happens with the net debt? Yes, I do understand that there will be de-fleeting, and with the cash there, that can go towards the debt line item, but it's also a higher interest rate environment. That's my first question. Second question is, what's the split this, in H1 2023 of the used vehicles versus the rentals within the car rental business?
lastly, given that the ex-exchange rate has depreciated quite aggressively and it's a high interest rate environment, do you believe that Zeda is likely to slow down in the re-fleeting commitments in 2023 and 2024?
Thank you, Olwethu. Ramasela?
Yes, Thobeka start and then I'll...
Okay.
The question around the leasing business CapEx impact. Leasing is more stable in its replacement cycle. What you find is you've got vehicles, that are terming every month, but it's not in large, voluminous, sizes, like when you had the de-fleet of a public sector contract. What you're seeing in this period is predictable replacement of the corporate and greater Africa fleet, the installation of new fleet from heavy commercial. That's what you see, even in this H1, from an impact perspective, that you almost see the value of the property, plant, and equipment linked to leasing almost stable. For H2, you should expect the same. You will really have a large shock in your balance sheet for leasing, where there is a new big contract that has been, awarded.
That kind of transaction will also be communicated well in advance, and separately for the market to understand.
Thanks, Thobeka. Ramasela, do you want to add?
Yep. Just adding on that, when you look at the interest charge on the leasing businesses, all our contract whichever direction the interest goes, we recover that interest from... and in some cases, even better from our customer. It is actually, from that point, a very good business to continuously having. Will we stop in fleeting because of inflation in 2023 and beyond? What Thobeka and Dave and the slide about the focus for the next six or second half, is really talking about balancing the mix. We see activity is back. We've been looking forward to big activity with good margin, and we're seeing activities back and with good margin.
All that we are doing now is looking at managing, you know, the debt with regard to the fleet that we put on the balance sheet, but also equally, you know, the number of vehicles that we believe the market can take with regard to the sale and to the own end and risk fleet that Dave spoke about. For us, continuously become very important to deal with that. I also want to just add on Tumi's question about who is, who's our target market for the subscription, that our target market, I mean, initially when we started, we look at it as a guy that does project that will work and that does not need a car.
More and more, we're seeing parents that really can afford, you know, to get into this. They're taking subscription product for their children, and in a way of a student financing, that they give it to them. There's a lot of, you know, working class that are not taking it for themselves, because mostly subscription will also find it in your entry vehicle, level, your group A and your group B. Most parents are doing that. We're seeing a lot of change with the subscription. Maybe to Tlhabi point on Shaun's question, you know, as we're seeing the challenges in the rail infrastructure, we're seeing more and more on the road and long haul becoming that.
The market for why the Heavy Commercial is so good is because of some of the downside that we're seeing on the rail that is now going onto the road, and we're seeing a booming of that business in that case.
Thank you, Ramasela. That will be the last question. We have now reached the end of this session. However, management is available at 4:00 P.M. today. We will be taking further questions that you have submitted and further engage. The management conference call details are available on the website. With that, have yourself a lovely day. Thank you.
Thank you.