Good morning, ladies and gentlemen. Welcome to Zeda's first Capital Markets Day. My name is Babalwa George. I head up investor relations. I will be your facilitator for today's program. Today marks the third month anniversary since Zeda's listing on the JSE. Since then, we have been focused on engaging with many of you in the audience, and we have received valuable input. From the engagements, we also learned that the business, to a large extent, it is not well understood. Today's session, it is premised on ensuring that you walk away with a better understanding of our business, our strategy, and our proposition to investors. To do that, we have structured the program into three parts. Ramasela Ganda, our Group CEO, will open the program introducing Zeda, our business, and how it has evolved over the years.
ESG is a very important part of our business. Tumi Ramoganyaka , who is our Chief Risk Officer, also looks after sustainability, will join Ramasela in demonstrating on our commitment on the ESG best practices. Following this introduction, our executive business, Litha Nkombisa and Tlhabi Ntlha, who is our executive commercial leasing, operating leasing, will unpack the businesses that they are responsible for. I will come back and facilitate Q&As, taking questions from the floor and questions from the webcast. This will take us through to the tea break. When we come back from the tea break, Ramasela will come back and walk us through our strategy overview and the growth prospects for the business. I will facilitate Q&A session, taking questions again from the floor and on the webcast.
The last part of the program today will be Thobeka Ntshiza, our Group Finance Director, who will walk us through our finance financial framework. I will once again take questions from the floor and on the webcast. Ramasela Ganda, our CEO again, will come back and close the program for today. Lunch will be served afterwards. Thank you. I would now like to call on stage our Group CEO, Ramasela Ganda.
Thank you very much, Babalwa. Welcome to mobility, welcome to the future, welcome to Zeda. You know, as we're preparing, as Babalwa was indicating, as we're preparing for Capital Markets Day today, there a number of questions that came to the fore as to who is Zeda? Why was Zeda formed? How did Zeda evolve over the years? Going forward, how will Zeda look like? You know, as one engages with the market, there's the question every time we release our sterling results that, "Are you still riding the waves of the long COVID or is this structural change in the industry?" That's one question we hope today, as we leave, you'll have clarity on it.
The second one is operating in the regions that we're operating in, access to mobility has been a problem, is still a problem, and unless something is done, will remain a problem. Mark Zeda's name along that answer. Access to flexible financing of mobility is a challenge. Alternative financing for mobility is a challenge in the region we're operating in. For today, our theme will be on three items: structural changes, access to alternative financing of mobility, access to mobility itself. Litha, Tlhabi, Thobeka, and Tumi, all the presenters today, they will, including myself, answer those three question. We really hope it will be very clear about Zeda. A brief history about Zeda and its evolution over period. We started in 1967. What market gap were we trying to close?
People were traveling from one city to the other, you know, through a flight. When you land, you needed a vehicle. There we were. Started mobility in 1967. Two years down the line, we acquired an Avis license. This has been a very long and fruitful journey, and we still have a long road to go with our principal, Avis Budget Group. As we evolve with Zeda, with an alternative financing from the traditional place where you normally get your financing, Zeda introduced a full maintenance lease around the 1980s. That didn't stop there. We continue to evolve and extend outside the South Africa market. We already have an asset called a vehicle, then we had a used car. The evolution meant adding new product and utilizing this vehicle differently.
That's where the likes of your point-to-point, you know, that most of you know very well, Chauffeur Drive, that's really where everything. That was evolving the short-term car rental. Equally, on the leasing to corporate, we evolve. That's when we started adding connected, you know, asset, having telematics, having Intelligent Fuel Management, where you really are managing your vehicle. In 2015, we acquired the Budget brand, so we're running two brands. 2021 or 2020, before 21, we had our strategy. First time integrated mobility solutions provider in Southern Africa. Really that made us the leading integrated mobility. Looking at it, as Babalwa said, last year we leased it. Let's just see how technology works. Just a bit of who is Zeda from where we sitting with.
We've disclosed these numbers last year, just a bit of recap that last year we had a 79% utilization on the brands that we're running. We're running the Avis Budget, that's on short-term rental. We're running the Avis Car Sales, we're running the Avis Fleet. You know, integrated mobility, Litha will tell you as he come on stage, that our business is like two sides of the same coin, at the center of it, there's an asset. One side is your short-term car rental, the other side is the leasing, the two of them will come and really expand on this business. This is really telling you that when you look at our Avis Fleet, we have over 230,000 fleet under management. Really we provide a full comprehensive fleet management solution.
We have an extensive dealership on our used cars with our car sale of 14 dealership, we also run digital platform. Tlhabi Ntlha will unpack this. This is really setting. Key that I want you to take into consideration, we have 25 agencies and sub-licensees, both in South Africa and in Greater Africa. That's a model we actually have been running that say there are branches and there are corporate office, but there are sub-licensees that we're not operating directly, but we're operating with third party. We operate in total in 11 sub-Saharan Africa. We have extensive value-added product. I am putting an emphasis on some of this so that you can understand where the future is going. I really hope you do.
We are supported by 1,700 very capable, very strong brand ambassadors throughout the areas we're operating in. The 2020 strategy of integrated mobility was really giving us an opportunity to look at corporate as a corporate, but what do you exist for? Us, as you've seen when I say welcome to Zeda and you see the video, welcome to Zeda, welcome to mobility, welcome to connecting humanity, and that's what we exist for: to connect mobility. What is our true north? What do we aspire to drive greater adoption of a usership economy? What is the relevance of it, and what is the opportunity in South Africa? When you start looking at the growth pillar, you will link it to our true north. We know that the strategy will not materialize unless if we have very strong and capable brand ambassador.
Employee value proposition for us is very important. How our customer feel about service, it's equally very important because we pride ourselves on the Avis brand and the Budget brand that is about the quality of the service. The customer journey, it's very important. The environment we operate in, you know, we come from society and Tumi as she's unpacking it. We come from society that, you know, high poverty, inequality, and we're addressing it. To say, "How do you become sustainable if you neglect that part?" Mobility is about innovation, and it's about technology and doing things right. This is really in a nutshell when you see the strategy we have, we've put together in 2020. I spoke about our true north, usership economy. Where does it even fit in South Africa? Is it even relatable?
When you look at the stats in 2020, it was very clear in 2020 stats that it was talking about when you look at South Africa, we had on the leasing market for the number of vehicles that were sold, we had just under 8% penetration in the leasing in S.A. You look at other emerging market, if you look at Brazil, they had 13.4%. I ask, is there an opportunity for alternative financing that is more flexible? That is a question before the end of the sessions today, before you leave this afternoon, we'll have responded.
Deloitte ran a survey in 2022 really asking people, "Next time when you acquire a vehicle, what will be your focus?" In their survey, we see that 29% of the consumers plan to convert to usership model for their next vehicle. We still believe that 29% is because of number of things that the industry and ourself or new players have not done. It's innovation. You will want to move to usership, but move to usership from a usership economy. If you look at subscription, we currently have 1.3% penetration on subscription. The survey says 4% of the market is expected to be on subscription.
You look at traditionally, you and I, for many, many years, we either bought loan contract when we buy cars or for those that have cash, they go outright and buy the vehicle cash. Those are new cars. You're talking about 71% of people that traditionally still buy cars. If there's nothing else, COVID has indicated to us that the utilization of your own cars and your total cost of owning car, insurance and all, if you have seen value out of it'll be one of the few. Why would people move to usership? Customer awareness. Has Zeda done enough? Has Zeda put itself in a technology platform that allows option? Trust. Why will we move to that? We running the Avis Budget brand. We running the Avis Fleet brand. It comes with safety, it comes with trust.
Do you know who the people behind that? We've been in South Africa now for over 55 years and in the regions we operating in. Total cost of ownership. We all have cash to worry about. How do we make sure that we show you the Total cost of ownership and it works better for you? We honestly, truly believe with a little bit of work, usership economy is the future. Talking about the strategies and all, but we realize we're leaving the market behind because many do not understand what is the business model. In its simplistic manner, we run a car rental, we run a leasing business, we sell cars. Anybody can do that. We've shown in the last three years that you can do it or you can do it best.
When we look at it, we say, "What differentiate Zeda from everybody?" Key to the business, you need to fund right. That's the starting point of your business. This is where we look at our FD and say, "You better bring that cost of financing down every time." What does that mean, funding right? Obviously, cost of finance, because if you fund it right from day one, you're able to provide better solution to your customers that says, "I want to utilize my cash to my core business when it comes to leasing. I do not want my cash to be tied up in a vehicle and fleet management." Our promise and our model have always succeeded, and it is getting better because of funding structure. Funding it right. Number two, how we do it in its simplest, we buy right.
When you look at how you have funded it, looking at the funding that you've got car rental, you've got car leasing, and in leasing you've got a contract, customer contract. You've got an asset, so you're really secured, and Thobeka will unpack this further. In short-term car rental, Litha will also indicate that in car rental, we're sitting. I mean, I've indicated over 70% utilization. That in that, in the September results, we said 55% of your business is really some sort of annuity. Again, the asset that you use in short-term car rental is semi-liquid. Tlhabi will tell you about the stock turnover that we're sitting on, that really motivate on how best you manage on funding. Acquiring right. Understand your customer and the car mix you deploy.
We do not just buy a car because there is a car in the market. There's a close relationship we have with the OEMs. In that, we look at what is their strategy with regard to every make, range, model that comes to the market. How do we play into that to make sure that the total cost of ownership is understood from day one. When you understand the total cost of ownership, you take into account the time to repair the vehicle, the access to parts. You take into account all those things because if you don't understand the total cost, you take into account residual value. You will buy the cheapest car, but by the time you exit, you will have destroyed value and that's the expertise of Zeda. The mix, the model.
Even when we do leasing, we advise the customer on what to buy and what to buy right. That becomes what differentiate us. We do not just take a vehicle after we finance it right, we bought it right. We wrap it with value-added product. When you look at leasing, we've always been running telematics, as I've indicated to you.
Intelligent Fuel Management, a number of product that Tlhabi will expand on. That's been us when you look at the value-added product. It enhances the value. It actually help even on productive asset to manage the downtime and to manage. We provide a full solution to our customers when you look at it. We also talk about safety. Our car rental business, you've got Avis SafeDrive installed in it. That to make sure that by having that, you actually minimize even your damage cost.
That's why understanding how you manage the vehicle becomes important. I spoke about downtime because of items not parts not being available. You know, your car being in the workshop for very long time. Effective management, utilization. How do you make sure that the vehicle is on the road and do what it meant to do? Kleby is heading in that. We're looking at our own maintenance and service. We've got workshop, our own workshop in, in Cape Town, where we do number of minor service, especially on the short-term car rental, so that our cars are continuously on the road. That's really after everything you've done, you fund it right, you bought right, you really wrapped it around with the right product, you manage it right, then you deflate it.
The equity that you're continuously getting along the way makes you to exit at the best possible price. Tlhabi will expand on the issue of saying car sales margin are coming down. Yes, they are. Key is if you lost money along the way, you will suffer significantly. If you manage it effectively like we've been doing with the integrated mobility and watch every step of the vehicle journey, then you would deflate at the right time. In that process, you determine what goes into your retail flow and what goes into your digital platform for wholesaling. That, in a nutshell and in the most simplest form, that's what we do and that's how we make money at Zeda. In this context, key to remember when you buy.
Dave, Rebone, as they sit and do the planning of the fleet, they make sure that they do not just buy. They have engagement with the OEM, as I've indicated, to make sure that the vehicle they buy will be good for our environment. What kind of plans does OEMs have for our environment? How do we, as Zeda, make sure that we do not negatively continuously impact the environment? Tumi will expand on how we're doing it. Obviously, after everything else, we deploy the money to communities that we're operating in. We have got a diversified board and a diversified management team, and that is really part of how we do it, and we do it responsibly. On this note of responsible mobility provider, I'll hand over to Tumi.
Thank you, Ramasela. Good morning, everybody. My name is Tumi Ramoganyaka . I am the chief risk officer of Zeda, I'm also taking care of sustainability. As Ramasela started, we're talking about Zeda, but we cannot talk about who we are and what we do if we do not reflect on ESG. That's why we took the time to take you through this slide, because we believe that this is a non-negotiable for us. We cannot operate without demonstrating how responsible we are as a corporate citizen. Now, building up to the listing, post the listing, Ramasela, I think it's [inaudible] said that today's three months anniversary post our listing. We believe that we've achieved quite a great strides building up to the listing and to this period. I'll talk through those strides that we're quite proud of.
What we also want to do is, and we reflect amongst ourselves and say that we need to challenge ourselves, and we need to embrace that this opportunity brings for us to say, "How do we push more? How do we do better? How do we create the kind of space and stimulate greater impact in the environment that we're operating in?" We speak about environmental, we speak about the communities that are operating in, and the way we govern and run our business, including how we take care of our stakeholders, our employees, our customers, and our suppliers. I'm going to start reflecting on the E. There are three key points that I would like to reflect. If we look at our water management, appreciating that our intention is that we reduce our water footprint.
We've got three key initiatives that we drive there. At every single site that we have that has got wash bays, we recycle that water. The second one is we've got rainwater harvesting, again, with the intention that we are reducing the footprint that we have on municipal water. Lastly being utilization of boreholes, which is an area that we started on over the past year or so, and we continue growing in that space. When I said that we have made strides, specifically if we're focusing on water management, we have been able, for the year ending 2022, to reduce our municipal water usage by 9%. This is an opportunity that we see that we can continue growing in that space.
We are quite also pleased to say that whilst the business has been picking up, our rentals have been increasing. However, our water withdrawal intensity has decreased, and this is looking at your kilowatts of water that you have used relative to the number of rentals that you have. Let me jump on to waste management.
Again, appreciating the business that we are, we do have workshops. We need to turn around our vehicles. There's fixes that need to be done and so forth. What that creates that we need to be responsive for is that you've got solid waste and you've got liquid waste. When you think about liquid waste, we're talking about your grease, we're talking about your oil. This creates a great responsibility to make sure that we are actually protecting the environment. How do we do that?
We have contracted certified waste management service providers. Whilst I'm on this point, I'm going to get onto it again when I get to the social portion, because the certified waste management service providers we're talking about are actually ESD. So that is your Enterprise and Supply Development beneficiaries. What we have been able to achieve with them is that over the past year, again, 56% of our solid waste was recycled, which is an increase from the previous year. We look at our liquid waste, we have been able to recycle 83%. Again, an increase of 27% from a year ending 2021. I make reference to these increments because I'm saying as Zeda leadership, we want to push ourselves further. We do believe that we can continue to make a bit more impact.
Lastly, within the E, I would like to reflect on the carbon emissions. You'd appreciate that Scope 1 and Scope 2 carbon emissions is fully within our control, and this is talking to your fuel usage, for vehicles that are within our control, but secondly, our electricity usage. Over the past year, again, we had an opportunity to be able to demonstrate a 15% reduction in Scope 1 and Scope 2. As we launch now on our renewable energy program, and I'm sure most of us who are sitting in here, if you do reside in South Africa, you also understand that the environment pushes you to get to that. We do believe that as we launch our renewable program, starting with prioritizing our larger sites, that we should be able to see an even greater impact in this space.
Carbon emissions for Scope 3, which is now your carbon emissions emitted from the vehicles used by your customers, there is a way that we also are showing up for our customers. We say we cannot only be the only people that are actually committed to reduction of carbon emissions. We appreciate that we've got customers that actually have got the same aspirations and the same objectives. How does Zeda respond to that? We deploy hybrid vehicles. As we stand today, we are sitting with just under 100 hybrid vehicles spread across your rent, the rental business, including our Avis Luxury vehicles, also within our leasing business. When Tlhabi and Litha come up, they'll also touch on that. We also have an additional 45 vehicles that are on order.
This is going to get us to just under 150 hybrid vehicles on our fleet, again, demonstrating our commitment to supporting our customers in this space. What are we gonna do about it going forward? This is as I'm concluding on the E. We believe that we are in a prime position to collaborate with other stakeholders within the mobility industry. We need to create the kind of conversations, thought leadership discussions about how do we move and expand on the use of new energy vehicles. Of course, that would also be aligning to our climate, the national climate action and the 2030 and the 2050 targets. I'm going to move to the S. When Ramasela was speaking earlier, she made the point about safety. Not only do we take our customer safety seriously, but the safety of our employees is absolutely imperative.
We cannot exist without this biggest asset and the most important asset that we have. Within our safety space or the safety aspect, we've got two focal points. The first one is the initiatives that we're driving to ensure that our employees are protected, appreciating again, the business that we're in. We're in the mobility sector, which means our people are on the road. The risk of road accidents is extremely high. We do know that we've got road infrastructure issues that also creates the risk to the safety of our employees. I'll only mention this one initiative.
One of the initiatives we have is to actually capacitate our employees by taking them through advanced driving and defensive driving, so that they are able to actually not only protect themselves, but in instances for our driven solutions or driven services, our same customers will also benefit from that same initiative. We also have the Avis SafeDrive, which affords our customers a safety mechanism. I will not go into detail on that. When Litha gets to speak about the rental offering, he will also touch on that. Maybe the last point to also reflect on this and how we are showing up as Zeda in trying to create a safer space for the community that we're operating in. We all know that crime has been at an all-time high over the past few years, and it seems to continue to increase.
What Zeda's commitment has been is that we donate the use of our vehicles as part of the crime-fighting initiatives that happen across the country. I would say that for the past year, the three biggest provinces that I think have benefited from this partnership that we have is Mpumalanga, Free State, and the Gauteng province. Maybe whilst I'm on here, let me speak about the social investment. Let me do that one first. Because again, I think we're also reflecting on the communities that we're operating in. When you look at the regions that Zeda operates in, we do know that there's quite a couple of challenges people are faced with. They're sitting in situation where there's inequality. Our communities suffer from that.
There's issues of poverty, there's issues of unemployment. Sadly, for South Africa, our youth actually suffers this most probably the biggest, if you look at the whole population. We are not blind to that. Our commitment then is to actually invest in youth development, youth empowerment. If you look at the 1% net. We have an investment of 1% of our net profit after tax to our social program. Majority of it goes to youth development and empowerment. We also deploy methods of leaderships for graduates and for interns, internships, sorry, let me put it that way. In addition to making donations to the humanitarian drives and as well other education NGOs.
This is demonstrating to say we don't operate in isolation, we operate within a community. We need to be able to demonstrate our part. Still speaking on the community, we do know that there's quite a lot of people that are trying to create their own economic activity. They're creating business. It's therefore important that as Zeda, we continue to invest in enterprise and supply development. You noted earlier on when I was speaking about waste management, I mentioned that we're using for our certified waste management companies that we use are part of our ESG program. We are quite pleased as we reflect over the past year, 2020, that we had invested ZAR 41 million across 19 beneficiaries of our Siyakhula program.
What is even more pleasing, and I think it also pushes us to go further, is that as at the end of January of 2023, we had touched 13 beneficiaries just on this year, right? Have invested ZAR 22 million in that space. The last one that I would like to brag a little bit on is when we look at our diversity, our equity and inclusion. Ramasela spoke about the fact that we've got a diverse board and we've got a diverse executive committee. What she did not tell you is that in fact, 57% of our board members are Black females. Of this executive team that is in front of you, 62% is Black females. We believe that this is testament of the type of commitment that we're making around diversity.
What it also further does is that it pushes us to make sure that we sustain those type of targets across all levels of business. As I conclude, ladies and gentlemen, I would like to reflect on what is it that we aim to do as Zeda to make sure that when we say we are embedding best practice ESG or ESG practice across all our operations, what does it look like? Or what is it that we'll be focusing on over the next 12 months? The first one is that I've spoken quite a bit around our environmental aspect. I've spoken quite a bit about the social. Our first challenge is to make sure that we expand those very activities across all regional countries that we're operating in, particularly focusing on the greater African countries.
The second thing that we'd like to do is to create a space, I spoke about it as well as I was concluding the ESG, to develop the leadership and capabilities that we can do a bit more on sustainable development, to move beyond just focusing on sustainability and an integrated sustainability, sustainable development program. We are looking at ways and at pathways that we can explore how do we approach the net zero ambition, including identifying the role players that could contribute within the mobility sector. Lastly, is to make sure that our goals are aligned with the country's level of climate action and as well the SDGs targets. The last point to make, colleagues, is to say that Ramasela before this slide spoke about our business model.
Our intention is to shift our business model that it integrates the economic, social, and environmental value. I'm going to call upon Litha now that as he speaks about the business overview, he demonstrates how that business model actually shifts. Thank you.
Thank you, Tumi. My name is Litha Nkombisa. I'm the commercial executive responsible for rental. I just want to finish off where you left off. We as a business, as an integrated mobility solutions business, are not merely renting vehicles. We're not merely leasing vehicles. We are a catalyst to the economy of South Africa. We are a catalyst to economic growth in South Africa. We are a gateway to the tourism sector. We make sure that we enable our customers, both in car rental and leasing, to concentrate on their business while they leave the expertise of managing their fleets efficiently in our hands. Therefore, we play a bigger role than simply renting and leasing vehicles. Even in the public sector, both in car rental and in leasing, we make sure that we're partners in service delivery.
Very, very important that we as a business cannot thrive in South Africa or any other territory where we operate when South Africa Inc. is not thriving. Thank you. Let's move. Business overview. Tlhabi and I are gonna cover for both car rental and leasing business overview. In covering the business overview, we're gonna cover the rental value chain and the leasing value chain, as well as the offering on the rental side and the leasing side, and then the drivers of that value chain as we go along. I'd like us to anchor our discussion in something that Ramasela put across. The fulcrum of our entire strategy is the usership economy, and everything pivots around that fulcrum. If you double-click on that, what it really means is that we'd like to see our integrated mobility business as two sides of the same coin.
By that we mean that in the middle of this coin is the asset and the usage of that assets, and we are experts in managing that asset throughout its life, and we are experts in advising and working with our customers on how to manage that for their benefit and for our benefit. Tlhabi will cover the other side of the coin, which is long-term leasing, and I will cover the short-term car rental side of the business. Another important point that I want to make before we dive into the value chains is that we, as Zeda Limited, are the only business in South Africa that has an end-to-end integrated mobility solutions business that covers both car rental and leasing. Ramasela will show you later on that all our peers have got one leg or the other leg and not the entire value stream.
What that does, it gives us full view of the customer's needs end-to-end without having to go to third parties to fill in the gaps. Only in other parts of the world do we have peers that resemble our integrated mobility solutions business. Let's go into the car rental value chain. If you look at that flow diagram, it depicts the car rental value chain and with the starting point being the detailed customer needs that we sit and analyze. In the next slide, you will see the customer segments that sit in the car rental space. We just want to debunk some of the myths that go around saying that we are only at airports or we're only dealing with tourism.
We've got a diverse set of customers that give us different set of permutations in terms of economic cycles. Let me not run ahead of myself. Having established those customer needs through those segments, we do a granular, detailed analysis of the demand that sits in our space. It's so granular that we look in the past, we look at where we come from, we look at where we are now, our current run rate. We look at our going forward, where we're going. We also look at forward reservations. We speak to customers in those segments.
We ask them, "What is the outlook?" Based on that, then we produce a detailed analysis that says, "These are the volumes that are coming: this month, next month, in the next 4 months, in the next year, in the next two years, in the next five years." We communicate that to our partners who are the OEMs who help us fulfill that demand from our customers. Therefore, when we sit with our OEMs, we tell them in advance where we think the market will be all the way short term, medium, and long term. We have long-term or longstanding relationships with these OEMs that enables us to sit across the table as partners, and we negotiate favorable pricing with them. Dave and Rebone lead us in terms of making sure that we keep those relationships long.
We deal with all the OEMs. Some of them go as long as 50 years in their running as partners of our business. One of the biggest challenges that we have as an industry is to make sure that we deliver the best customer experience. That customer experience is delivered along the way from the moment the customer tries to consume our solution through the contact center, through the branch, and when the customer is driving the car, and when the customer brings back the car. We try to make sure that that experience is seamless and is frictionless. To highlight without going into detail, from the get-go, most of our reservations happen digitally.
Even through the call center or contact center, for example, it's done through APIs, through microsites, through IVR. That's the online connected system that links our customers with ourselves. For example, the insurance companies you will see just now, they are linked electronically with us and on the Internet. There's a small portion where really it's a walk-in or it's on the phone. It's really digital. In fact, it's more than 50% digital. Also we make sure that once you've got the car and you're driving as a customer out there, we've got a support system. Whether you're querying billing, whether you are stuck on the side of the road, we've got a network across the country and in the territories where we operate, where we support you 24 hours a day.
Obviously, there's a fleet management itself in the car rental space where we make sure that we deploy that vehicle to the different customer segments, and we keep it for no more than 12 months in the fleet, giving us added benefit in terms of making sure that at the end of the period, we realize surplus above the standing value. We'll get into detail about all those things just now. We move on to the rental offering, I think I just want to spend more time here on where do we get our revenue streams. On the left-hand side here, you will see that we've got the comprehensive offering. In fact, we believe that today in the marketplace, we provide self-drive and driven services, it is the most comprehensive offering in the marketplace.
On the self-drive side, besides the normal car rental offering across all groups from group A all the way up, we also provide Avis Luxe, which is a unique experience that you get from us. We also got Van rental. Van rental mainly caters for businesses. Like we said, we are catalyst to economic growth in the country. We provide that service as well to our customer base, individuals all the way to corporates. We also on top of that, have a driven service, which is Chauffeur Drive that caters for the economy class, if I can put it like that, all the way to super luxury driven service. More importantly, Ramasela posed a question here to say, "Where do we get our revenue streams?
How sustainable are those revenue streams into the future? We've got various diversified segments where we get our revenue. I just want to stop on a couple of those. The first one is corporate South Africa. We have exposure to customers that are in mining, agriculture, FMCG, banking, insurance. That in itself gives us a hedge against the ups and downs of those various sectors. That, that customer base actually is one of the fastest-growing customer bases, customer segments in our environment. We also have the replacement insurance segment. That replacement insurance segment is actually all the short-term insurance companies out there who are renting cars on behalf of their insured customers. That essentially we deal with them rather than with the ultimate consumer of the product.
The most important part about that segment is that it gives us length. Length, you will see later on when you look at the drivers of the value chain, gives us utilization. Because it's longer than normal average, we don't have to touch the car every four or five days like a normal rental. We leave the car with the customer for longer periods. Therefore, the cost of delivering that is even better for us and for the customer that we serve. Not only is replacement just the insurance companies, it is also dealerships and OEMs. When your engine in a Mercedes-Benz or BMW or Volkswagen needs to be ordered from somewhere in the world, there is a warranty claim, and because of that, the OEMs would then rent vehicles from us on behalf of their customers.
That combination also gives us another buffer, another hedge. We've got, for me, one of the most exciting segments that we've got in car rental. That's a subscription model. Effectively, what that says is that me as a customer, I have an option to buy a car or to subscribe for a car for my usage. If I've got a gig for six months only, I don't want to lock myself in a five year relationship with a bank in an inflexible installment sale contract. I want to match my gig for six months with my requirement for mobility. That's a segment that stood us in good stead during COVID, where we were able to provide tools of trade across the board.
We have a special case of the subscription model, which is Avis Car Where U Are. It's fantastic. Similar to Netflix or your cell phone contract or whatever, you can sit in your home in Bryanston and subscribe for a vehicle for a fixed amount. Because you are traveling around the country, three days you were in Bryanston in your house, you drive the car to the airport, you leave it there, you fly to Cape Town. Cape Town, you get the same car, you drive it around Cape Town, you do your meetings, you visit your mother in East London. You drive the car to the airport, you go to East London, you get the same car. You want to go with your family to the Kruger National Park.
Because you want a upper or higher ground clearance, you want a four-by-four, all you do, you pay for the difference. That gives you peace of mind. You don't have to worry about the risk on insurance, on the residual, on maintenance or anything like that. You are seamlessly moving in and out of vehicles. It really is exciting for us. Once again, that segment also gives us length. In fact, just for the record, it's the highest length that we have in the business. It's around 28 days. It means we don't touch the vehicle for on average 28 days. In fact, some customers go all the way to 11, 12 months, and some of them go beyond that because that's what suits them. There's no need for them to lock themselves into long-term finance agreements that are there.
Another segment that I want to touch on, very, very important is the public sector. The public sector, not only is it government officials coming in and out doing their business, but there are special projects that are important for the country. For example, when there's a census, we go there, and we provide mobility to make sure that people are counted in South Africa. There's many other projects like the health department launching a campaign to roll out certain programs across the country. We are there, whether it's agriculture, whether it's DPWI and so on and so on. Very, very important sector. We've got inbound. Inbound is international customers coming into South Africa. There's three major source or top source countries that we have. Number one is the U.K., number two is the U.S., number three is Germany.
For us, the sleeping giant is Africa. Research shows us that the bulk of visitors into the, into the country are from the greater Africa continent. We also believe that India and China could be a new source for us, and then obviously Far East Asia. Those are untapped, and they're not in our top three sources of inbound. If I just then move to local leisure, extremely important for us because it enables customers to travel for leisure. It also enable customers to actually tap into, on our short-term car rental for their own businesses. I just want to give you important stats now. The corporate, the contribution, and I'm gonna go back to financial year 2022, September. The contribution that comes from corporate or corporate-related business is 53%.
That's replacement, that's corporate South Africa, that's public sector. Even the discretionary rental that comes from the other sectors like local and inbound, it is supported by one of the highest utilization rates in South Africa. In fact, consistently over the last couple of years, there is a differential between our utilization and the rest of the market utilization of around 8%-10%. That gap demonstrate our ability to make sure our cars are available to our customers throughout the period. People ask us, "Yeah, but you had a shortage of cars. That's why you are able to do these things. You are riding the wave." Actually, we've got a fundamentally different business than what we had pre-COVID, five, six years ago.
There is a structural change in our business, and our business does not come from the same places that it used to come from. There's a massive correction in terms of where we are. Because we are market leaders, we are leading that structural change. I mean, if you want to check or double-check my sources, you simply need to go to the Avis Budget Inc. results that they announced now up to December. Even there, structurally, it's a different ballgame altogether because the mix of where the revenues are coming from, including the fact that we're not back to pre-COVID levels. I mean, Rebone was telling us the other day that the industry as a whole is only 62% of where we used to be.
It means that there is a massive runway for us in able to be able to capture everything that goes that when we go forward. This is now the rental value drivers. This is a continuum that shows us where we start off. We spoke about the demand review that we do and the fleet acquisition. I think if you look at that continuum, it looks at how we manage that asset throughout its life when it's being utilized. I think the most important points here is, number one, because of our long-standing relationship with OEMs, we've got an embedded, and we get favorite pricing, we've got an embedded equity that comes with us from the get-go.
We protect that embedded equity in the vehicle that we acquire by making sure that it is utilized most of the time, and it's not damaged, and it's not out of service. It's available for our customer. As we depreciate it, and as we allocate it to the different segments that I explained to you, we make sure that by the time it hits 11 months, which is for us is the optimum point, 11, 12 months, at which we deflate it, we realize surplus value above its standing value. Without going into detail, Tlhabi will get into that.
The most important part about that surplus that we realize at the end of the, at the deflating point, the most important part about that is we've got two channels, the wholesale channel and the retails channel. The wholesale channel allows us to get quicker to cash to cash, because there are 2,000, more than 2,000 traders that are sitting and bidding for our vehicles, giving us the best possible price. Then we get, within 24 hours, 48 months, our money is in the bank. When we retail the vehicle, it brings us a new dynamic, and it was more pronounced during COVID, where there is. By stating their concerns.
There is elasticity of the earning potential of a vehicle when we retail it. Invariably, when a customer comes and buys a car from our 14 outlets or even on the Internet, what happens is the customer finances the vehicle. When they finance the vehicle, we earn F&I or second gross income over and above the first gross that we earn. On top of that, invariably, the customer brings in a trade-in. If that trade-in is in a retailable condition, it expands the earning potential because we take the same trade-in and actually continue the process. First gross, second gross, and the chain carries on. From one transaction, we're able to expand our earning capacity all the way down.
Even when we wholesale the vehicle to another dealer, we chase that to make sure that we get service and maintenance plans, which Tlhabi is going to explain to you. That is the value chain that we sit with in the rental space. At this point, there's a lot to say. I'm going to stop to enable my colleague, Tlhabi , to delve to the other side of the coin, which is the leasing business.
Thank you, Litha. Good morning to everyone. Thank you for joining us this morning. My name is Tlhabi Ntlha. I am responsible for leasing operations at Zeda. When we started off, the CEO spoke a lot about the usership economy. That is not entirely a new concept. Renting, lending, swapping, bartering. These are traditional market behaviors that have existed for forever and a day. Public libraries, if we think of those, as well as DVD stores that had physical outlets. These are time immemorial examples of the sharing economy. How we're seeing this usership economy is really that it is a reinvention of traditional market behaviors through the use of technology, taking place in ways and on a scale that otherwise wouldn't have been possible before the internet. It has exploded over the recent years.
We've seen examples of it within disrupting really large and mature industries such as accommodation, Airbnb. We've seen it within the automotive industry, on demand and ride-hailing apps, as well as entertainment giants have been formed through Spotify and Netflix. As Zeda, we are positioned to drive the same usership economy, given the capabilities that we have internally to expand access to mobility in a way that is flexible, convenient, and where the consumer only pays for usage. That is exactly what the leasing and the outsourced mobility sector provides, an alternative way of funding mobility that does not require the user to take on all of the risks associated with ownership, but rather a commitment to use for a defined period. I'll start off with the leasing value chain.
I think Litha explained at the beginning of the rental chain, it all starts off with understanding what the customer's needs are. Here we speak in depth, we need an in-depth understanding of what the customer actually needs. We need to understand the operations of the customer, the strategy of the customer, where the vehicles will be deployed, how they will be used, as well as all of the controls that they've currently got in place, to manage some of those fleets. We also do a rigorous analysis of understanding the financial position of the entity to ensure that we have comfort on the repayment risk, and then grant a facility to a customer on based on the strength of their financial records. It's not a transactional event.
It is a long-term relationship where we seek to provide a one-stop shop for all things mobility and to enable the customer to focus on their core operations while we manage their fleet on their behalf. Once we have thoroughly then understood what the pain points of the customer are, we then provide advisory services for the most cost-effective vehicles to be used based on total cost of ownership. I think when we think about mobility, the total cost of ownership is so important when we educate and when consumers understand that your HP financing amount is not the sum total of what total cost of ownership is. You need to consider what the residual value at the end of the life would be.
Even research shows us that actually people only keep their vehicles up to about 38 months, even with the HP vehicles that they take out. Part of the total cost of ownership, as Tumi alluded to, is the emissions, we also give customers advice so that they are able to then align some of their vehicles to their ESG targets. We then put forward a full comprehensive solution that will close all of the gaps as identified by the customer's pain points. If a customer has recently purchased vehicles, we are then able to facilitate a sale and leaseback. We put capital back into the customer's hands for them to deploy into their own operations, then they can still have the usage of those vehicles.
The fleet planning is one of the areas that we actually started focusing on more recently within the leasing environment, more to proactively manage the stock shortages that we have been experiencing. This is predominantly for existing customers that have vehicles that are deployed to them. What we seek to do here is really proactively deliver their vehicles to them, because at the height of the pandemic, what we saw is that the lead time from order to delivery was in excess of 120 days for vehicles to be delivered to customers. If you compare this to the norm pre the pandemic, we were able to deliver a vehicle within seven days. We started this to be more proactive and to ensure that the replacements can be done timeously.
As supply is starting to ease, we currently have an average lead time of just under 40 days. We are seeing some improvements from the proactive nature of how we're dealing with the deliveries plus the supply chain constraints. Acquisition is followed from the fleet planning. The placement of a vehicle order is only done when there is a customer that has signed an order form and has committed to a long-term contract. The current age, current contract length is about 45 months that we've got. This means that 100% of the debt is backed by a long-term contract, and the utilization of that asset is 100%.
There is no debt on the leasing side that is taken out before a customer has signed on the dotted line for a contract. We will then administer all of the compliance as well as the fleet administration through the annual re-licensing, managing of fines, managing of traffic fines as well as accidents. With AARTO that has been coming on for a while now, the redirection of traffic fines becomes that much more important to be able to protect the entity. On the risk management side, the risk elements really speak to all of the items that if not done correctly or without the necessary expertise, will cost the company money, increase downtime, and even compromise the safety of the drivers in some instances. As mentioned, this is not a transactional event.
It's a long-term relationship that needs us to stay close to the customer's business to understand where they're going, their strategies, and provide insights and not information to highlight issues on exception and not to dump them with information and provide these as close to real-time and as proactively as possible. That really just covers the philosophy on how we look at the life cycle management within the leasing operations. Through dedicated key account managers, we have customer relationship managers and access to contact centers that are able to support the customers through the life of the asset. The human element, as well as the proactive nature of the service provision, is the very reason why more than eight out of 10 of our customers would recommend Avis Fleet.
In addition, we also cater for self-service capability through our online portals as well as mobile applications for times when the customer needs information at their fingertips. This entire value chain that you see there is managed through the same core fleet management system that really just makes it easy for us to manage every asset at a vehicle level. We move on to the leasing offering, the offering is really built around how do we provide a one-stop shop, comprehensive solution for all things fleet. We manage in excess of 230,000 unique vehicles. That is not the number of products. That is unique vehicles. That means that there may be vehicles that have multiple products within them. We broadly categorize our offering into funded products as well as unfunded products.
On the funded products, that will be your full maintenance lease as well as your operating lease. With full maintenance, we take the full maintenance as well as the residual value risk. It really takes away any fluctuations or expenses, unforeseen expenses away from the entity, and we take on that risk. The largest pool of unfunded assets lie within the service and maintenance plan space. Litha did mention it earlier that this is one of the areas where we support manufacturers on a white-labeled basis. There are three variations of this. The first is where we support the manufacturers on taking care of the full administration for service and maintenance plans on a white-labeled basis.
This means that you can walk into a dealership and buy a manufacturer-branded plan, but at the back of it is actually us that are supporting the manufacturers with the authorizations on that plan. The second variation is where we take split risk with a manufacturer. The pricing of that plan is done together, and then we report on the health of the plan. The third variation of this plan is where we take 100% risk, and this is an Avis plan that we then sell through our 14 Zeda-owned retail sites, through that elasticity as well as the F&I that Litha spoke to earlier.
We provide quite a number of the solutions in-house, and though we do have a number of strategic partners that we do some of the offering through, like roadside assistance as well as the actual fuel cards. I'll zoom into a few of our value-added products and services that we provide. Our connected car through the telematics solution focuses on driver behavior and the safety of the driver through monitoring of harsh braking, overspeeding, harsh acceleration, or drivers driving for long without taking regular breaks. All of these elements are put into what we call a driver score. The drivers at the most risk are then highlighted to customers to say that for this driver, this is a driver that's at risk because of these behaviors that we're seeing.
We actually put forward advisory to customers to say, "These are the things that we think can course correct for the behavior that we're seeing, for the driver." We deploy that within our own staff base as well, just as Tumi mentioned earlier, that safety is one of our very important and critical elements. That is one of the ways in which we manage that safety element. One of our bespoke solutions is our Intelligent Fuel Management.
With this product, fuel transactions are analyzed and scrutinized to identify fraud or any other suspicious behavior that could happen relating to fuel. If you look at the life-to-date savings and how we've been able to demonstrate value into our customer base, is that since we introduced this product, we have been able to realize and demonstrate savings of ZAR 624 million on behalf of our customers. That is a big amount that is saved through identifying fraud, doing investigations, or even ensuring that certain transactions are declined as a result of suspicious behavior that is going on. I think one of the things that you may ask is these products might not all be unique to Avis. They may be offered in pockets within the marketplace. Why Avis? Why Avis, would you ask?
What really makes us unique is that when the various services are used together, they change from just getting data on the drivers or the fleet, but they actually change to give you insights and to be more proactive. We have built an application that we call Driver 360, that we offer out to our customers, which does exactly that. It combines your telematics driver score together with your Intelligent Fuel Management insights, with your traffic fines, as well as your accidents, and says it gives you a 360 view of the implications of certain driving styles and says, "What are the things that can be changed to improve on this?
How can you actually start saving costs because of certain behaviors?" Those are some of the things that make us unique within the marketplace, and that is why our customers choose us again and again. Understanding so much of the administration and risk of mobility can be passed on to a third party are all of the things that make it attractive towards shifting from that ownership towards usership, which is what we're seeing as the CEO highlighted through the Deloitte Consumer Survey. In terms of the vehicle types we offer, all of the offerings that you see in terms of services, we offer them across the vehicle types from a motorcycle to a 6x4 truck tractor. About 90% of our assets that are funded, remain passenger and light commercial vehicles.
About two years ago, we actually launched a diversification strategy into heavy commercial vehicles, where we brought in capability to really help us to grow to diversify into that space. Really identifying some of the market opportunities that we were seeing from the heavy commercial space and the transport sector. In terms of customers, we provide outsourced mobility solutions to more than 1,100 juristic persons in the private and public sectors. These entities span across a varied number of industries, including what you see on there, mining, construction, fast-moving consumer goods, security, agriculture. The diversity of the industries really just provide a natural hedge, and there's also no concentration risk within the industries.
If you look deeply at what we've got in terms of industries, you'll realize that no one industry actually makes up a double-digit of our funded fleet. That just gives you a perspective of the spread that we've got of the customers that we are supporting. I think 1,100 customers cannot be wrong about an outsourced mobility solution. That is where we are really looking towards how do we penetrate this as we make the market aware of what they can actually benefit from in terms of value-add from an outsourced solution. Where do we make our money in terms of value drivers? What are the levers that you should be looking out for to understand the value pools that create that we create within the leasing operations?
Firstly, we mentioned this earlier on. An asset is only required when a customer contract has been supported. There is no debt until there are cash flows that are secured to service that debt. Secondly, during the life of the asset, we earn the leasing revenues, which are influenced by a number of factors. We need to consider the cost of the asset that we purchased, the interest rate, the residual value that we forecast at the end of the life of the asset, which we're very comfortable to do, as that has been part of the core for a while now. All of our interest is linked to Prime, that will move in according to the variable rate.
The maintenance costs, as well as all of the other additional services and products that we offer along the way. If you consider all of those are all of the things that then make up your leasing revenue, and that's how we just need to read it when we look at the revenue itself. In terms of the service and maintenance plans, which are another big portion of the business, those have there's an impact of two portions within that. There's cash that's collected upfront, and then they over time will then attract some cost. Upfront, you'll see them as a contract liability, as well as the cash that you've then collected.
As we spend the cash, you'll then see that cost coming through over the life. At the end of the life cycle, we will defleet and dispose of the vehicle at the end of the contract. We will cover the car sales value chain. I think we've spoken a little bit about it, but I think one of the things to highlight here is that we obviously have seen increases in the used vehicle prices in the last about 18 months. While the shortages were originally brought on by the pandemic as well as the semiconductor shortages, we have seen other events. We have had other events that have had major impacts on the supply chain.
As previously indicated, we've always expected that as the supply chain eases and we have better availability to vehicles, we will see a softening of the margins. Since the last trading update, the margins have actually only declined by one percentage point. Those are just some of the things that we are seeing. As supply eases, we continue to see that stabilizing. Supply chain is not back at normal levels yet. I think that's one thing to note, that there are still manufacturers that have challenges, there are still components that are having challenges, and there are still supply chain disruptions in certain pockets. We're not out of the woods yet, and availability is not as easy as it was.
Car Sales is our integrated disposal mechanism for the rental as well as the leasing vehicles. For the one-year-old vehicles and on average, the 45-month-old vehicles, through our retail and wholesale channels, we're then able to really look at the condition of the vehicles and consider a number of factors that then help us to look at the channel selection and see how we will be disposing of those vehicles. Litha mentioned that within our 14 Zeda-owned sites, we have F&Is that assist the customers with financing and insurance. It also gives us that ability for the second gross income, which comes with the elasticity that he mentioned around the fact that if you get a trade-in on the dealer floor, you are then able to sell that trade-in and earn additional margins from it.
The chain continues, and that is what really brings on that elasticity to be able to make more money from one vehicle that you purchased, but you actually have a chain of vehicles that you then get from trade-ins within that original sale. On average, the stock days in the trade is about 32 days, and on the retail, it's about 37 days. That really gives an indication of how quickly we can get into cash on both channels.
I think what the strategic channels really just gives us resilience that we are then able to look at various factors to determine where we place the vehicles based on the health of the retail market, based on the capacity of the 14 sites that we've got, and really based on the condition of the vehicles that we see coming through. We are able to get into cash within that 30-day cycle. What's also important to note here is that when we do have a large concentration of vehicles, we utilize the channels selectively, and we load the vehicles selectively so that we do not experience any flooding within the marketplace to protect the margins. I will just conclude with the competitive advantage.
I think we have spoken a lot about some of the things that differentiate us as Zeda. One of the things is really the breadth of the offering. No other Southern African player is able to provide the spectrum of mobility services from a driven luxury service to a lease on an extra heavy commercial vehicle. With these capabilities, we are really well-positioned to meet the evolving and varying mobility needs of customers. In terms of processes and systems, we have robust processes that are established, and we continuously seek to improve on these to make sure that, you know, we stand head and shoulders above our competitors.
We have strong brands that we operate in the market with that are trusted by customers and have become synonymous with customer and service excellence. Lastly, we have mentioned that we have long-standing relationships, these long-standing relationships span across our value chain, customers, suppliers, strategic partners. These are some of the long-term relationships that really make us stand out within the marketplace. With that, I thank you, and I'll call on Babalwa for the Q&A session.
Thank you, Tlhabi. Thank you, colleagues. Ladies and gentlemen, my colleagues have covered the business overview. They looked at Zeda and its evolution over the years and the underlying businesses, which is the rental business and the leasing business. I would like to give you an opportunity to ask questions. I will allow 15 minutes for questions. I will start by taking questions on the floor, and then I will move to the webcast, where we have 76 people. Please raise your hand if you have a question. Introduce yourself and your company. I will start with the gentleman over there.
Good morning. Thank you. Thanks for the presentations. All very detailed and interesting. I'd like to delve a bit more into your service and maintenance plans, please. A couple of questions. Firstly, you offer this. I think it's outside of your normal fleet. Are these service and maintenance planned offered outside of your rental and leasing fleet? I think 'cause you do it on behalf of OEMs. When you unsell your vehicles, you also then have the opportunity to sell a vehicle at, I mean, a maintenance plan. Secondly, how big is this in your overall business? When you actually purchase vehicles for your rental and leasing fleets, do you take the OEM service plans on offer at that stage? Are you buying the vehicles without a service plan, when you fleet up? Thanks.
Tlhab i, can you go first?
Thanks, Thobeka. In terms of the service and maintenance plans, I'll start with your last question first. You asked around when we buy our own vehicles in terms of our rental and leasing vehicles, do we buy the standard manufacturer plans or do we in-source those? We engage with manufacturers on a continuous basis, and since the Right to Repair has come out, we have seen varied reactions from the manufacturers. We have seen some where the plans are actually stripped out, but we have seen some where the plans are almost based at a zero value. Internally, the question to ask is, will we become more competitive if we strip out?
Will we have better benefit if we in-source the vehicles, I mean, the plans? We really do an analysis on, is it more cost-effective, based on the value that has been stripped out. We do the decision based on whether it makes more sense in terms of the value that's actually been assigned, to the various brands or not. So far, a lot of the standard service plans, we buy the vehicles with standard service plans. Then, obviously, we then maintain the vehicles. On the rental side, we'll usually only use one or two services, and then the vehicle will be sold with what's the balance of the service plan. Then on the leasing side, we will do our own maintenance thereafter.
Then you asked around how big is the service and maintenance plans. That accounts for, if you look at the 230,000 unique vehicles that we manage, that's about 160,000 of those vehicles is across the three variations of the service and maintenance plans. Please remind me of your last question.
How much of the vehicle and service plans you offer are outside of your rental and leasing fleet? I think you made a comment when you were doing the presentation that this is outside of your funded fleet.
So the 160 vehicles is outside of the rental and leasing vehicles. These are vehicles that are being used by corporates as well as individuals, externally. The bulk of it is outside of the rental and leasing vehicles.
Ramasela.
Let me just add to Tlhabi. In general, when you do your normal full maintenance lease, already you've got that maintenance embedded in that agreement. You've got what Tlhabi is talking about in and what is out. In that way, I think you need to also take into consideration that all our FML in there is your maintenance.
Hi. Sorry. Hi, I'm Nick Wilson from News24. I obviously came in just a few minutes late, so I missed that first bit where you began talking about the usership economy. About 29%, there was a survey there that you mentioned. Is that the Deloitte survey? My question about that is that, when you talk about the shift to people actually wanting to, is it leasing cars basically for longer periods? Are we talking about like your average person on the street? Are we talking about companies? Perhaps a little bit more color on that. Are you saying that there's obviously a distinct trend towards people moving away from car ownership in the consumer point of view? I just wanted to clarify that. Thank you so much.
Thank you. Ramasela.
If you stay a little bit longer, when you look at our strategy going forward, you will really understand where the focus is. Really the 29% is the Deloitte survey that talks about usership and as Tabi has indicated, we're talking about deepening the take-up of the usership. You will see it will be both on the short term and as well as long term. In the long term, on the leasing side, it's about access to alternative financing structure for getting mobility. The next session, we'll be talking about the strategy when we come back from a tea break, and you'll see where the usership get to be covered. Thank you.
Thank you, Ramasela.
Hi, hi. Good morning. It's Hennie de Klerk from TreasuryONE. Not so much a question, maybe just a comment on something I picked up last week in. There was an article published on ZeroHedge which commented that the average lease, financing period in the U.S. is now 72 months, and they've introduced the first 156 months, aka 13-year finance leases in the U.S. Yeah, maybe you can extend your terms and collect more interest, but there's definitely. The article actually mentioned that it's because of the quality of the cars that's being produced, so you can actually rent them or lease them for longer periods. You know, you can just imagine if you can extend your lease period from 48 months to 72 or to 90, it's a lot more interest to collect over that period.
I know Tlhabi will love to take this. You also need to look at your total cost in South Africa and how long we've carried the car and the infrastructure we have, and see how much you're going to burn. That's, I mean, we've got, I mean, other heavy commercial.
Yeah
... for almost 10 years.
Yes.
Those you can. The longer we see deterioration on our infrastructure, your cost, your incremental revenue just get to be taken out by that cost. Identifying your sweet spot of this is the time and knowing when to exit, it also differ from country to country. I think our region are one that. As Tlhabi has indicated, we actually never even. We finance car for 72 months as individuals will do, but never get to see it beyond 36 months.
With Toyota, you can finance for much longer. Just a business opportunity.
Ramasela, I have a question on the webcast from Roy Mutooni from Sanlam Investments. Please confirm, when you buy the vehicle from the OEM, what level of discount is there, and does this include or exclude the maintenance plan that will be available to retail customers at a dealership?
We get good discount, Roy. We have over 50 years with some of the OEMs, and we are the largest procurer of fleet, so it varies from one dealership. Also, I mean, even if you're talking about the largest OEM, inside that, the mix of it, you know, you've got vehicles that you get very good discount within that OEM, and you've got vehicles that you get very moderate, depending on the OEM also strategy.
The discount is a negotiated thing between also our scale, what the OEM intention is with a particular make, range of model. If it's about really getting bigger penetration, you also get to see different. This continuously vary from that, but I can tell you it is a very good one, Roy.
Thank you. Ramasela [Salome Maruma] from Mergence Investment Managers had a similar question. She's got three questions. One of them was about the discounts. Another question from here, I'll read two questions from here. What are your views on Bidvest's plans to launch a used car vehicle brand to compete in the five-year space? The second question from here is, please speak to the car rentals division profitability, excluding the contribution from used car sales. What's the question? Maybe we can repeat. The first question?
Yeah, first question. Sorry. The first question:
What are your views on Bidvest's plans to launch a used car vehicle brand to compete in the plus 5-year space? That's the first question. The second question is, please speak to the car rentals division profitability, excluding the contribution from used car sales.
Let me take the second one, then I'll give Dave to comment on the... I know Dave is a one year-old specialist, but I'll give him to connect, comment on the five year. I think, as part of our strategy, if you look at what we've done since 2020 when we launched our integrated mobility, I'll talk about it as well on the strategy, we had rental business that was really delivering, you know, early single digit margins.
As part of our strategy and as part of really integrating our business, we have since, just on the rent-rental business outside the used car, as you're asking, we then started building proper profitability. When we come back and you see where our strategy is going with regard to sustaining those double-digit margin is really from us focusing on how to rent very, very well and how to be efficient in the way that we rent. I think at that point you get to understand that the margins we are delivering today do not just rely on the used car. We have good business on the rent-a-car, and we want to protect that business on the rent-a-car and the, and the gains we've made in the last, the gains we've made in the last three years. Dave, Bidvest?
Yeah. I must be honest, when I read the article, I thought it was very interesting that they were venturing into that space. There's a lot of challenges that come with vehicles that old. Cars coming back with problems, et cetera, et cetera. It's not really a place that we play in so much. From a retail perspective, 1-year-old cars is our key focus. Then on the leasing side, three to four years with some cars going a little bit further than that. The cars that don't really fit the retail profile, we tend to trade out of those cars, and we shy away from the retail space on those ones. Not really our space.
In saying that, I think that there is a huge opportunity there. I think the market is strong. Going back to the challenges, once again, selling old cars like that, there's a lot of comebacks and problems going forward that you have to be prepared to deal with.
Thank you, Dave. The last question on the webcast is a follow-up question from Roy: Please also speak about the trend in residual values over the past year or so.
I mean, residual values were very strong, as the used car market was really strong. I mean, we see it in different model. As Tlhabi has also indicated, I mean, we're seeing it also on the leasing vehicle, which is four years. To Dave's point about the market being very strong on the market that the five year-old vehicle falls into, it's still very strong, and we believe that market will still continue to be also strong. Obviously, when you're working into this environment of high inflation and interest rate, then people will opt to buy an older vehicle. You can expect that to still be strong. And we're seeing it in our leasing business, so that we gaining really good strong margin.
A good-as-new one-year-old vehicle, which is currently what we have on our short-term rental, obviously with what Tlhabi has started to talk about, we are seeing some coming back on that with regard to what is happening in the market. I guess it is interesting to note that the used cars also now driven and the RVs are driven by new models that in the past were never popular or were never being used. You know, there are a couple of new OEMs that have come on board that have taken advantage of, you know, the supply chain challenges of bigger and traditional OEMs that we've always been having and they're also giving us, you see good RVs coming out of that. Yeah. Thanks.
Thank you, Ramasela. I have time for one more question on the floor.
Thanks. Hi, I'm Andrew Moses from Metal Industries. If I want to think about how the rand would affect the business, you know, obviously, if you have a weaker rand, your residual values probably hold up a little bit better, but you're gonna need more working capital every time you re-fleet 'cause the costs are gonna be a bit higher.
You're gonna have extra costs that maybe you, I don't know whether they're planned for or unplanned for, but in your maintenance plans and all of that, so you've got contracts where you've got a set value. Can you just chat to me about what are the other impacts that I haven't thought about that I need to think about? What's the sort of overall impact on the business from a rand that weakens more than one would have expected, please?
Thank you very much, Andrew. Are you mic? Let me give it to Thobeka.
Thanks for that. Can you hear me now? Thank you. My name is Thobeka Ntshiza. I'm the Group Finance Director. When you think about the impact of Forex in our business, currently we buy 100% in rands throughout all the OEMs. The OEMs do have a structured, predictable price adjustment periods in a 12-month cycle, which then allows us, as we do demand planning upfront, we are already able to assess based on where the demand is coming from and where we're going to buy the vehicles and where are the OEM prices going to be moving to in the next four months.
It allows us today to understand the total cost of ownership, and then it comes back to buying right, knowing that there will be a customer at the end that will be able to afford that service at that price, understanding the price adjustments that are going to come through. I think that's the first part. That yes, we get impacted by the vehicle fleet price adjustments, but it is in our 12-month cycle. It is understood, and we manage it proactively every month as we order vehicles four months out, so that there aren't surprises when you're sitting with the asset in the balance sheet.
In terms of the impact, on the maintenance, of the vehicle, if I start on the leasing side, when we buy the vehicle, it is already a vehicle that the customer has purposely asked for, understanding what would be the application of the vehicle, and for what period they're going to be, utilizing the vehicle. We then give them varied permutations in terms of the total cost of ownership if you keep the vehicle for 24 months, 36 months, 48 months. It allows the customer to then make that informed decision upfront in terms of what will be the total cost of ownership on those varied periods, and then put it in their budget so that they can then be able to manage and plan for their cash flows.
Those maintenance costs will then be for the cost of the customer, and we build it for them every month, based on the contractual arrangements. On the car rental side, we've got a strong fleet control team that is managed by Dave, the COO. What we do there is every month we monitor the usage of the vehicles on the car rental, because we also always have to time that optimal point that the vehicle will be right from a defleet to sell as used car stock, but also from a utilization by the car rental business, it doesn't start becoming too expensive even for the customer that's rental. Those are some of the decisions, and the planning that takes place to manage some of those variables. Thanks.
Thank you, Thobeka. Ladies and gentlemen, the time now is 10:18 A.M. We will resume at 10:35 A.M. Thank you.
Thank you very much for coming back and joining us. We had a good engagement and tea break. My colleagues, Litha, Tlhabi, and Tumi, has taken us through the business overview, and as I started with Zeda's establishment and evolution of Zeda over the years. Now, where we are, we're now going to talk about our strategy. Before I get into our strategy, Litha also indicated some of the tailwinds that we have in our business. When you look at where short-term car rental is today, when you look at the issue of inbound, you know, we look at our principal ABG results, as Litha has indicated, that we're still seeing a lot of tailwinds.
In South Africa, in particular, we're looking at inbound as one of the tailwinds that are coming. Yes, mindful of what Tlhabi said about the used car margin that are now coming down, that when you look at it and you complement that business with the corporate business that we're seeing it coming back, it came back very strong at the end of last year. We're also looking at, you know, the inbound business growth. All of those tailwinds that we're talking about today, the penetration still that we're seeing on the subscription offering, it is very important for us and we feel strong about them. When you look at ABG results, you know, one of the things they still mention is how strong the rate per day is.
The rate per day is not a South African phenomenon. I know everybody else saying we are paying exorbitant rate. The rate per day is what Litha spoke about, correction of the rate that has been in since early 1990s, where inflation has moved away from the business, but the business remain the same. Something was about to give. During that time, it took COVID and really bold decision for the industry to move forward. Let's look at our strategy. You know, in 2020, as I've indicated, we've come up with an integrated mobility strategy. When you look at the integrated mobility strategy that we unfix, grow, optimize. There are a lot of things that we've done in the last three years.
When you talk about fix, it was also looking internally in South Africa operation and saying, "In South Africa operation, why are we going to leave car rental still as a single-digit business and believe we will continue to win?" Where was the margin going? The margin were going to a heavy cost business, very heavy cost business, may I add. The rate that was not moving with inflation. Concentration of the business to one segment where there were opportunities for other segment. We really started fixing the S.A. business during that period, and that's where the fix come from.
I say we started seeing break-even point in the car rental business in April 2021. We then started journeying as to say, "How do we continuously build a cost culture business that is not about rate only?" If we balance and we are building a cost culture, but we also make sure that the rate represent a cost-plus model. As the leader in the short-term car rental business, why will we deliberately go and disrupt a business that has always been underperforming? We do not just rent the cars to give used cars. We rent the vehicle to make sure that you generate good margin out of car rental. We dealt with S.A. business. Are we done with S.A. Business? No, we are not.
It's a continuous incremental journey, and we will continue to relook at our business and see how to optimize the return on the S.A. car rental operation. During the same time when we're doing the S.A. business, we were not just putting our head down and looking at the today. We also look at the growth. That is when we went aggressively to the market with a subscription offering. That, as Litha has said, has stood us very well in tough time. Those are the things we've done. I talk about optimization, and I talk about cost. These three, we have been doing it. Looking forward, what does the fix look like? If you want to understand our strategy very well, when you look at the fix, we're talking about portfolio review. That is really at the top of our strategy when it comes to fix.
What do we mean by portfolio review? We're talking about underperforming operation. Operation that are really giving us substandard returns, that we should be able to get better return out of every operation, including product and offering. Because we do have different product. We've got Lux, we've got point-to-point, we've got number of product. Whatever we put in the market, it must make its own return. The days of us just having an, a business for strategic reason, but it makes us have loss, are gone. We look at that portfolio review. When you look at fix, we also look at localization in regions that we're operating in, including in South Africa, where we look at triple BEE. We currently level one BEE. With the exit from our former principal, Barloworld, we now have to relook at our ownership structure.
The team is doing extremely well on other element. We really look at it. Tumi has indicated what we're doing on ESD, enterprise development and supplier. You know, we really spend time on leadership skills development. We are aware that we need to address this element to make sure that, you know, we continue to remain competitive. When you look at regions that we're operating in, local ownership becomes very important. We've got the dual brand. When you look at fix, it's portfolio review, triple BEE and localization, and dual brand. I'll unpack the three as we move. We look at the strategy on optimizing. Balance sheet optimization is very important. Thobeka will really unpack on how we look after working capital, how do we look after debt to equity, and what are our plans going forward.
Yes, we are putting a burden on Thobeka and we're saying, "We wanna grow, we wanna grow." We are growing deliberately not to put the burden on the balance sheet. When you look our growth strategy, our intent is not to overburden the balance sheet. As she worked, and she actually indicate to you how we're doing it, you could also see that we will be growing without heavy burden on our balance sheet. How we're going to do it? If you look at our growth strategy, if you recall at the beginning of the presentation, I said, things that we have been doing well and we continue to do well is to borrow right, and is to acquire right, and is to rep the vehicle right. Borrow, strategic partner. Acquire, strategic partner. Rep, strategic partner.
We believe there is so much growth that we can still bring into this business through strategic partner in all levels of our growth. Yes, there will still be a growth element, this is where that will be on your balance sheet, which is where we're looking with regard to grow the leasing book. We believe with the margins that you also see in the leasing and the return that you see on the leasing, that is the business that we wanna grow also on the balance sheet. Third one. Third element of the growth is evolving and expanding on our product proposition. You already have technology. You already have a vehicle. How do you enhance this technology? How do you enhance this vehicle to make your return better? Let me just then unpack it for you. Fix portfolio review.
I spoke about underperforming and substandard, return that some of the operation. Remember I said we operating in 11 sub-Saharan countries. If you think about 11, the focus in the last three years was in South Africa. We have countries like Ghana, where the economic condition are extremely difficult. High interest rate, exchange rate that are not favorable, you know, these are really costing performance in that business. When you look at the operating profit in Ghana, it's still operating very well, the losses we take on that business. Last year in September, we reported an exchange loss of ZAR 39 million, the majority of that loss was coming from an operation where the fleet size is 1% of the total on balance sheet fleet. Part of our job is to fix, to optimize or exit.
If we're going to exit, we're going to make it very soon because we are working on it, and we'll have to also do it very soon. We cannot afford the bleeding. The team on the ground is working on it, and we working with the team very close to make sure that we address this inflationary issues, we address the interest rate issue, and we address the exchange issue. That is our focus on Ghana. Why will we bother with a company with a region that gives us that only 1%, you may ask? Because the growth potential in Ghana is still very good. It's how best we can do it and how fast we can do it, and that's what we're looking at. I said earlier that we operate with corporate and sub-licensee and agencies.
Our focus in the last year was on corporate. We have sub-licensees and agencies in South Africa that we were not looking at because we focus on the big ticket. Our strategy now is most of them that are in car rental, how do we get the best return out of them? Do we have the right partner as an agency or we don't? All our agencies and all our licenses, sub-licenses already know that our strategy is to either fix or exit. We do not have a lot of time. Those are the things we're looking at when you look in South Africa. You take a country like Mozambique. For many years, Mozambique has always been running a leasing and a car rental. I think at some point we knew that car rental is not cutting it in Mozambique. Our issue was what?
What are we going to do? In the last two years, we took out a lot of costs out of Mozambique. We closed the airport branches. We cut on a lot of things. Is on our table now is Mozambique a traditional car rental business or what else do you do? You should expect to see some movement in those areas. What we'll do, continuously optimize the car rental margin because we know car rental's got the potential to give you better margin if you just do the right things right. That's what we will be looking at. When you look at B-BBEE, as I've said, I mean, you've got countries that we're operating in that are talking localization, where we 100% own.
We're looking at those areas as well on how to address it. That will be on B-BBEE, that this is the license to trade, and we need to make sure that we do. I mean, Botswana is one country that we're operating in that this is very important. Dual brand strategy, I always get the question, who is Budget, who is Avis? In the last three years, we really have not positioned it differently. There's a lot of enhancement of the right market focus for this. We believe our go-to-market strategy will start telling you who is the Budget customer and who is the Avis clearly customer. When I see Budget, I know who. We working very close with our principal, Avis Budget, to really do the dual strategy.
Very soon in this three year cycle, three to five year cycle, we should start seeing the Budget brand coming to life, the Avis brand living on its own. Really this is where our fix is. Return car rental. I guess it's not return, but it's continuously built up on car rental to levels that you know they are capable of. You will see at the end of the presentation when I do the conclusion, where do we take our base? Who do we believe is proper peers that run this operation very well that we are benchmarking ourself with? You have to benchmark yourself against the best in the market, and that's what you will see when I come later to conclude. We believe there is a room, a bigger market for a properly run short-term car rental. That is really looking at the fixing.
What are our growth pillars? You know, as a base, we've got short-term car rental traditionally, as you all know. You book your car, you get your car, and remove. We've got ancillaries that comes with it. The new product that we've brought in the market in a very strong way, subscription. Litha explaining Avis Car Where U Are when he's visiting his parents in East London. I thought it's PE, that is the subscription model that comes with it. When you look at it and you're saying, if you look at the short-term car rental, just the three blocks, which is your short-term rental, the product, and ancillary, subscription, where are we going from a future point of view? I spoke about usership, Tlhabi came and expanded on what do we mean by a usership economy?
When we say greater penetration of the usership, there was a question as to say, "Who are we targeting, and how will it look like?" If you just think about traditional car rental, it's about booking and wait, booking and wait. What we have put here is not trade secret. It's what ABG has been doing. We are just slow, and we've been slow to take up. The good thing about being slow is that there are lesson that ABG have shared with us. Those lesson is: how do you do it and do it best and do it effective? We're just not talking about starting something. We're talking about Mobility- as- a- Service, and you take that very same product.
If you look at car sharing, if you think about it, car rental is a car sharing because it's not a car that you have, but it's a car sharing. Why are we now talking about car sharing as a new and a growth pillar? The main issue and the biggest differentiator is how to make sure that you use technology to make sure that this vehicle does not come back to your office to be picked up from the office. It makes sure that it's available at whatever point it is required. What will that do? If we think utilization is good now, wait until this vehicle can be utilized. What will be the enabler into that car sharing? I'll talk to you about it on the right. Peer-to-peer sharing.
Two people that have a car, nothing to do with Avis, nothing to do with Zeda, nothing to do with Budget. Where does Budget come in? In the marketplace to connect someone who has a car and someone who needs a car. It sounds so radical in South Africa, it is the way. Let me tell you, easier said than done. Will you allow your car to be driven by a third party in this market? Will I even know that I will get it back? We have over 20,000 cars that I go home every night and sleep because I know it will be back. What gives me that comfort, and that doesn't give you the comfort, is because we have mastered even security of a vehicle.
If you understand safety of your car and know that you're leaving it with a company that can let its own balance sheet to go out and still know that they will do the return, who else can you trust other than the one that has done it and know how to do it best? That's Zeda. Peer-to-peer, I spoke about it. Ridesharing. Will you get into a car to save on the environment? Will you get into your neighbor's car? Will you get in the third party's car? A stranger, no name. If at the marketplace, there is a Zeda that say, "Person A and person B, jump into a car that does not belong to Zeda, that is not on the balance sheet of Zeda, but that has been vetted by both parties, by Zeda." I repeat, 20,000 cars.
You get into a Chauffeur Drive. You get into a point-to-point. What has been giving you in South Africa the confidence of getting to a driver that you don't know? Let's make it better. Why will you let your children get into that? It's because what Tlhabi said, the competitive advantage of Zeda. You can replicate everything else. You can never replicate Avis Budget. In South Africa, you can never risk safety. You can never risk security. We do have a problem which I told you: access to mobility. This is closing the market gap in that space. Will people shift? Will individuals shift? When I was at varsity, the biggest achievement, even when I started working, maybe even now, was to get a matric certificate and a driver's license. Varsity was to get a varsity certificate and a driver's license.
To date, we have intakes that don't have driver's license, and they don't need driver's license, but they want to get where they want to get in a more safe and reliable way. That is the market we're talking about. Until you're in that position of still, like me, thinking driver's license is the achievement, then you will not understand the evolution of mobility. Look in your intake. What is the workforce doing currently? This is the workforce that we're talking about. We've seen it in the subscription model. What happened with the subscription model? Parents say, "Who really takes subscription model?" Parents are normally people that I engage with. They say, "Who takes the subscription model?" The following week, their 24-year-old, paid by their parents, are on the subscription model because they understand the flexibility of having access to a vehicle.
We train our vehicles very well because the safety of the people is very important. Really, that's what Zeda is looking in this. Are we revolutionizing the car rental business? I guess only in the regions that we're operating in, the world has always been ahead. The world is ripe for us now to jump into it. As I say, this is through strategic partner. As I say, through our principal, we have learned a lot. That's the advantage of having an international company that has already done this. As you know, and I'm mindful of what I said, optimizing the balance sheet, this is not on Thobeka's balance sheet. This is through strategic partner. If you look at the right, we say how do we use technology to connect humanity? That's exactly what we're doing, the platform. We already bought the first asset.
We already know how to drive cars. We already know how to make sure the cars come back to our parking garage in one piece. We need to make sure that we utilize technology and Mobility as a Service means. We've done this before, by the way. I'm not talking about ABG. Tlhabi spoke about telematics. When we started the telematics business, we don't go out and develop. That's where the strategic partnership comes in. When you look at the leasing, you know, we've got telematics, service and maintenance plan. We believe that when you start talking about an alternative financing of access to mobility, traditionally, you will refer to it as a leasing. What is packed in there is the flexibility that you will not get when you do the normal traditional leasing. We're looking at new market.
We're looking at new segment as well. New geography, and we're discussing those new geography with our principal. Just looking here in the region that we operate in, when we offer a flexible solution when it comes to your financing option. That is the first time I go and knock on the FD's office and say, "I need asset. I need those vehicle." As Tlhabi said, this type of vehicle will have a contract, will have a customer with it, and will have a repayment profile. We'll still do vetting of our customers, but we will provide the flexibility. What does flexibility mean? If you know what I know, if you default because of COVID, you know if you owe that car, trouble is coming your way unless if you just hand it back. That's currently what the structure of financing is.
How do we make it more flexible while giving better returns? That is the growth that we see in the leasing business. We believe I mean, I said at the beginning that we've got 8% penetration. If you move away and say, "What did Deloitte say about what the future look like?" As I say, it's still based on lack of information in our market. Tlhabi spoke about the total cost of ownership. I still talk about it and say, "Do you understand that when I pay once, I paid it." When you buy a vehicle now, you have to call those price check companies because you need insurance, you need tracking, you sign so many agreement. What Tlhabi said again, we have a system already that is a one-stop solution that you get everything.
Everybody that is on our books, we're able to enable everything, including insurance, including the tracking and whatever device that we install. We give you a comprehensive solution that you only sign one contract. When you have a problem, you only call one person. There we optimize our cost, and we scale up because we already have the infrastructure. We're just building on it. That's really when we look at the attractiveness of our industry. Lastly, on a car sale, we're running normal auction. If, like you are able to shop for handbags online, it's a matter of time that you are in this used car digital dealership. What is unique about us and digital is that our vehicle are well looked after from the day we start. We maintain our vehicle, and we service our vehicle very well because remember, we utilize right.
We bought it right. We utilize it right. When you get to a dealership and a digital dealership, we will indicate to you because we've got a reputation of what are the condition of that vehicle. All of this, the biggest enabler is your technology. That's what the strategic partner when you look at it, we're looking at the ecosystem. We're playing in that market space. That's our growth profile. At this point, I would like to hand over to the FD to also talk about optimizing the balance sheet.
To the FD. Thank you, Ramasela, for taking us through the growth prospects of this business. Before I allow the FD to tell us how she's going to fund this strategy, I want to give you an opportunity to ask questions. You can raise your hand, introduce yourself. Go ahead, Rowan.
Thank you. Apologies I didn't introduce myself earlier. It's Rowan Goeller from Chronux Research. Question on leasing opportunities. I know within Uber there are now large fleets that have been run as a fleet and effectively rented to Uber drivers. Is this something that you've looked at, and are there opportunities in that sort of area?
Tlhabi will take it.
It is something that we have looked at in terms of ride-hailing vehicles, when we look at the profile of how they behave, they behave very much like courier vehicles. We've got the intel as well as insights to manage those type of vehicles. Last year, through a strategic partnership, got into a deal with a few Uber vehicles. We ran a pilot to understand exactly how it works with the Uber drivers. We do have it's about 35 vehicles that we currently have within that space. I think as we understand it and see that it does behave the way we understand it to behave, it's an opportunity that we will continuously look at.
I think what does become tricky, becomes the actual usage is quite high. You know, at some point, it may become unsustainable for the actual Uber driver in terms of the lease cost. That's a balance that we need to strike between the profit margins, as well as the suitability of the first life of a vehicle, because we concentrate on having the vehicle on our book for the first life. It's consistently an opportunity that we'll look at and refine the model to make it lucrative for both parties.
Thanks, Tlhabi.
Good morning. It's Cobus from All Weather Capit al. I've got three questions. They're quite related to one another. The first one is, on the shareholder register, is it still the top three, still the same individuals or the same entities? The second question is just on the BEE, the B-BBEE plan to do one. I just wanna understand, have you engaged with the top three shareholders, what is their view on that? Then lastly, on the Barloworld BEE deal, there were a lot of properties that obviously, at that time, [Ires] rented from them. I just wanna understand, because there's been a lot of changes inside that structure, does that count towards any of your BEE points? Secondly, 'cause I didn't see it in the related party transaction, is that a related party transaction or not? Thanks.
Thank you. Ramasela, you wanna take that?
I'm going to take the first one.
Take the first one.
Take the first one.
The answer is yes. They're still the top three, Zahid, Silchester, and the P.I.C. holding about +50%, just over 50%. Ramasela, do you want to respond to the BEE?
Thank you. We are engaging. We have engaged with them, and really, they have expressed a view. There was just one that actually raised the issue. I mean, PIC looking at our BEE and our management structure, we're very encouraging as how we look as a business and how we can continue to look into that business. The issue at the moment at hand was: What kind of a plan will we become with? It is very important for us to take them along on the plan when we get to that stage. As management and the board, we're really still at the very beginning of just having a discussion on a plan.
We really don't have a specific one on the table, but we're working to make sure that we do by the time we get to our rating period. The legislation on BEE, the points that we got are not transferable, so we couldn't transfer any points in that property structure into our business. The relationship we have with Khula Sizwe is really from a lessee and the lessor point of view. No related party, but just a lessee-lessor type of structure. Thank you. Any further questions?
I do not have any question on the webcast. Just refreshing. Okay, now we'll call our FD and allow questions immediately after her presentation. Thank you.
Good morning. It is a pleasure to be standing here to take you through our financial framework. Our financial strategy and how it will be supporting the business strategy that my colleagues have shared with yourselves. The first area that I would like to unpack for our audience this morning is to say, where are we going to be allocating capital? When you are a equity investor, you are a debt investor into Zeda, what must you look forward to in terms of how are we going to be spending that investment? My colleagues have unpacked for you in terms of where are we intending to grow as a business, and that is underpinned by our allocation of capital to invest. How are we going to invest? We are a company that is offering mobility as a solution, and to enable that, we do invest in fleet.
We do intend to continue to invest in the fleet to support the various customer segments that are going to be coming from short-term rental and long-term rental in terms of enabling that mobility. On the car rental side, we do have fleet that we replace annually, and as we've mentioned to you, as we look at where the revenue pools are going to be coming from, and we require to grow the fleet, we are going to be growing the fleet. What I just want to leave you with, we do not look at fleet growth holistically from a point of view of using debt, buy the fleet, and put on balance sheet.
My colleagues have expanded to you around the strategic partnerships that we have with the OEMs. Part of what we are able to use as a mechanism and as a solution in our business is to partner well with OEMs so that we can put into our business a mix of vehicles that we will deliberately make the choice to buy and put on balance sheet, and those vehicles that we are going to be on an operating lease agreement with the OEMs for a period of 11 months. Those vehicles then allow us to generate the revenue, allow us to be able to service our customers, but it also allows us to continue on our analysis of how do we optimize our balance sheet holistically from a debt perspective, from an asset perspective.
Also, how do we invest in the vehicles, understanding the full value chain, and where are we going to be disposing of those vehicles at the end of their 12 months? We are going to be seeing growth coming from the leasing operations on their various customer segments. At this point, I do want to reiterate what Tlhabi has shared. As we look to grow the leasing operations, what underpins that growth is already having a customer in your books, understanding the requirements of the customer, and then investing in the vehicle that is going to generate revenue for us on average for about four years. Other areas that are important for us to invest going forward is the technology to digitize our processes.
The last slide that my CEO took you through was to say, how are we going to use technology to enhance our competitive advantage in the markets that we serve? The investment in technology is not meant, and it's not going to be large in-house development of solutions that are going to cost money to be put on the balance sheet and are going to require capital to be allocated at larger proportions. We are scanning the market, and we are looking at fintech players that are complementary to our business, that will enable us to tap into their technology solutions, procure those services, and enable the platform to allow us to be able to service our customers.
Lastly, from a strategic partnership, as we look to grow those strategic partnership with the fintechs, with the OEMs, we are going to see how it's going to be able to allow us to participate across the various ecosystem. One of the areas that we've said we're slow and we require a concerted effort in, is enhancing our scale in terms of digital access for our customers and enabling our solutions to be available on demand so that we are able to know where will a vehicle be required in terms of the right place, at the right time, and to the right customer. We are purposeful in terms of looking to acquire that human capital that is going to bring in the skill that allows us to increase our capabilities around data scientists, around data analytics, and around artificial intelligence.
As you rep that human capital skill set, as you look into the capital allocation on the technology platform with the vehicles that we are going to be putting on our balance sheet, those that we are going to be leasing, you start understanding where are the resources going to be coming from, where are we going to be investing to support the strategy going forward.
In preparation for the unbundling and separate listing on the Johannesburg Stock Exchange, the biggest task that we had was to go to market to raise funding for our business going forward. We were wholly funded from a divisional perspective in-house, we had to go introduce ourselves to the market, take the market through understanding our business, how are we funding the operations today, what are the assets that we are looking to fund on balance sheet.
We were successful. On day of unbundling, we had raised debt funding of ZAR 7.3 billion, that was debt that was really underpinned by getting the financial institutions to understand the value of the assets that sit in the balance sheet. What was very encouraging for us is to see the support from the financial institutions and the competitive pricing that we're able to obtain in the market as new kids on the block, being introduced into the market in terms of debt funding. That is the base against which we have started this business in its new era as a listed entity. That is why in 2023 we are also looking to get a investment-grade credit rating with one of the reputable credit agencies. What will that do for us?
Annually, as we review the facilities that are in place, and as we look to get capacity for the growth that's going to be coming from the various business operations, we are going to be engaging the market in terms of continuously rechecking and challenging the cost of funding that we're getting from the market, and also the security requirements that come from the financial institutions. I do believe that with the credit history that we are building today, with our investment-grade credit rating that I am confident we are going to achieve by end of 2023, it will then allow us to continuously engage the debt funders to make sure that I fund the assets on the balance sheet, I fund it right, and I also fund it at the best price.
We're also going to be allocating capital in terms of declaring dividends to our shareholders. Currently, with a dividend policy that is pegged at between 20%-30%, I guess the question may come as to why. There could be also a sense out there that it could be a little bit higher, perhaps 50% of profits after tax. I just wanna unpack to you why we are at the levels that we are at and what was the motivation. We are a business today that has got a capital structure of about 70% debt and 30% equity. We do understand that as we have these growth ambitions from leasing operations, fintech, catching the remaining opportunities from the car rental business, it will require additional investment into our balance sheet.
What we are purposely set to do is, as we are a business that generates strong equity internally, we allocate equity in terms of return to shareholders, but also retain equity that is going to be continuously building the strength of our balance sheet, so that when we do have the investments that are gonna be put into our balance sheet and we are required to increase our debt level base, it is coming into a balance sheet that is stronger in terms of the equity base. We do not grow the business with debt levels that start putting the business's balance sheet in total at sub-optimal levels that will subsequently erode value, but also subsequently just make the discussions with debt funders in terms of competitive pricing and debt packages that much more difficult.
In the short to medium term, that is the journey that we're on in terms of. Grow our equity base with the equity that we're generating internally while we start also sharing some of that equity returns with the shareholders. Certainly, after our short to medium term, four to five years, we will be coming back to our investors to really position what that balance sheet has done in the last three to four years and what they can look forward to in terms of the capital allocation of this business and the strategy that we'll be putting to them going forward. I will unpack the optimal balance sheet in the further slides that I'm going to take you. Lastly, why do we do all of this?
Because we are a business that is going to continue to generate quality returns for our shareholders in terms of return on equity at a target of about 25%-30%. Also, we are going to be a business that in a life cycle of each individual investment, in a life cycle of a business operation, that business must be generating returns that are greater than WACC. It is on these elements that some of our fix of operations are underpinned in terms of how do we return these operations into the right levels of return so that Zeda Limited as a whole is generating quality returns for our shareholders.
What I would like to just share with you here is to say, as we look at the various strategic pillars and where we want to go as a business, what are those matrices that indicate to us that we are geared for success, or we are making decisions that are going to be regressing the earnings of our business, the margins of our business, and the returns to the shareholders? On the income statement, I just wanna sit on the two matrices being EBITDA margin and interest cover and why they are so key for our business. As I mentioned in the previous slide on capital allocation, we are a business that invest into assets that we put on our balance sheet, and they are generating income and revenue for our business.
Those assets we depreciate over a cycle, car rental or short-term rental fleet being on average about 11 months, with the leasing business on average at about 44 months. What EBITDA margin does is it allows us to continuously assess each unit that we put on balance sheet to generate the revenue and the returns. Is it going to be EBITDA enhancing on a stand-alone, or is it going to be EBITDA eroding? If it erodes at the EBITDA level, it's going to already erode the returns to the shareholders at profit after tax. For us, it is an important measure because it already takes into account the fact that your earnings are generated by assets, which is sitting on your balance sheet. The interest cover, which when we finished 2022 financial year, was sitting at about 3.3x .
For us, it is an important measure because we are a business that is debt-funded, and it is important for us that as we look into our income statement, how we have operated our business and how we have generated returns, are we generating enough EBIT to be able to service the funding cost of the assets that we have put on balance sheet? We will continue to enhance and make sure that we improve on our interest cover because it just also demonstrates the ability to service the debt and the returns that we are putting on our business, utilizing this debt to generate the quality earnings. From a balance sheet perspective, I've purposely highlighted debt to equity, net debt to EBITDA, and return on equity. These are the ratios that are going to underpin our balance sheet optimization drive.
When we look to debt to equity, I shared with yourself currently sitting at about 70% debt, 30% equity, we are continuously going to be saying, as we grow our business, as we invest, how do we moderate and enhance that debt to equity, that it starts coming to levels that we believe are going to be at an optimal to maximize the shareholder return. Net debt to EBITDA, we closed at about 1.5x at the end of the 2022 financial year, which is a significant improvement when you also look at how that ratio looked like pre-pandemic levels.
I think it is demonstrating to the audience that Notwithstanding that the debt has been part and parcel of a funding structure for our business, the structural changes, the work that we've done around cost optimization, looking at the revenue and how we generate the revenue, it has allowed us to take almost the same level of debt, the same period of debt in a 12-month to 12 months, but generating better and better returns. This is what we are going to continue to focus on as the leadership team. Return on equity target of about 25% to 30%. As I've mentioned earlier, ours will be a business that has the ambition and seeks to be generating return on equity that is going to be the best in the industry.
From a cash flow perspective, it is important that we generate cash from operations because it allows us to reinvest that cash in terms of the replacement of the fleet, using that cash in terms of the grow of the fleet, and then supplementing that with the debt that we would have secured with the lenders. Our net working capital. We've got inventory in our balance sheet, and those inventory levels will typically be to enable car sales to have at least a month to 1.5 months, depending on the mix of the vehicles of sales for the new month.
I think what I just want to spend a little time on is when you look at the inventory that we've got in our balance sheet, it's inventory that is coming from the car rental business in terms of being defleeted, on average at about 11 months. It's vehicles that are coming from our leasing operations, and it's vehicles that are about three to four years. Those vehicles we sell through either wholesale channels or retail channels. Those vehicles at any point in time, and this comes to the demand planning and the fleet planning that Tlhabi and Litha have taken you through. We are structured such that we are able to put the vehicles on stock in balance sheet just in time that you will be disposing them and generating revenue and generating cash within a 30-day period.
I think what that demonstrates is we are able to make sure that at each point in our balance sheet, your level of idle assets is quite significantly low because your vehicle is either generating revenue from leasing or car rental, or your vehicle is already on stock to be sold at the retail or trade channels. Also sitting in our net working capital are trade and other payables, which will significantly be the purchases from the OEMs. Notwithstanding the funding that is in place, we still deal directly with the OEMs. We are retaining those relationship with the OEMs, and we procure directly with the OEMs.
From a payables perspective, with the balance of what is the cash generated from operations and what is the funding available in terms of facilities for each vehicle, then it is a very technical decision that we then make in terms of we will buy cash, and we will pay the suppliers directly, or we will buy with the funding, and we will then instruct the funders to pay the OEMs directly. Thereby, we are always, at any point in time, when we put a vehicle on balance sheet, you already know, is it affecting cash? Is it affecting debt? And what is that going to do in terms of your total capital structure and your debt in your balance sheet?
What I've shared with you here are our revenue categories, and I've summarized for you 2022, which are the numbers that we delivered to the market on the 28th of November, and I've summarized for you 2021. I think the bars are also already demonstrating to you, where is the revenue coming from? Where did the revenue of 2022 come from, and what can you expect in terms of the revenues going forward? If you look at the last three blocks, car rental revenue, car leasing, commission and other, that is indicating to you where can you expect revenue growth to be coming from. Car rental revenue, we've already spoken that the market in total is currently trading at less than 70% of pre-pandemic levels.
There is still a long runway, to borrow from Litha's term, of revenue that can still be captured in car rental revenue. What is also sitting in the gray bar of 2022 is new revenue streams that we brought on board. The increase in the subscription model as an example. I think as you take that from a new source of revenue and coupled with just the opportunities that still remain in terms of the traditional revenue stream, it gives you a picture of what you can expect from a car rental revenue in the short to medium term. We spoke about our leasing operations really tapping into those new market segments, and you will be seeing the car leasing revenue also in terms of growth bringing into the business. Commissions and other.
One of the reasons we are deliberate about the investment in fintech is because we want to be aggregators in the industry. We're not giving a customer a car, but we enable customers in the market to have peer ride sharing, coming together, managing cash flow, sharing an asset to get from destination A to destination B. As we become aggregators and we are offering a solution as a service and not necessarily an asset, we'll be earning various streams of commission and admin fees, and those will be the revenue streams that you will see start coming into the business. As I show you those revenue streams, I will then obviously take you through how it will impact the investment in the balance sheet.
I've purposely not highlighted car sales as a growth area because we don't sit here and look to grow car sales. We sit here to be able to say, "How do we offer a end-to-end solution to our customer buying a vehicle today, utilizing it right, and then optimize and maximize the returns on disposal of that fleet?" The disposal of the fleet itself is also something that is timed by the contracts that are utilizing the vehicles, but also will be impacted by the decisions that we make upfront in terms of what will be the vehicles on balance sheet and what will be the vehicles that we will have them as operating lease with the OEMs. It gives us a pool of used car stock that we will then be making sure that we dispose of it right and we maximize those returns at the end.
It will be a function. The outcome of car sales will be a function of all the decisions and the investment decisions that we'll be making as we seek to grow car rental, car leasing, and then obviously, the third one is not a direct contributor. I've also just thought, let me just spend a little more time in terms of what we shared with you in our annual report in terms of the cost of the business, but also in a graphical format tells you what are the costs that support the business.
I think the first thing that you are going to see is we've got a predictable cost structure with our investment sitting in direct cost of sales, which is providing the revenue in our balance sheet, and then other motor vehicle related expenses and rental expenses being a component that makes up our cost base. I think what I just also wanna share with you is the previous slide I gave you the revenue that we generated in 2022 vis-à-vis 2021, which had very good growth. We were able to do that with a staff cost that was flat year-on-year.
These are some of the structural changes that we were sharing with you at the beginning in terms of we take the business, we understand the investment, and then we make sure that the capital allocation in terms of supporting that business is done right, that it maximize the income generating ability and the service ability to our customers in terms of giving them the quality service. From a cost culture perspective, we will continue to be cost-conscious. We will continue to just make sure that as we continue to grow with the various strategic pillars, we will be doing so responsibly with the cost that move commensurate in terms of the proportional requirement to enhance and service the revenue.
With what I have shared with yourself in terms of the revenue that we generate, the various revenue streams, and also the costs that underpin our business, what does that do in terms of margins that we then deliver as a business? I won't touch too much on the revenue 'cause we unpacked it on the previous slide. The one element that I missed in terms of the revenue, when you look at car sales revenue, it is car sales revenue that comes from both leasing stock and the rental stock.
I do find that in discussions with some of our analyst audience, they almost forget that there's a pool of stock that comes from the car leasing operation, and I just wanted to just remind the audience so that every time you look at car sales, you know that it's a mix of from 12 months to 44 months of vehicles. We've delivered EBITDA of 34% with operating profit of 16%, and the burning question that keeps coming up, is this sustainable? Is this sustainable?
We say yes, and we confidently say yes because we are sharing with you today that what we have delivered 2021, 2022, and where you can see our growth ambitions coming from and how we are going to be growing in terms of asset-light investments, new contracts underpinned by an investment in our balance sheet, and the almost untapped potential that still remains in terms of the traditional car rental revenue business. You will certainly see a shift in terms of the revenue mix, but what you will also be seeing is the new margin and profitability contribution coming from the new revenue streams. As we've been assessing and balancing what that will do in terms of our returns to the stakeholders, can you bank this for the next five years until we come back to you with a new strategy?
We do believe that we've got the right makings of making sure that we continue to deliver on this right and these strong profitability margins for the stakeholders. When we talk about optimizing our balance sheet, what are we talking about? One of the things that we continuously say is there are almost no players in the S.A. market that resemble exactly how Zeda looks like. We have been able to unearth one in South America, and we have almost taken Localiza as a barometer to be able to say, "Are we doing the right things?" With those that are almost comparable in terms of how they buy the fleet and how they utilize the fleet and the revenue segments, how do we stack up?
What is very encouraging but also boastful, I actually want to boast about it if you'll allow me, we have a relatively clean value-enhancing balance sheet. You almost have no assets that are not income generating. We almost have no assets that when you look at how is it generating revenue and how is it enhancing the returns of today, it's left to discretion or it is sporadic. Sitting at 95% of income-earning assets, you can see the split in terms of the leasing assets that are the green bar, the car rental assets that are in orange, and the inventory that I spoke about in terms of we don't sit with idle inventory in our balance sheet. We sit with inventory just in time to generate and bring cash into our business.
I've spoken about what sits in our net working capital. This picture I've deliberately put it because as our debt and capital funders, equity capital funders look at our business, you then get a sense of where is this ZAR 1 going into the balance sheet? You almost have a good comfort that this ZAR 1 is not wasted ZAR 1. It is actually purposely going into income-generating assets. I think the other element that you see in our balance sheet, when you look at how we report, you've got the rental business that we report as current assets, and you've got the leasing business that we report as PPE. Two slides back, I took you through where is the revenue stream coming from.
You fast forward to this slide, you can then ask yourself, "Where am I going to see the change in the balance sheet?" We are going to be investing in the leasing operations. As we look to unlock those new potentials in terms of new customer segments in the leasing, understanding that we will have secured a customer, we will have secured length in terms of leasing income from that customer. We will then go source the vehicle to place with that customer and then fund that vehicle right.
You will see some of the investment coming from the rental operations, and I think what you will see from a rental fleet, you're going to see that continuum in terms of vehicles that are on balance sheet, vehicles that will be available for utilization, but vis-à-vis operating lease and that decision always made upfront understanding what impact it will have on our balance sheet.
We spoke about investments in fintech, and we spoke about, you know, investments becoming aggregators. We believe the impact of that on our balance sheet will be minimal because those are growth opportunities that enable us to be asset light, but enable us to also generate revenue and bring and connect customers either with each other or connect the customers with us. The assets or the balance sheet that I've just taken you through, how is it funded?
As I shared with you, we currently have a capital structure of about 30% equity, 28%-72% debt. I've also just purposely showed you on the right-hand side how is that funding split that is on balance sheet today. It is split between long-term debt to short-term debt. That's just something that I wanna pause on a little bit. I mentioned that we've gone to market. We were successful to raise about ZAR 7.3 billion. In that ZAR 7.3 billion, we were also specific to say, "Fund a leasing operation and fund the car rental operations." That was purposely done because how those assets behave in the balance sheet and the tenure of those assets in our balance sheet is different.
It was important to us to start de-risking our balance sheet in terms of the cash flows that will be required to service that debt by making sure that you then put a debt structure that matches the asset that it is funding. We've been successful to have debt packages in the car rental business that have got a tenure of short term, call it up to about 15 months, with, say, visibility that is emulating the period that the vehicle is on rent and it's generating revenue. What that does is, as each asset is on fleet generating revenue, it generates the cash to pay for the interest and for the cash to start paying down the capital repayment, which is, from a proportion perspective, is very much closely matched to the utilization rate of that vehicle in that one month.
That when you fast forward 12 months later, you've got a final payment of a debt with a residual value of a vehicle, that when you dispose of that vehicle as used car stock and you come into your total cash from an investment, you can then settle the debt and start the cycle over again with a new vehicle, with its new funding structure. The same is emulated in the leasing operation. What this has successfully done for us is make sure that at any one point, your liquidity profile is closely matched because you've got the asset and you've got the liability. What it also does do is, at the end, it allows us to be able to pay down and put a new vehicle at the end.
We believe this formula is what underpins our ability to successfully manage the debt, and we will continue to make sure that as we engage debt funders, we don't deviate too much from this structure because it works and it is cash enhancing, but it also de-risks the business. In closing, I did receive a question from my colleagues. Will I have the funds to support their strategic objectives? We've started the year with a headroom of about ZAR 2.7 billion, and we will continuously engage business in terms of understanding their funding requirements, challenging them in some instances in terms of what are we investing on, how are we investing, what is required upfront, and how do we do it best for the business in terms of our balance sheet optimization.
Making sure that we've got a debt in our books that is well supported by the cash flows, that when a investor looks at our debt, they get the comfort that it is not debt that supported non-revenue generating assets. We are able to service that debt at the end. With that, thank you. I'll hand back to my CEO.
Thank you very much, Thobeka. I hope you've got the comfort that we're just not dreaming in isolation, that we make sure that what we're doing is well-funded and we'll be able to execute with our CIO in the room today that is really capable to drive. I thought I saw him, really able to drive our growth strategy.
Just to end the room, the presentation and the day, Thobeka indicated that continuously you try to fit Zeda in a box, Zeda is trying to say, "But I'm not who you say I am." The intent of today was to really say, "Who in honesty are the Zeda peer?" When we benchmark ourself as to where we're heading to, what does good look like, and what kind of return we believe any investor will be comfortable with, this is where we're striving and this is where we're comparing ourself to. We thought today let's just make it a little bit clearer as to why this compare. If you look at it, Thobeka did indicate when she was talking about the asset utilization and asset enhancing balance sheet.
When you look at this, you've got rental business, as Thobeka was indicating, where we get our revenue, you've got leasing business, and you've got car sale. In South Africa, you do not have a company, even if we try to say, "But they have 10% of what you have," but you do not have a company that has this three play, where you've got rental, leasing, and selling of cars. We say, but if you look at it, Localiza is operating in emerging market. Yes, competition is not as heavy as it is in South Africa, but despite competition, how do we make ourself best? If you continue comparing yourself with someone who doesn't look and do what you do, you will believe that you're doing great. We strive for that greatness, and we believe continuously as we benchmark ourself with this.
You look at Localiza running Localiza car rental, Localiza fleet rental, Localiza Seminovos. You look at Movida. Same. You start looking at a business of this nature that provides a mobility. If you look at it, the technology base that this business is using. We're deliberate by not comparing ourself with our own principal, Avis Budget Group, because we believe the market we're operating in, as challenging as emerging market can be, it's equally challenging here. If they can do what they're doing best, why can't we? You look at the kind of margins they're driving on their business. You look at their ROE. We're saying, "This is our comparator." A thought as Thobeka was giving you, that if we really, really want to compare apples with apple, this is it.
This is what when Localiza is having a press statement and the results, you sit, you analyze, and you say, "What can we do better?" Is the population size the same? Definitely not. Competition, not. The challenge of operation. As we're seeing some infrastructure challenge, and there was a question about how long you keep your fleet, you continuously saying, "If we deliver a business and you compare us with your self-value as an investor, you'll generate that for the shareholder." Really this slide was really trying to drive home that we looked around. And this is it. We didn't go for the lowest, we went for the best. What does success look like? In the morning I started by saying three themes. Riding the waves of long COVID, structural change.
What are the head winds that are coming our way with regard to car sales margin, but more importantly, what are the tailwinds that we still see that really makes us believe that there is a stretch in this short-term car rental? Secondly, I said the second one that we're trying to address today is access to mobility. The challenges that we have with our public transport, the challenges that are still there with last mile, and the challenges that we have with long haul. You know we do have challenges with long haul in South Africa at least. Tlhabi spoke about the heavy commercial that we're growing in. If you look about access to mobility, that question and that theme, hope, was made very clear to you today. The third one, flexible way of accessing alternative financing of a vehicle.
Getting a lift, sharing your car, how to minimize the total cost. How do we make sure that with the leasing product we reach more than who and what we used to reach? More importantly, how do we change the face of the leasing to more flexible alternative financing? Really those were the three questions that underpin today. When you look at it and we say, "What does success look like with the peers that we've compare?" Is that at the beginning and at the core of Zeda are ambassadors. 1,700 of them in 11 countries. We know that if they are well looked after with proper employee value proposition, they will wake up every morning to deliver the best service to our customer. Tumi said it at the beginning.
As we look after our customers with Avis SafeDrive, we make sure that we've got zero harm to our employees, that everyone goes home in an unharm way as they came to us and vice versa. While operating in the country, especially South Africa, with high accident rate, and that's what we wake up every morning to make sure that we look after the ambassadors. When we look after them, we know that they will look after our customers, and that's how the value chain of success for us look like, and we continuously strive for that.
We know that when you operate and you do not look after environment and your governance is not up to standard, and you don't look after the environment that you operate in, and you don't invest in people and societies where you're coming from, it's a matter of time. We saw the floods that has really impacted an industry. We've seen weather patterns. These things are not strange. We know that if we deploy vehicles in area that has been said to be high crime rate, who do we employ for those vehicles that we deploy around the Kruger area? We employ the community in those areas. What does that mean? It means the region becomes a safe place to come to. As S.A. Is safe, people will come. Litha said, gateway to Africa.
You make S.A. safe, our business continue to grow in Namibia, our business continue to grow in the Greater Africa. That's why sustainable mobility provision is so, and it is at the core of what and who we are. If we are able to make sure that we've got EVs all the way, I'm sure we'll have EVs. We have hybrid. You said over 100, just under 100. With 45 on order. As I'm talking, maybe there's more than 45. Okay. That is what we're striving for. After we've done everything else, after we've done everything good, it matters not if we cannot bring the best return to our shareholders.
Us is to make sure that what Thobeka was talking about when she was talking about the EBIT margin, even, every value, every point that we make sure that our culture of cost containment is at the core. Revenue growth, the right revenue. Tlhabi spoke about how even with the e-hailing, we wanna make sure that this business will give us the best return. That's what we strive for.
Really, Thobeka, every day it's about working capital, asking later why our debtors the way they are. Making sure that we don't just go out and sell, that we sell and we collect. She spoke about inventory. We get into those detail with one intention because we know you remove your eye from the ball, then you destroy value. She spoke about the business that we are reviewing, even from WACC and ROIC point of view, to say, "Yes, you may be delivering profit, but are you giving us the kind of return that we want?" If not, what are the things we need to do to make sure that as a sub-licensee, as a agent, as a region, you give us the best return. What are the things that we need to correct?
Where is growth coming in your region?" That's why we will boldly say we will give the best and sector-leading return on equity. Thobeka mentioned the dividend policy that we're looking at. When you look at what Zeda of the future and Zeda today, and in this cycle of strategy of three to five years, is what you should expect to be when you invest in this business, when you work with this business.
That it is a business that cares about its people. It's a business that does one thing and do it and strive to do it best, which is connecting humanity. At this point, I'd really like to thank you very much for coming and joining us. I know Babalwa will still come for more question, and if there are no question for me, this is a great opportunity for me to say thank you. I really appreciate your time this morning.
Thank you, Ramasela. Thank you, Thobeka. I will now start by taking questions on the webcast. I mean, balance sheet management is one of the key topics that we discussed during our engagements, and I have a lot of questions asking questions about the topic. The first question from Sean from Mazi Asset Management reads as follows: In your Q1 update, you grew EBITDA by a commendable 23%, but you did not give us a sense of what profit after interest costs would be. I would imagine as you fund assets, interest costs would have increased quite materially. Could you confirm if this will be the case? Also, although funding at competitive rates with no holding company guarantees, will funding rates be higher? That's for you, Thobeka.
In terms of the funding costs, one of the key successes that allowed us to have funding that is very much closely linked to what we were enjoying in the past. Yes, the spread is slightly different, but on the main, we are still enjoying, call it prime minus in terms of our total pool of the funding packages that we have. The big value add that we had in terms of the funding was going to the debt funders and saying, "Look at what you are funding." It was not general funding sitting at hardcore level. It wasn't funding that will save its working capital or operating cost. We were very much deliberate in saying, "When we come to you for funding, there'll be a VIN number behind that. There'll be a vehicle.
You'll be able to see the vehicle through its life up until disposal and have the understanding of how it's going to generate its revenue. By using that asset that we had, we got very good response in making sure that we get the funding right at the right price. That's why I was saying this is a model that works for us, and we are going to continuously do so going forward. I think it, it is something to also highlight that as we were raising the ZAR 7.3, the strength of our business operations, the leadership team, our strategy, and our balance sheet is what also allowed us to be able to free up our previous principals so that they are not sitting with guarantees to support the debt.
I think it really speaks to the base that we've already set, and that is the strength that we are going to be growing from. In terms of the interest rates, we are impacted by interest rates, with the interest rates having increased significantly year-on-year. If you look at our leasing business. We are protected from the impact of the interest rate from a erosion of profit attributable to shareholders. When we price a contract, we are giving a financing package to a corporate client. In that financing package, they are paying for the right of use, and they are paying the interest cost. We recover the interest as it moves with the changes on our prime rate, we recover the interest from the company that is sitting with the asset.
It is priced in the contract. From a car rental perspective, one of the things that allows us to be able to generate right revenue for the right car is to be able to look today in terms of where is the demand coming from, broken up by customer segment, 'cause Litha and his team are able to get into the detail, so that then Dave buys the right vehicle. When you buy the vehicle, you know today what is the holding cost of the vehicle, and the biggest cost is the depreciation cost and the funding cost.
We're then able to say, "Can that customer segment afford this price point if we buy this vehicle?" Then we make the right decision upfront, so that as a business, we are always making sure that as we invest in the asset, we put the right funding, and we then dispose it in the right channels that it will be able to generate the requisite revenues. Thanks.
Thank you, Thobeka. I've got three questions for you from Roy from Sanlam Investments. The first question reads as follows: Please give us your estimation of ROIC for each of the major businesses. Also, your estimation of WACC for the group as a whole. That's your first question. The second question: Is EBITDA really relevant to a capital-intensive business considering re-replacement cost and depreciation is part of your business model? Isn't it EBIT more appropriate? That's your second question. Last question from Roy: What is your average cost of debt now? I assume it will be higher than that from Barloworld.
Average cost of debt, I'm sitting with average cost of debt at about prime minus 0.5%. Obviously the spread between the different packages differs, but on average, revved for everything that is available, we're sitting at prime minus 0.5%. In terms of the EBITDA margin being relevant for our type of business, we do believe it is the right measure because when we. What our business does is about how do we utilize the asset that is on our balance sheet, and that asset will incur depreciation and amortization in our balance sheet. That's why we say, before you even account for the operating expenses of the business, looking at that one unit and the investment that we've spent in that period, is it generating the right EBITDA?
You're then able to say, "I'll be able to then reinvest at that right EBITDA margin." Once a unit is eroding because its cost is too high for the revenue that it is generating, you will see your EBITDA margin shrinking, that for us then will be a guardrail in terms of how are we putting the right vehicle to generate the right returns. The third question?
Estimation of ROIC for each of the major businesses and your WACC.
Our WACC is currently estimated at about, from a low of about 12.5% to a high of about 12.9%. We are busy in terms of now that our funding are in place, and we've got a equity base from that we've listed with. We are busy with the work with an independent analyst to really confirm in terms of where is the WACC for Zeda against which we are going to be making investment decisions. If they recall, the WACC that we shared in September 2022, we were sitting at about 11.7%, and we were coming off a market that had significantly low interest rate.
We did understand that for 2023, we should expect the increase in that WACC, mainly driven by the interest cost in the market that we're in. Also, as you start looking at a profile of our business as a new standalone, the profile of our market cap. You also start looking at different variables in terms of what will be the equity risk that the market will attract. We've tried to understand those sensitivities to give us this estimate at the moment, but we will certainly confirm once it's been finalized with the independent shareholders.
Thank you, Thobeka. A question for you, Ramasela from James from Prescient Securities. Thank you for the detailed presentation. Could you discuss the specific options regarding improving your BEE positioning? Also, what BEE level do you think you would be at this year without making any changes?
Thank you very much. With the work that we currently have and underway, we believe it will bring us between four and three, but we're doing everything in our power to move it to a higher level. Part of the work that we're doing to get to understand, you know, engaging also with our OEM, looking at what they are doing because they do contribute a lot in the level of BEE because our biggest expenditure comes from that side. We're also, as I've indicated, doing a lot on skills development and the likes of the years program before we even get to the issue of ownership.
Also ownership is something that we currently looking at and at the time where the board and ourselves are in a good comfortable position as to what level we're going at, we will definitely indicate. We are striving at minimum to arrive at level three.
Thank you, Ramasela. A follow-up question from James for you, Thobeka. Could you say how much of sales in EBIT come from outside South Africa?
In terms of revenue, it's about 10% from the various regions outside of South Africa, the big ones being Namibia and Botswana. The balance are relatively small in terms of their revenue at the moment. In terms of their operating profit contribution, it sits about the same range, 8%-10%.
Thank you. A question from Yasser from Zahid Group. In terms of business growth, do you have a medium-term target that you can share with us, and how much ideally would be generated organically? Thank you.
Thank you very much. When you look at, you know, organic growth, you know, we do have a medium term, the large part of our medium term is based on the individual. It's based really on growing the leasing to different markets. We believe that's where, you know, we are ready to really grow the market segment on we currently have on the leasing business. You can expect a bit of a good growth that is coming from there. We were looking as well. I mean, we about our estimation in that is to really add about 5,000 customers on that market segment in the first two to three year plan.
When you look at what other growth are coming from a short-term point of view of the rental, other than the technological platform, is really recovering, as we've said, about 70% of the market is back. We believe in the next year to about 24 months, we should see the volumes be back to normality. If nothing goes wrong, that could be shorter than, you know, the 24 months. We really are. We've said it in the past that we see this short-term car rental still recovering in a gradual way, like between 20% and 25%, as part of the growth that we will be seeing coming from a short-term car rental of inbound.
Maybe let me just also add that the kind of revenue we're looking to be getting out of this market is also high yielding type of business that we will be growing into. Also looking at our agencies and sublease, we still believe that there are others that are not optimal in the way they operate. We have footprint and we have existing even customer base.
If I use example of the replacement business, which is the insurance business, that somewhere where we've got agencies, they're unable to even meet the customer requirement in those areas, and they are not well positioned for that, which we see, you know, that organic growth coming from, you know, optimizing our agencies and our licensing. Short-term and long-term in the next three years, you're looking at the agency and sub-licensees and obviously inbound, but you're also looking at the penetration of the leasing market.
Thank you, Ramasela. Any questions on the floor?
Hi, it's Andrew Moses from Metal Industries again. Are you geared enough to be able to get your kind of 25%-30% return on equity targets, or do you need your gearing to probably be more kind of 3: 1 to revenue, maybe 3.5: 1 to revenue to make that happen? Can you have that gearing? Are banks comfortable? I mean, your business is sort of a semi-bank model without the ability to have that. Can you have that sort of higher level of gearing comfortably with the comfort of the banks?
If you look at our gearing levels today, it's just under 3x . We generated ROE in 2022 of about 32%. Going forward, what I was, I think really at pains with explaining is our utilization of debt to continue to fund business growth will be part of our capital structure. We are going to be looking at as we grow the strength of our balance sheet by increasing the base of the equity in our balance sheet, how do we make sure that each rand of the investment is chosen right in terms of are we investing on equity and are we investing on debt?
We do believe that with that optimization, we are going to be improving our current capital structure, which is about 70/30, to levels of in the next medium term, three to four years, in levels of quality between 60% and 40%. That is underpinned by making sure that we don't also sit with high costly investment in equity that erode the shareholder value, but we also don't sit with too much debt that is putting the balance sheet on risk. The work that we're doing as we really unpacking the weighted average cost of capital for this business going forward, is also testing ourselves in terms of what is that mix of the capital structure that is also optimal. I think as we journey that, it's something that we continuously communicate to the market and what that does to the returns.
Yes. You can go ahead.
Is that on? Perfect. Hi, it's Cobus again from All Weather Capi tal. Two questions which are related. One is there an optimal net debt to EBITDA level that you are aiming for in the next two to three years? I saw you purposely left it out in the slide. The second one is on the Barloworld loan. I think in the full year results, it was in a region of about ZAR 1.23 billion, of which short term was about ZAR 395,935 million. Apologies. I just want to understand exactly when is that repaid, because obviously you've got enough facilities. How much of that is currently still on the balance sheet? Thanks.
Net debt to EBITDA, we finished 2022 with 1.5x . Our ambition is less than one, and as you look at our strategic direction for the next three to five years, we are putting business opportunities in place that are going to continuously enable us to work into reducing that net debt to EBITDA. I think what I shared in the presentation was even with the 1.5x , it is coming even pre-COVID levels, very much close to 2x. It has been a purposeful move and intent by business that as we continue to fund our business with debt as it were done, as it was done historically, but we are doing so with better enhancing revenue streams and opportunities so that it starts reducing the risk of utilizing debts in our business.
I think 1.5 is certainly something that we are going to be deliberate to continuously work on and get to at least less than one. In terms of the Barloworld debt, on day of unbundling, it was a total of ZAR 1.5, ZAR 1,550 billion, with the split of about ZAR 1.2 billion still sitting in long-term debt and another ZAR 300 million that was already classified from a short-term perspective. What is key, is today we are already servicing the Barloworld debt with the plan of fully extinguishing it by November 2023. It was planned for and agreed by board leadership before unbundling.
When you look at the debt inside our books, it is also a debt that had the assets that were sitting behind it, funded in the 2022 financial year while we were still wholly funded by the group treasurer. As we now seek to deflate, replace the vehicles, as we deflate, we are extinguishing the old debt, and the new debt is then being raised with the new funders as they put a new vehicle on balance sheet. Fast forward to September 2022, you should still see another very smaller portion remaining in our balance sheet with November 2022 fully extinguished. November 2023, apologies.
Thanks, Thobeka. Rowan, you can go ahead.
Thank you. I've got two questions. Firstly, to go back to the EBITDA discussion, can you just go through your depreciation policy? It is a cost in your lives. You buy a car, you sell a car, there's depreciation. Last year we had a strange environment in that used car prices were very high. You might not have had depreciation at all over a year in your rental business at least. Can you just run through your, or give us maybe an indication of where depreciation is going? One presumes it's gonna have to grow this year, if you haven't taken that depreciation, if your policy is fixed, you might have had margin uplift at the EBITDA level if you hadn't accounted for the fact that there would've been very little actual depreciation in car prices last year.
The short answer to that question, Rowan, is as you look at the EBITDA margin of 34%, the RV values ruling at the time have already been accounted for. We do depreciate vehicles from a planning perspective on a straight line over the 11-month period. Because we also have the car sales segment, we know at every month what are the residual values of those vehicles doing. Are they moving up or are they moving down?
When we move to reporting period, either interim in March or in September, we then work with our external auditors to say, "You would've depreciated the fleet that is on your balance sheet today, to call it 80%, but the residual values are indicating that they are sitting on 85%." You do a top-up depreciation so that your vehicles are then sitting at the right residual value.
If you've depreciated too much, you reduce the impact in your balance sheet. I mean, in your income statement. If you've depreciated too little, you then top up, because when you then report in your balance sheet, you're reporting vehicles that are depreciated to the residual value of that fleet on the day of reporting. That's something that is assessed at each reporting period, and it actually gets reviewed, and audited by our external auditors.
Thanks. Second question, insurance costs. How big is this in your, I presume it comes in operating cost. Do you self-insure to an extent? I mean, given South Africa's become a more risky place over recent years, how has that cost changed?
Insurance is also split into two. Our leasing business, the insurance responsibility sits with the customer because they actually have the vehicle. Because we lease to juristic persons, then they will typically take that vehicle and put it in their corporate insurance portfolio, and then they insure the vehicle. Should something happen to that vehicle, we will continue billing the customer until they finish the settlement with their insurers, and then we will then terminate the vehicle, get the cost, and then we replace the fleet with that customer. It's not a responsibility for the FML product that sits with Zeda.
For the car rental business, we are self-insured, it's currently a cost that sits in our books for vehicles that will either be damaged, and vehicles that will be in an accident and completely written off. The cost of those vehicles will sit in our expenses. As we also generate rental revenue, we also have a portion of that rental revenue that we ring-fence to fund the damages that we understand are going to be coming from business.
Rebone and his team are very good in being able to analyze the damages, you know, the pattern of where the damages are and how it's going to cost us, and then we make sure that as we generate the revenue, we also have sufficient to fund the damages that will be incurred by the customers that rent our vehicles.
Thank you. Any more questions?
I have the last question on the webcast from James. What are the growth opportunities in the leasing business this year?
Thanks, James. I think as I've emphasized and said it, I think the great opportunity that are coming. Leasing, as Tlhabi said, it's a long-term relationship and it's not transactional. A lot of our product that we're working on, we know that it is a three-year term, and we will be able to see a lot of growth coming in. May I add, we are seeing, and I did emphasize earlier about the issue about long haul. We are seeing heavy commercial requests coming on board because of the long haul issues of at our country, including even last mile. We're seeing that kind of growth coming in. Secondly, we're also seeing corporate.
I mean, we know question that we raised about financing cost, how to properly and efficiently deploy your capital in your core business, while you can let the Zeda expertise come and do your full maintenance. We're seeing that a lot lately coming on board. We're seeing even listed companies that are saying now, "How do I deploy my cash?" Which we've been you know, knocking on their doors for the last three years. You see now it's starting to turn, that people are starting to say, "What were you saying about that leasing?" That's the kind of movement that we're seeing, especially in S.A. corporate that is really encouraging to see.
I think we should expect to see that move for a while, because having fleet, not knowing the productivity level, not knowing the total cost of ownership, because you do have fleet, what can you save? I mean, I think Tlhabi also when she was mentioning it, part of the things that we're seeing a lot, and I think as Rowan talking about the crime, is the full system which include being able to see security and cameras that are fitted, but more than that, have someone see visibility of your vehicle more than just the normal, you know, vehicle recovery traditional one.
We're seeing a lot of corporate coming and asking for that. Long haul is where you could see a lot of growth and new market that we entering into in the next year to 36 months. That's where we're going to see an uptick of the leasing business.
Thank you, Ramasela. Ladies and gentlemen, with no further questions, we have reached the end of today's program. Earlier on, I had said today's program was premised on ensuring that you walk away with a better understanding of our business, our strategy, our financial framework, and our value proposition to investors. I hope that we have achieved that. In terms of further engagements, we will be participating in the Bank of America conference, which commences tomorrow, and we are also happy to take one-on-one meetings. You can reach out to us through email. I've been asked to make an announcement. I think you can exchange your parking tickets at the reception, sorry, at our registration table. On behalf of management, thank you for your time. Drive safe. Lunch is served just outside the room. Thank you.