Good morning, ladies and gentlemen. My name is Babalwa George. Welcome to Zeda's Interim Results Presentation. I head up investor relations, and today I'll be facilitating the program. I'll start by introducing the agenda. To kick off the program, Ramasela Ganda, Group CEO, will be taking us through the operating landscape and business overview. She will hand over to Thobeka, our Group FD, who will unpack the financial performance. Tomega will hand back to Ramasela to conclude with Outlook. I will then come back and give you an opportunity to ask the question. Without any further ado, I would like to call on stage our Group CEO, Ramasela Ganda.
Thank you, Babalwa. Good morning, and thank you for joining us today as we'll be presenting our half-year results on 31st March 2025. As Barbara has indicated, we will be covering our operating overview. The period that we've operated in was marked by a challenging economic and trade environment, and in our case, it was underscored by the importance of a strong business fundamental. What is important is how we've responded to it. We've responded by decisively executing on our strategy of maintaining diversified portfolios with unwavering discipline. What was key was to strengthen our operating model. Throughout this period, we didn't just navigate this complex global and domestic landscape, but we have achieved a double-digit earnings growth and delivered a solid return. That's what we will be talking about, Thobeka and I, today.
I guess where we are today in May, talking about the challenging trading environment, you know, for some people seems like it's gone or things are getting better, but it is important to reflect the times that we operated in. Global trade tensions remain elevated, and this was primarily due to the imposition of the tariff by the Trump administration, which then had counter tariffs. This has resulted in significant policy uncertainty. In our case, the automotive value chain, as well as the customers that are operating in the agriculture, we found ourselves in uncertain times. As that was not enough, domestic discord emerged within the government of National Unity in South Africa, where it centered around disagreement regarding the proposed increase in valuator tax.
Operating in an economy where growth is sluggish, yes, we have seen inflation improving, the rate coming down, and interest rates remain high despite the 75 basis point reduction on the repo rate. We are a Southern African business with Ghana as an additional business. What happened in the continent affected us significantly. We have seen Mozambique facing significant challenges politically, socially, and economically, and this is after the election. That disrupted key corridors, and as we understand, as a mobility business, key sectors that were affected were also transport, trade, and services. All of this affected market sentiment and also disposable income. When consumers are not certain, then the expenditure was under pressure. Directly, the automotive industry remained under pressure. This industry is encountering continuous and significant disruption, largely driven by new vehicles from the Asian OEMs, in particular China.
This evolving market dynamics is challenging, especially traditional business models. What is exciting as well in this challenging time for us is that this shifting from the traditional way of acquiring vehicles to now look and shift to the subscription as well as leasing as an alternative. Yes, competition remained high. With this heightened competition from new entrants, both in the rental and leasing market, we spoke every time everybody talks about the Chinese market, but this is an industry that is growing and has grown, which is the used car gray imports, and that is creating price pressure in our industry. That is life. That is the market. That is the landscape. What becomes important is how Zeda responds. We've got a robust operating model. In the face of all these challenges, the strength of our operating model has proven to be of a significant benefit.
We unlock the benefit through this operating model. Allow me now to really show you how we do this business. We unlock value by starting through market analysis and demand forecasting, which enables us to respond to the current customer needs and predict the future. This paves the way for the strategic financing of our assets, diversifying our funding source nature to reduce the cost and enhance our competitive edge. It does not end there. Our next phase is to ensure that we do prudent procurement, aimed at acquiring the perfect vehicle that is suited for the industry, be it rental or leasing or sale. What becomes important is acquiring it and placing it at the right place. The critical part of procurement is the total cost of ownership.
As we talk about usership economy, at the forefront of it, we're saying we know the cost of ownership, and it is important that we ever get into the business to understand the cost of ownership because that enhances your ability to generate strong returns. We all know leasing in a business has got 100% utilization, but it's not utilization that is important. It's making sure that the right cars are being used for the right people. If you can achieve that, then you know you're guaranteed the kind of return I'm about to share. The rental business, our target is always between 73% and 75%, and it becomes important for us to hold ourselves to that. After all is done, it is important to focus on selling the vehicle at the right time, at the right price, because there's, again, a way of enhancing your performance.
By deepening our understanding in this dynamic market, we are more agile and better positioned to take the opportunity of these changes. We can decide when to hold the vehicle and not to defleet it, and we can defleet the vehicle even when it's in the rental because that's the right time to dispose of that particular vehicle. That's how we responded. The outcome? That's us. Steady financial performance. Revenue, ZAR 5.2 billion, which is slightly less at 1.6% compared to prior year. Our car sales business is down 5.8%, which is primarily attributable to the decrease in the fleet volume, which was available due to a strong rental market that we had, particularly in Cape Town, at the onset of the second quarter of this financial year.
Additionally, we did encounter some minor delays in vehicle deliveries, but we have seen corporate SA requesting leasing contracts to be extended, and that affected your disposal. What is important is not the 1.6% or the 5.8% decline, but it's how a diversified portfolio has made sure that we effectively counterbalance with our leasing increase of 4.2%, alongside a very stable performance in our rental operation. Despite this, we have delivered an impressive quality of earnings, achieving an operating profit margin of 16%. This represents a 100 basis point up from the prior year. Our EBITDA margin remains strong at 34%, and really pleasing that our EBITDA grew by 11%, underscoring our operational resilience. Our return on equity stands strong at 22%, highlighting our commitment to deliver value to our shareholders.
I'm pleased to announce a dividend declaration of ZAR 0.55 per share, reinforcing our dedication to returning value to our shareholders while continuing to focus on sustainable growth and profitability. We are committed to fostering a positive impact on our environment, prioritizing the well-being of our brand ambassadors, ensuring the safety of our customers, enhancing empowerment and social well-being of the societies and the community we engage with. All this we're doing it in a responsible and a sustainable manner. It gives me real pleasure to say, you know, we report a 6% reduction in Scope 2 emissions as we continue our transition to renewable energy. This progress includes the installation of solar power and backup energy systems at five of our facilities. Safety, as you can imagine, we spend a lot of time on the road.
The safety of our brand ambassador is essential to our operational success, and we recognize the importance of our current lost time injury frequency rate of 0.27. We are actively implementing strategies to reduce this. When you look at the impact we have on our community, we have a significant investment of ZAR 7.3 million in initiatives focusing on youth leadership, development, and skills enhancement. This commitment underscores our dedication to nurturing talent and making a positive contribution to our society. We will then move to our business overview. As you may have already heard me when I started talking, a buoyant performance in the leasing business. The leasing business has delivered exceptional results, generating ZAR 1.4 billion revenue. This is reflecting a 5.6% increase in this market. This is driven by diversification across geographies and industries. Our strategy of growing the long-term mobility solution is showing continuously tangible benefits.
We have seen heavy commercial achieving a remarkable growth of a 31% increase in the number of units deployed. In addition, we did say Greater Africa is our growth pillar, and it really gives me great pleasure to report a robust growth in both revenue and operating profit, significantly fueled by business in Zambia, Namibia, and Lesotho. However, we know the instability in Mozambique, and that has adversely affected the business in Mozambique. We have seen early termination of contracts in that area. We've achieved an exceptional EBITDA margin of 60%. This represents 100 basis points up from the prior year, alongside an EBITDA growth of 8.8%. The operating profit margin stands at 27%, an operating profit growth of 8.3%. In Ghana, we recorded a positive operating profit compared to the previous year, with strong activity aided as well by the strengthening of the cedi.
We are, however, continuing to execute on our strategy to diversify from Ghana. Leasing provides a significant asset-light business model through maintenance income. As part of our strategy on funding initiative, we are focusing on expanding this asset-light business. Notably, our maintenance fund grew by 18%, which enhances our liquidity and enables us to really borrow and enhance our borrowing requirement or even reduce our borrowing requirement and our funding cost effectively. Thobeka will expand on how we're doing on the funding. The rental business, the rental business generated revenue of ZAR 3.8 billion, reflecting a decline of 4%. The business demonstrated resilience, agility, and a swift adaptability to our operating model, as well as the diversification that is within this portfolio and the market segment.
This was a performance of mixed results, characterized by a robust subscription business, which experienced exceptional growth of 49%, along with commendable performance from our corporate partnerships and the public sector. We take note of the G20 this year as well as a beneficiary of the process. In contrast, we have seen a significant decline in the replacement segment of 22%. That has reduced with inbound and local travel. Subscription business, as you recall, serves as a key driver of our usership economy. It's offering longer contract terms and enhances our yield potential. The growth can be attributable to investment that we've made in technology, which has streamlined our booking process that was previously a hindrance because the process used to take long and the customer used to really complain about it.
Since we have seen the benefit of it, this is a process we are now implementing in our long-term mobility eyelids, and that is what we believe it will generate a similar outcome. The decline in the replacement segment was primarily attributable to a reduction in claim rate within the insurance industry and a decrease in consumer preferences for car rental as an option. This is compounded by just ongoing price pressure within the replacement sector. Our operation in Greater Africa that are doing short-term rental, Botswana and Namibia, have delivered solid performance with operating profit growth of 17% and 4%, respectively. Last year, when we were here, we reported a 72% utilization, and that in our standard was not good enough.
What we've done, and we've always said, is ensuring that you've got the right vehicle at the right place and at the right time, alongside our stringent control on out-of-service vehicles. Also, we've benefited from low reduction incidents. Our utilization has moved from 72% to 75%. This is within our bench and our range of 73%-75%. I started saying that this business is down because car rental, car sales is down, but what is important for everybody to note is that the car sales delivered impressive results, even with volumes that are down. Volumes were down 23% in car sales, but revenue only 5.8%, indicating the quality of return. We generated more this year with less.
Our operating model, which emphasized buying of an appropriate fleet, optimal vehicle utilization, agile decision-making regarding when to defleet, when to hold back, in this fluctuating market environment has resulted in very strong resale values. Consequently, in this business, we have reported operating profit of ZAR 453 million, which marks a 3.2% increase and improved margin of 100 basis points. At this point, I'll hand over to Thobeka.
Thank you, Ramasela, and good morning. This is a story of a business that has been able to protect our operating profit and our EBITDA margins even in the face of a decrease in our revenue. Ramasela has unpacked that, yes, our revenue has decreased by 1.6%, and yet EBITDA margin is stable at 34% year- on- year, and our operating margin has increased by 100 basis points from 15% to 16%.
It is the agility of our operating model that has given us these results. What did we do? It was selling at the right price for each revenue segment across car sales, across leasing, and across car rental, so that at each revenue level, we are making the right margins. You see that by our gross profit at 43% up from last year. We have also refined and improved our assessment of residual values, taking in the information that we have seen from the disposal of our car sales and making sure that on our reported balance sheet value, the right residual value has been reported, which has given us an improvement from last year.
This is based on what we are seeing in the market and the fleet mix that we have that says we protect our residual values well and the vehicles from an assessment perspective and from a disposal perspective indicating that. We have also continued our cost containment culture, making sure that when we spend, we spend at the right places to derive returns for our business. Ramasela has shared with you that in this financial year, our utilization has gone up from 72% to 75%, indicating that operational efficiency and also the performance of the car rental business, even in the face of constraints on fleet, particularly in the quarter two of our financial year.
We have seen a benefit coming through from the foreign exchange differences, where last year, Ghana had reported a GHS 19 million loss in our operating profit, and that has improved to a GHS 6 million in this financial year, GHS 6 million profit. It is through the Cedi strengthening against the U.S. dollar. Yes, we have also seen our Rand strengthening against the U.S. dollar and giving us the benefits in this financial year. Areas of improvement that we have noted in our operating expenses is the increase in our bad debt provision or the expected credit loss. That is an area that I will continue to focus on with the team, with management, in terms of increasing our collection rate and making sure that we improve the position from the second half of the financial year.
These are all the various elements that had enabled us that even with a 1.6% decrease, you've got operating profit at ZAR 832 million in this financial year against ZAR 789 million in the prior year. Our diverse portfolio has allowed us to mitigate the impact of a decrease in one area of our business, and particularly in this case, car sales, by rental holding stable, defending the base that has been built consistently in the last four years, and yes, an impressive 4.2% increase in our leasing business. The growth in the leasing business is driven by SA corporate. We have seen impressive demand for leasing coming from Zambia and our Lesotho operations. And the mix of the requirements from our customers, you are seeing the fleet requirement shifting from what was traditional passenger fleet to service delivery type of fleet and light commercial vehicles.
That also has allowed us that the units that are sitting in leasing are helping us to generate a higher revenue per unit. Ramasela has spoken about our subscription products. It has gone up by an impressive 49% in the six months, helping us to mitigate the impact of the decline in the replacement business and the public sector demand, particularly the requirements that are starting to come through from the G20, also helping the business to defend the base and continue to offer the value proposition in the market. Car sales is at a decline of 5.8%. This is notwithstanding that revenue actually decreased by a double digit of 23%. Very much indicating that every unit disposed at the right residual value, at an improved residual value compared to last year, and getting better margins year on year.
We continue to optimize our deflating opportunities based on our market demands to achieve the best margins. Our net finance cost talks about a journey that started in 2023 when Zeda started trading as a listed entity. We were not comfortable with our cost of funding, and it was our intended strategy to reduce the cost of funding and to diversify our funding portfolio. It is pleasing to see that that has actually been well executed with the results that I'm going to unpack. In December of 2024, we introduced and implemented a common terms agreement. The common terms agreement is sitting at our newly listed Zeda Financing Ltd, which has moved funding from operating entities to sit at a group central level, Zeda Financing Ltd.
The Common Terms Agreement has come through to refinance the existing debt that was sitting at operating entity levels, and the refinancing has come at a reduced cost of funding compared to what we have this time last year. The Common Terms Agreement has also given us the benefit of starting to shift from almost 100% secured funding in our portfolio to unsecured funding. We have also seen the benefit of being able to streamline financial covenants that were coming from bilateral agreements sitting at OpCo level to now be streamlined and solidified at Zeda Financing Ltd. The second major event that we were able to achieve in this financial year was our first bond issuance.
We went to market in the first in March, the middle of March, where we were oversubscribed by 3.2x , and we were able to raise ZAR 850 million and cleared five basis points below price guidance for both three-year term and five-year term. The bond was also issued at Zeda Financing Ltd level. All this work that we have been doing is now coming through in what you see in the slide before you, where our net finance cost has come down by 90 basis points compared to the same time last year. Yes, it could be argued that we benefited from the decrease in the prime rate, which started in September, and we had three consecutive rate cuts of 75 basis points.
The weighted proportional contribution in our six months of that 75 basis points is 50 basis points, which does then indicate that the difference between the 90 and the 50 basis points is the work that was driven by management and the business to also look at reducing our cost of funding. To close with net finance cost at ZAR 348 million, notwithstanding that we have had an increase in our average debt year on year of ZAR 472 million. Our effective tax rate is at 27% compared to just under 29% in the same time last year. The improvement that we've seen in the foreign exchange from the negative to the positive has given us a benefit, a positive benefit in our effective tax rate, and our disposal of used vehicles have also given us a benefit in our effective tax rate.
We continue to have a disciplined tax management culture. We have delivered robust earnings against all the backdrops that Ramasela has already shared with you, with basic earnings per share at 11% up and headline earnings also at 11% up. We do have capital items in this financial period related to two properties that are currently held for sale, and they have been correctly disclosed as non-current assets held for sale. That is the difference between our BEPS and our HEPS. Our HEPS and our BEPS, and looking at our earnings, really an outcome of what I've unpacked being the solid gross profit margin, our improved position on the foreign exchange differences, and the work that we've done to reduce the cost of funding. If you look at our operating assets, we continue to invest in the operating assets that are going to drive revenue.
We've seen an increase in the rental of what is on balance sheet compared to last year, and that is really driven by the shift in our strategy in this financial year, looking at what the market is offering as an opportunity from a 12-18 months perspective and deliberately choosing what to buy and put on balance sheet and what we then lease. You will see that in this period, we have a higher proportion of vehicles that are on risk or on balance sheet compared to what we have in the previous period, with the rental operating assets having gone up by ZAR 660 million in this financial year. If you look at the leasing business, again, supporting the growth that we've highlighted coming from Zambia, coming from Lesotho, and the demand that continues to come for subscription and mobility from our corporate South Africa.
Our net working capital has seen an increase in the receivables, and I have spoken about the impact on that in our bad debt provision. This does remain our key focus area for H2. As we understand and respond to customers that are under cash constraint and are coming forward to us to look for support in terms of extended payment plans, we continuously work to assess how we can revalue the contract and how do we make sure we look to support them during the challenging times, but still continue to drive cash collection for the business. We have maintained our inventory flat year- on- year. Our diversified sources of funding that I have unpacked earlier continue to respond in providing the financing to buy the operating assets for both rental and leasing. We are a business that continues to leverage debt wisely and responsibly.
We use the mix of debt and equity to continuously fund our operating assets. You will see in this period that our interest cover times have improved to five times, really indicating that we continue to have the ability to meet our interest payment obligations as and when they come due. Our net debt has increased to ZAR 6.4 billion, and it is in response to the required investment in the fleet that I've unpacked on the earlier slide. Our 1.9 net debt to EBITDA is still within our financial covenants, and it is a matrix that does also get driven by the timing of our investment, where the timing of long-term assets does generate revenue over a longer period of time than the rental fleet. We will continue to make sure that we monitor all the leverage ratios to continue to be responsible in our financial stewardship.
Our capital structure, we are sitting with equity at ZAR 3.2 billion in this financial year, and out of this equity, we have delivered ROE of 22% against 23% in September 2024. This does continue to say, as we are increasing our equity base and providing that financial stability in our balance sheet to support the growth of our operating assets, we are doing so by continuing to create value for our shareholders. Our capital structure has closed with equity at 33% against a net debt of 67%. I also just want to highlight that in the two and a half years that we have been listed, we've generated ZAR 1.7 billion of equity buildup. This is double the equity that we started Zeda with, which was at ZAR 1.674 billion in December 2022.
This is testament of our operating model, our agility, and our continuous ability to generate equity inside our business with the investment that our shareholders have entrusted us with. Also, just to remind you all that in the 2024 financial year, we declared a dividend to our shareholders of ZAR 195 million, and pleasing that even in this half of the reported year, the board has approved a ZAR 0.55 dividend. The funding that we have closed the financial year with is just under ZAR 11 billion. This is the mix of the funding of the Common Terms Agreement that we implemented at Zeda Financing Ltd and the bond that we have issued in the middle of March. We also continue to have OEM backed floor plan funding that supports our car rental operations.
Those OEM backed floor plans will still continue to be secured, and we have catered in our structure of funding to have a portion that will continue to remain funded. This was aligned with the debt capital market and with the financiers that are sitting at Zeda Financing Limited. Our headroom as we close March is at ZAR 3.3 billion, and all our financial covenants to confirm that they have been met. I've mentioned the transitioning from secured to unsecured. This time last year, we were sitting with almost 100% of our funding being secured. The work that we have done from a funding strategy that I've unpacked has helped us to shift to now sitting at 66% unsecured and 34% secured. In that blue bubble, as I've highlighted, we will still have a portion, predominantly the OEM backed funding that will sit as secured funding in our portfolio.
As we look forward, what are we going to focus on? The discipline to generate cash and the continuous work to manage our working capital. That will be our key focus for H2. We are going to continue with our cost containment culture, driving operational excellence to help us manage any adverse impact on revenue by making sure that we still protect the margins by how we deliver that revenue. Lastly, the work of diversifying our funding will continue, and the drive to reduce our cost of funding will continue as we support the strategy of growth for Zeda. With that, I'd like to say thank you and hand back to Ramasela.
Yeah, you can be the greatest, you can be the best, you can be the king crown banging on your chest.
Okay, thank you very much, Thobeka.
We are left with a couple of months just before the end of the financial year. Just looking at our business to drive a meaningful growth, as you know, as I spoke about the dividend and Tomega spoke about financing, growth was at the center of our discussion. To drive this meaningful growth, it is critical for us to embrace the evolution and strategic changes that are happening in the technological environment. Our commitment and aspiration to deepen the usership economy, it compels us to enhance our digital integration, optimizing mobility and leveraging data-driven insight. For this, our CIO has done a great job on our behalf to present and enhance IT direction. The board has approved, the board has endorsed the key strategic shift towards adopting technology as a digital core.
As I've said when I spoke about subscription and iLease, that this is important, we have done that in a sprinter format for the subscription, and we saw the results immediately, and we will continue in that way. Looking at our cost efficiency, Tomega spoke about it, we are driven to make sure that top line is strong, we deliver results on that. What becomes more critical is that we do not lose that cost, the top line after we've done that. We will continue to implement our lean cost management to ensure efficiencies. That, as we know it in Zeda, we will continue to see the waste and we will reduce the waste. We will do continuous improvement of our process to sustain profitability. I spoke about Ghana, that process will continue. Data and technology encompasses all. Our business fundamental remains very strong.
Access to competitive funding. Tomega has spoken at length about what we have done since we started listing and what we still intend to do. Yes, when you look at the outlook, there are a lot of tailwinds and there is much more headwinds. When you look at the access to competitive funding, we are very optimistic that we will see a rate cut soon. We believe that will augur well to drive affordability and increase disposable income and positive sentiment to the market. In that, expecting our business to continue to grow. Access to vehicle, again, mix of tailwinds and headwinds. With new entrants in the market, there are many alternatives. However, the car rental market is dominated by vehicle price under the ZAR 300,000 threshold. The influx is not yet in that category in the main, maybe one model in the influx that we are seeing.
Looking at access as well of vehicle freight, the freight rail underperformance continues to drive the road traffic, which then talks about our strategy of heavy commercial still have some way to go in that. I'm saying some way to go because even when we started the strategy, we always say it's a road rail road strategy. The unfortunate underperformance of the freight rail, it is what just made the heavy commercial continuously to be where it is. The tariff on the automotive sector value chain remains a concern for our industry, and I think for the world over. Talking about access to market, I spoke at length about Mozambique. It is still a market that has got great potential and opportunity, and we hope that things will ease up soon.
Our operation in Zimbabwe, we believe as we go in fully in that, that will be another great opportunity for us. We are seeing green shoot coming out of public sector, and we expect some good things coming out of that. When you look at the end of our value chain, when all else is said and done, then we get to the disposal. As much as I spoke about the rate cut, the downgrade of the GDP growth in South Africa is still a concern for disposable income. As we look at the car sale business, as we look at disposal, that becomes an issue. However, our strong operating model, as you've seen today, our theme has been about the operating model because it is the operating model. Our agility of it, knowing when to do what, really generated great return.
Hence, where we sit in now, we're saying our strong operating model will ensure, and we have seen it, that the cost of sales can decline at a rate that outpaces revenue. Chris, and that drives resilient in our resale value of our vehicle. I'd like to thank you all for taking time and joining us this morning. Thank you.
Ladies and gentlemen, I would now like to give you an opportunity to ask questions. At this time, I'm going to start by reading the questions on the webcast, then I'll come back to the room. May I please have the roaming mics ready for questions? The first question on the webcast is from Alex from Integrity Asset Management. The question reads as follows. What percentage of the leasing fleet do you sell in a year, and do you expect it to remain at this level?
You are currently spending around 20% of revenue on leasing fleet capital expenditure. Do you expect it to remain here or return to the lower level seen prior to the pandemic? That's the first question. If I can take the second question from Yasir from Zahid. Despite EBITDA decline, EPS increased 11%. Would this mainly be due to drop of effective interest rate by 90 basis points? Thank you. Let me take the third one because it also relates to depreciation. That is from AJ from Peregrine. You called out the change in depreciation model, reducing depreciation charge by ZAR 77 million. However, car rental depreciation charge reduced by a total of ZAR 140 million. Simplistically, depreciation per vehicle declined materially despite revenue and fleet size broadly stable. Can you explain what drives this lower depreciation charge? I'll pause here and take answers from the team.
Can we start with the EBITDA and depreciation question, Thobeka?
Thanks, Babalwa. If you look at our headline earnings per share and what has helped us, helped it to increase to 11%, it is the lower cost of funding, the almost 200 basis point benefit from the effective interest rate that we have reported in this first half of the financial year, and the uplift that we have seen in the gross profit margin.
The second question about depreciation? Tlhabi will take that. Tlhabi, can you please have a mic?
Thank you for the question and good morning.
In terms of the depreciation, we have continuously said that the operating model agility with which we can then decide how we mix our risk vehicles versus what vehicles we lease is really one of the things that helps us be agile and look at our profitability in relation to our balance sheet. If I look at what has happened in this current period, we have put vehicles that are smaller on balance sheet and opted to lease the bigger vehicles. That is one of the factors that has helped the depreciation be lower, as well as in the resale values that we are seeing within the marketplace. We are seeing the vehicles that we are purchasing holding their resale values very well.
Our approach has always been that the depreciation needs to take into consideration during the life of the vehicle while it is on the rental fleet, how that is used as well as in the resale value. That is predominantly what is driving that lower depreciation rate.
Thank you, Tlhabi. Ramasela, are you going to take the question about leasing fleet?
Good morning and thank you for the question. From a car sales perspective out of the leasing fleet, no, we do not expect the volume to remain the same year on year. I think what is important to understand from a business perspective is that the volume of vehicles that we dispose of annually is largely driven by our replacement cycle, and this changes annually.
Equally to the second part of the question, this also talks to the CapEx investment that is required annually, which is largely informed by our pipeline, our replacement cycle, and thus the levels will not remain the same year on year. I think from a forecasting perspective and how we plan, whether it be our procurement or our disposal, those expected levels are then reviewed annually to inform those buy decisions from a CapEx perspective. Thank you.
Thanks, Ramasela . Can I take questions from the room? If you can, please raise your hand and introduce yourself before you ask your question. Okay, let me continue on the webcast. I still have more questions. A question from Rowan. How large is the heavy commercial fleet relative to total fleet? Can you provide some more color on the gray market for used vehicles? Those are the questions from Rowan.
Do you want to start, Ramasela , with heavy commercial?
Thank you for the question, Rowan. As Ramasela alluded, we have been growing our commercial fleet quite extensively over the year. As a percentage perspective, the fleet still remains below 10% in terms of our fleet mix. In terms of just looking at the exposure and the diversity of the fleet, I think this talks to then diversity from a fleet mix perspective, industry perspective, but also the type of exposure that we've taken on. Claudine, can I hand over on the gray market?
Thank you very much for that question. I think if you look at the information, so outside South Africa, it is a major challenge in the countries that we are operating in, especially Botswana, Zambia, Mozambique, Lesotho. It is really a major competitor because the market strives on it.
If you look at South Africa, you know, undisclosed number, and at the moment, the numbers of about ZAR 8 billion lost in the economy with regard to that. That is a number that can even be bigger, and we are not sure about it. With the pressure in the consumer, you know, most of the consumers, because they are cheaper and most customers have no idea about the condition of the vehicle, they may opt for it and they suffer. It is something that really needs proper attention from all the regulatory framework across our regions.
Thank you, Ramasela. Questions from the room? I will squeeze the next three questions. We have five minutes left. A question from Mohammed from Zahid.
Is the car sales revenue expected to jump up significantly in the second half of the year compared to the first half to reach an overall normalized growth in full year 2025 versus to 2024, considering extended demand from corporate customers to extend their leases and delay fleet disposal in the first half of the year? The second question is a percentage of debt. What do you target the contribution from floor plan suppliers to be by year end? The last question is the current gross profit margin sustainable? If so, does gross profit margin have room to further improve? Tim, if you can try to answer the three questions.
I will do the last two and then hand over to Claudine on the car sales.
In terms of the target for the OEM-based floor plan funding, which is also in the approved capital structure that we aligned for Zeda Financing Ltd with the debt capital market and the Common Terms Agreement financiers, is to have 20% of funding still secured and largely those floor plans, and then the 80% will be unsecured. The transition is up until the 2026 financial year. We negotiated a transition of about 18 months for us to get to that target. In terms of the gross profit margin, in terms of value or more upside, as we continue with our Africa strategy and as we continue with the diversification of the portfolio from the car rental and with the subscription, we do think that the various revenue segments will at least help us to defend the current base that we are already reporting.
Thank you, Thobeka.
The last question is about the car sales revenue. Our expectations for the second half of the year.
Good afternoon. Thank you for the question. I think in line with our operating model, there is an expectation for revenue to grow in the second half. That is simply because we are in a seasonal cycle of defleet where the volumes will become available. To answer the question around extension of contracts, I think we are a customer-centric business and we will put the needs of the customer first and foremost. In our planning, there is a replacement for those extended contracts in the next six months, although saying that our fleet size is also planned to grow if you consider the pipeline. Thank you.
Thanks, Claudine. Ladies and gentlemen, we have now reached the end of our session. Thank you for joining us, for our guests.
Refreshments are served and everyone else do enjoy your day further. Thank you. Bye-bye.