Good morning, ladies and gentlemen. Welcome to Zeda's interim results presentation for the half year ended March 31, 2026. Before we start, I would like to extend a very warm welcome to our new Chairman, Mr. Sydney Mhlarhi, who's joining us for the first time. Thank you for joining us, sir. By way of introduction, my name is Babalwa George. I'm the executive responsible for strategy and investor relations. I am facilitating today's program, and I'll start by taking you through the agenda.
To unpack our performance is our Group CEO, Ramasela Ganda, who will take us through themes and highlights, as well as touching on business overview. She will hand over to our Group FD, Thobeka Ntshiza, who will unpack financial overview. Ramasela will come back and conclude with outlook. I will come back on stage and give you an opportunity to ask questions. Without wasting any time, I would like to call on stage our Group CEO, Ramasela.
Thank you, Babalwa, and thanks again for joining us as we'll be taking you through our results. Before I do that and get into the numbers and get to the results, I would like to share our view of how we believe our business should be viewed. It is my conviction that the market is yet to internalize and really embrace the right perspective, which it is very important in understanding Zeda and the performance. We do not operate an integrated mobility business that is encumbered by debt. We function as a capital deployment business that utilizes the integrated mobility as an operating mechanism.
This distinction is not a mere semantic. It is significant in how you look at our business, what metrics we use, how we look at risk. What are the indicators of growth? Our primary measures for our business is ROE and the spread between invested capital and return on that capital, and our capacity to expand on that. More importantly, ability to sustain it over a period. Once you adopt that right perspective, the way you will even review these results will be completely different than what you will have done a minute or so before.
Now that you've got a little bit of insight of how we look at our business, I would like to introduce Zeda as a capital efficient compounder. We have successfully outpaced our cost of capital by generating 150 basis point spread. Every rand of return that we generate goes through at least six phases, and these phases are managed by our internal staff. The risk relating to those phases are very important. It is important that you understand these phases and how we manage the risk, because I believe after that, you'll understand why our returns are sustainable and why our capital structure is a precision instrument rather than a leverage bet.
What are the six? We start with the engine, which is our capital raising. Before we select a car or even whether we sign a lease or we take it to rental, we start with raising capital. When we listed for the first time, for those that can remember, one critical thing for us was funding, and we said funding is not a means to an end. It is a strategic lever that will make us remain competitive. We did our funding strategy, and we continue to see the benefit of that execution today.
Here's I'm talking about 150 basis point spread today, Thobeka will expand on it later. That we've successfully raised capital at an average of about 10.8%, Thobeka will tell you where we come from. The next phase then is to determine the optimal deployment of that capital, that will include the appropriate vehicle that we need to buy, identifying the segment, whether geographically it's going to be in South Africa or somewhere else. That decision, we manage it through the life of the vehicle. With precision management of that risk, the outcome will be shown in the next slide.
We manage credit risk. Conventional lenders, some in the room. A default often lead to financial losses, in our case, it leads to a repossession of a vehicle. When we manage it, our goal is to make sure that that repossessed vehicle has got value that surpasses the outstanding liability. In that way, we can sell it profitably or deploy it to another leasing customer successfully. We manage maintenance risk. Every vehicle has got a maintenance budget, and we build that as a prepayment that we get.
As a person buys fleet, we have that. Our job is to make sure that there's a discipline in maintenance of this. You will see it, how our maintenance fund is sitting, because we continuously have maintenance profit that is done by our actuaries, and we continue to grow that fund. Utilization risk. Utilization risk, really, if we manage it well, we say it. If we really have superior execution of it, can almost be purely as linear to the financial reward.
The leasing business, we've got 100% utilization the moment you go. The rental business, we've set ourselves a 23% and 25% utilization range. The moment of truth, which is the residual value risk that we manage. Everything that we've said, from the time we decide on the vehicle, which segment to get into, which vehicle to buy, how we were disciplined in maintaining the vehicle, assumptions that we have used, especially in this changing automotive. That's what we do every day. We look at it. Everything else come through during this moment of residual value.
With all this, we say this is how we judge ourselves, whether we've managed, we've raised capital well, we deployed it well, we've managed the risk very well, and that gives us that. It give us a return on equity of 21.2%. It also gives us return on investors' capital of 12.3%, which is 150 basis point spread between it and the cost of capital. This number means when you compare it to last year, that we have generated economic profit 1.9x better.
We've expanded it better than last year. Thobeka will expand on that spread. All of this resulted in us, and it's based on the revenue growth of 3.2%, which is a ZAR 5.5 billion revenue. This is really supported by growing leasing business. Our leasing business grew by 7.5% and our rental business by 1.4%. Our operating profit of ZAR 841 million is down ZAR 5 million, with the margin down 0.6%. The 0.6% is a reflection of the residual value compression that we've seen.
When we look at the work we've done in the previous year to make sure that we extended the life of vehicle, to make sure that we defleet at the right time, has really cushioned us from some of the bloodbath in the market. This is actually even better than what our projection was saying. In addition to that, what we've done in preparation, as I said, we managed the risk. In preparation for further pressure on the residual value, we have then implemented a tactical move of moving from ownership in certain vehicle segment to leases.
We've seen an increase in our leasing to ensure that when the fleet come to an end of its life, then it's not on our balance sheet. This change is really to make sure that going forward, the model pressure do not hit us. The operating margin was however boosted by the benefit that we've done managing the credit loss. I spoke about credit losses. When you manage credit loss very well, it does not result, or expected credit does not result in a loss. In our case, it has proven that with the vehicles we've repossessed last year, we've made a significant provision on expected credit losses.
Our team recover the vehicle, made sure that the value of the vehicles were in a condition that we were able to deploy them profitably as a used car lease back to corporate. That is a business that we've never done before of continuously giving to corporate. Where we'll take the used car one, we'll deploy it to individual. We are successfully seeing corporate taking on the used cars on leases. The shift to operating leases have resulted in the reduction of debt. We've cleared about ZAR 750 million of debt when we moved to that. In the same breath, we continue to increase the car rental at the right level.
Our early entry cars, the hatchbacks, small vanilla vehicles, we have bought more of it because that market is still buoyant, and that is on our balance sheet. This shift and the reduction interest on the ZAR 744 million, plus the work that the team has done in continuously diversifying our debt. Last year, for the first time, we went out on our first bond issue, and in that it actually increased even the spread that we are seeing today on the ROIC and the WACC. This has resulted in us achieving a headline earnings of ZAR 2.01, which is 6.1% higher than last year.
I must say, continuously when you look at it, every year, as we get better and better in this compounding game, we are confident that we'll continue to generate cash above the required investment. Even in this growth cycle, because we still believe there's a lot of growth in the areas that we're operating in, that we were able to present to our board and our board approved a dividend payout of ZAR 0.80, which is 45% higher than last year. This is within our dividend policy of 30%-50% of net profit. These results were achieved.
I've mentioned the headwinds, about the automotive, the Chinese, and the number of times that some of the model get to be changed, which impact the residual values. We're operating in that environment. We've managed to achieve the results that we've achieved. With that as well, we actually had a good run. We were operating in a period where the interest rate was low, low inflation, disposable income was much better.
Granted, not where it should be. The gold price is doing well. Our customers in mining sector also very well. It was a mixed bag in this period. When you look at what I said before about what we manage, if you look at capital raising, which is in the engine of everything that we've done. Thobeka will expand on it, but I think the one thing that we continuously pride ourself on is really that we continue to diversify. We're seeing interest rate. We started with secured.
Everything was secured because every funder that we used to go to wanted our vehicle, and because we knew that as a matter of time, with us executing, we have since shifted away from that, and Thobeka will expand on it. We looked at Residual Value, the deployment of vehicle, where are we deploying? This is really the outcome of it, that as we continue to deploy the vehicle, rightfully so, under Claudine and her team, when you look at the margin compression, they're still to date, the vehicles that we buy, that are after utilization, generating more profit.
That is because of the segment that we play in. The advantage of having a diversified portfolio allow us to play in number of segment and to choose what we put on our balance sheet and what we don't put on our balance sheet. In the year under review, I think the one thing to note for us, as I say, we manage credit, we manage utilization risk. Our utilization risk was below our 73% and 75% at 71%. This is really driven by a continuous decline. We're seeing it even on our side with measures that we've put.
We're seeing damage costs coming down and our insurance replacement business is continuously going down. Equally, it was a good year. As I say, disposable income did improve, and we've seen it with our leisure business. This is one business that has done exceptionally well for us in the growth and in that business, especially the domestic play. We've seen a lot of South African really enjoying just being around the country. That has been one of the positive movement.
The issue about leisure is that it's short-term, it does affect the length of rental, but high yield. Every time we balance between the yield as well as the length of that business. Discipline and strategic execution. I can mention a number of things that we said couple of years that this is what we're going to do in our strategy. What we have executed. We said we want to grow our leasing book. Leasing in 2022, 2023, it was 22% of our revenue. Today, leasing contributes 31% of our book.
We said as a strategy, we want to grow our car sales business, because as we put more vehicle, whether through leasing, as leasing grow, those vehicle needs to go out. We needed to make sure that as we expand, we expand the retail business and we deploy a digital dealership. We continue to sell out of that digital dealership to make sure that we maximize our return. This is where we sweat. You will see that when I talk about the dividend that you get, here, we say we're getting productivity because out of that vehicle, we're getting more profit.
The one area that we also said last year, we've got more licenses, which is a geographical expansion in Greater Africa. We've got more licenses in different countries. We've got companies that are still in our stable that have done exceptionally well. Zambia was the star of the show for us in the last six months, really boosted by telecommunication and mining, followed by Ghana and Botswana. Lesotho, we appreciate South Africa with the water project, continue to do very well in Lesotho. The countries that really has gone through challenging period, Mozambique, economic recovery is still under pressure.
We're still seeing more companies leaving that country. We have now looked at the size of that business and what we need to do. We're exploring new opportunities because in period like that, we have identified new opportunities coming. Namibia, we've addressed the issue that we had and the management there, and we are really turning around to that business. Very excited about what is happening now. Spoke about asset-light business when I said, when you look at what we manage, Maintenance Fund.
Our asset-light business is Maintenance Fund. Maintenance Fund is sitting at ZAR 1.7 billion. This is a growth of 13% from previous year. What does Maintenance Funds give us? It give us cash in advance for us to deploy as we see fit, whether to deploy it. Our intention is we need to deploy it continuously where we expand our spread. Spoke about subscription business. This is one business last year that we did exceptionally well. The base was high. With everything that has come in, we have seen an intense competition crouching into. That intense competition came with price slash.
That caused a lot of customer churn. At the moment we were sitting in, we're starting to see that business coming back. Subscription is not an easy business. It's not a car rental business. It's not what we normally do. When you do it, you have to do it well. Our customers give us really feedback about it. I'm very positive about what then that will look like going forward. Diversification of funding source. When we're sitting here today, I started by saying the engine of our business is this.
The funding strategy was our business, and we really said we needed to increase. We needed to diversify our funding portfolio. We needed to make sure that we had a lot of short term because we're car rental. We should have more short term. We have now expanded it, and Thobeka will unpack it later. Like any disciplined business and responsible social investment business, we continue to invest in number of initiatives. The one that I always say it comes back to bite us is one on potholes, but we will do it again and again and again.
That investment that we're doing, we're doing safe drive. Over the weekend, we have seen a reduction in number of accidents in our country. We will continue to deploy that because that's the responsible thing for us to do. Looking at the businesses. Leasing business, I cannot overemphasize how this business continues to surpass our expectation in how we look at it. Revenue is currently ZAR 1.7 billion, which is an increase of ZAR 7.5 billion. Our EBITDA margin of 53.9%, which has come down by 0.4%, but that is really because of the dealer of sorts.
Dealer of sorts doesn't come with maintenance, so it is a vehicle that we do it. We give it to mostly heavy commercial that goes to big companies that manage their fleet. We look at it, but this remain a robust business that grows with operating profit up at 5.1%. Rental business, as I said that Car Sales did very well, revenue up 5.5% at ZAR 2 billion. The business that really took a hit was the car rental with the replacement business and revenue down ZAR 2.7 billion- ZAR 1.8 billion compared to the previous year, and operating margin down at 11.2%.
The one thing that we're continuously saying in this environment, we're saying, when you look at the diversity of our portfolio, three years ago, we were asked what is your sustainable margin in your business? We said between 14% and 15%, and everybody will say it's because of the used car buoyant market. We are on the other side of the used car market, and we have maintained our operating margin. On that note, I'll hand over to Thobeka.
Thank you, Ramasela, and good morning. Ramasela has unpacked for you the operating environment under which we have traded, and she has also unpacked the business segments. The slide I'm about to share with you then summarizes for you how this business has managed to grow and sustain earnings while trading under pressure. What are those management actions and the efforts that contributed to the ultimate results of our earnings per share up 6.1% year-on-year. To summarize our revenue, this is a picture of the positive impact of our diversified portfolio.
Ramasela has highlighted to you that we have seen the car rental business shrink back 2.7% year-on-year. We have seen strong growth coming from the leasing business, both from South Africa and Greater Africa, and we have seen growth coming from the car sales business. That has cushioned the impact of what we saw from the car rental business, with revenue up 3.2%. Car sales in this environment managed to sell over 1,000 units of stock year-on-year, 12.9% up. This speaks to the value that the market is still deriving from the stock that we hold, the quality of our vehicles.
In addition to that, we spoke about leasing being a growth pillar for our business. When you look at the proportional increase of leasing in the revenue portfolio, this has grown from last year at about 29%, this year at about 31%. This is supported by growth in South Africa, Greater Africa, and the new products that we implemented, for example, starting to play in the heavy commercial space, and also starting to introduce individual leasing in our market.
That is a leasing product to the ordinary natural man on the street, where in the past it was only to juristic persons. When I move to EBITDA and what has impacted our EBITDA, and you see EBITDA having gone down 5.6% year-on-year. There are two things that were targeted investment decisions by management. Ramasela has spoken to you about our deliberate choice to increase the proportion of vehicles that we have on lease vis-à-vis vehicles that we are buying and putting on balance sheet.
That decision is informed by what we see in the market in terms of continuing demand at a disposal level, but also the vehicles that we understand and we know are going to hold the residual value. Most of those vehicles were lower value assets, and we went with the leasing for the heavier metal or the more expensive vehicles. We also have seen the impact of utilization. Ramasela spoke about utilization at 71%.
It is below our range of 73%-75%. Yes, we have seen specific customer segments demanding from us lower length of rental, and we are now adjusting and adopting our operating model to better serve this new market. Lastly, we did see an impact from a used car compression, but it was marginal in relation to what we have seen the rest of the used car market experience. Fast-forward to our operating profit. We have maintained our operating profit with only a ZAR 5 million decrease year-on-year.
How did we achieve this? The first and foremost is our consistent discipline with cost management. If you look at our operating expenses, admin and operating expenses, it has only increased by 1%. This is below inflation. This is really a deliberate effort by management to spend well, to spend wisely, and the continuous process of removing waste in our business processes and cycles. One significant win that we have achieved in this financial year is the reduction of damages cost by 17%.
We also saw a corresponding decline on the incidence rate by 15%. This was work that started last year, where we were very strict about how do we start using technology to help us better monitor the driver behavior. To have a technology tool that is a deterrent for drivers to speed and cause accident. Tlhabi and the team deployed telematics at scale in the rental car business. This tool we already had for the leasing customers, and we saw immediate impact coming from that with the damages cost.
From a Forex gain perspective, you will see that we have seen minimal impact in our financials for this period under review. All these cost efficiencies and the savings have enabled us to be able to start funding our transformation journey into IT and data. We have also increased our investment from a staff cost or staff complement perspective. Lastly, to touch on the expected credit losses.
This time last year, we had taken a significant cost in our income statement because of what we were seeing in our trade receivables, particularly with customers that were commodity facing, mining facing, that were experiencing pressures, and it was providing a delay in terms of payment profiles. We took that expected credit loss cost, but we assured the market that we're going to deploy tactical strategies to recover that cost and to enhance our credit risk management processes.
I am pleased that this has yielded successful results, you see with the reversal of the expected credit losses in this financial year. Lastly, I will touch on the benefit of what we've seen from a cost of funding perspective and the sum of that giving us this positive return at headline earnings level of just over 6%. When you look at our funding cost, our effective interest rate being at 8.7%, this is a successful execution of our funding strategy. I just want to remind the market that in March 2024, this book was sitting with an effective interest rate of 11.1%.
Yes, we have seen the decrease in terms of the repo rate, but the more important impact was the financial and treasury strategy of diversifying our funding and starting to also play in the debt capital market. That is a lasting benefit that you will see into our business going forward. From a 2025- 2026 impact, you see that our cost of funding has decreased by 150 basis points, this is really split 75% coming from the repo rate benefit.
The other 75%, really the impact, which I say is a lasting impact coming from the work that management did in terms of diversifying our cost of funding and continuously making sure that we have the appropriate cost of funding to enable us to be competitive in the market as we grow as an integrated mobility. From a net finance cost perspective, this has decreased by 8.9% year-over-year. Ramasela mentioned to you that we are a business that uses debt financial leverage to create value for our stakeholders.
I just want to pause on this slide to say: How have we done that for this period under review? If I start with the return on invested capital, our weighted average cost of capital is 10.8%. In March 2024, this was sitting at 12.8%. This is an important reference point because it then tells you what has that journey yielded two years later, where we have reduced our weighted cost of capital by 200 basis points. From that invested capital, we have generated ROIC of 12.3%. This is 150 basis points higher than WACC.
Importantly, it is 60 basis points better value created for the stakeholders compared to 2025, where the spread above WACC was sitting at 90 basis points. How do we achieve this? Ramasela spoke to you about what makes Zeda Zeda. It's our ability to go find those quality businesses, those quality projects, and investment opportunities, and allocate capital to them so that we are able to generate a strong ROIC for the market.
When you look at the spread, this is really the management effort coming into the fore around what we've done from targeted investments, around what we have done in terms of cost discipline, and how we use maintenance fund, how we use the assets that are in our fore to be able to then generate positive profits. With the total WACC at 10.8 % and ROIC at 12.3%. That spread of 150 basis point has enabled us to generate economic value add of ZAR 141 million year-on-year.
Another metric that I would like to share with you is our cash yield on fleet, which really says for each vehicle that we have on balance sheet, how much cash is it generating for us, and how efficiently are we using our assets? Our cash yield as at March 2026, sitting at 59.5%. You will ask what is best-in-class. When we look at our peers and other companies that are capital intensive, and also in an automotive space, you see that best-in-class is sitting below that at about 40%-45%. Saying that even Zeda, when you look at a cash yield perspective, we are delivering above the peers. How do we generate this cash?
A section that has become topical, and what we have done here now is to say, let's use Free cash flow to firm. Why free cash flow to firm? It's because when you look at how we invest in our business, we don't have a targeted pool of vehicles funded in debt and a targeted pool of vehicles funded in equity. We use our capital structure of debt and equity to invest in our assets. Out of that investment, we generate cash and returns both for the investors and the lenders of our business. When you look at cash generated from operations, we're sitting at just under ZAR 2.8 billion year-on-year.
Out of that cash, we have replaced vehicles to the tune of ZAR 2.5 billion, and we are sitting with a surplus of ZAR 194 million at half year. At this point, if you look at the column for full year 2025, you do see that ZAR 194 increases to over ZAR 2 billion by full year. That is really driven by our second half of the year, which delivers even stronger cash due to our net defleet cycle and our ability to sell vehicles in the used car market. From operating cash flow, we will then tactically understand where do we then allocate our capital from a growth fleet perspective and from a return to our stakeholders.
In this period, we have invested in fleet growth of ZAR 650 million to be left with an outflow of cash of ZAR 456 million. We will then supplement that outflow with debt to be able to fund those vehicles. When you look at our cash to earnings ratio, positive at 0.5x before fleet growth and is negative at 1.2x after fleet growth, both those ratios positive on an annualized 12-month cycle. Where did we invest in this financial year?
You will see that fleet growth is pronounced more in the leasing vehicles, the vehicles that we have put on balance sheet. Those are the vehicles bought from a South Africa perspective and from a Greater Africa perspective. This supports our intention of leasing being a growth pillar as we invest in the right things. You see that translated to their proportional increase in the revenue contribution. The rental vehicles, you have seen that it has remained flat, but if you look at the total fleet, this also has a component of vehicles that are not on balance sheet, but we do have them from an access to utilize coming from the operating leases.
From a net working capital perspective, we continue to manage our working capital tightly, and that's remained largely flat with ZAR 100 million increase year-on-year. From a financing split perspective, you will see that long-term assets are now sitting at 63%, with short-term debt at 37%. One of the things that we were very deliberate on as we were looking at diversifying our funding is lengthening the maturity profile of our debt.
That was because two years ago, we were largely exposed to refinancing risk with a lot of our debt sitting with annual renewal requirements. This is showing the successful impact from the diversification of our funding. From a fleet asset perspective, you are seeing that the leasing or the long-term nature of our vehicles are now contributing more than 50%, at 56%, and the short-term assets at 44%. We use financial leverage to generate value, and we use it responsibly. In this period under review, you will see that our interest cover times has improved from 4.9x- 5.2x.
This is notwithstanding the pressure I spoke to you about from an EBITDA perspective, that pressure cushioned by the work that we had also done in terms of our cost of funding. You see that we have actually expanded our interest cover times to 5.2x. From a net debt to fleet value, this has reduced from 57%- 55%. Our loan to value and our appetite from a risk exposure perspective is an LTV of 80%. At 55%, you can see that we still have headroom from a growth and from an investment perspective, because before we as management or even lenders from a financial covenant perspective, get concerned that we may be over-levered.
This is what is going to continue to enable us from a growth and an investment perspective. In terms of operating assets on balance sheet, sitting at 11.3%, from a net debt perspective, we have reduced our net debt year-over-year by about ZAR 100 million. When I touch on the capital structure, our optimal capital structure is 70/30.
When you look at where we are at half year, we are sitting with gross debt to equity of 68 32. We continuously make sure that from a capital structure perspective, we do the right things to make sure that we operate as close as possible within our optimal capital structure, because that way it allows us to keep our weighted cost of capital at the lowest. From a cash and cash equivalence perspective, we closed the period with cash and cash equivalence of ZAR 958 million.
What I would like to share with the market as well is we started our dividend payout at Zeda in 2024. From when we started to today, we have paid back cash to the shareholders of over ZAR 500 m illion, ZAR 533 million. From a return on equity, sitting with return on equity at 21.2%. From a funding facilities perspective, we're sitting with total funding at ZAR 10 billion and headroom of ZAR 3 billion. When you look at our gross debt and the mix of financial instruments that make up our gross debt, you will see that we've got a mix of RCFs, bonds, and floor plan.
I would just like to sit on bonds and floor plans. When you look at the bonds, you will see that the proportional mix of bonds still remains relatively low. This is room for us to continue to go to the debt capital market to increase our participation in the debt capital market, to therefore increase the proportional contribution of the bonds in our financial instruments. From a floor plan perspective, we do use floor plans similar to a automotive trading business.
Our floor plans are used to fund the operating assets in our balance sheets that generate revenue before we then change them from operating assets in nature to inventory, and we dispose of them. While they're in balance sheet, we show these floor plans as part of our short-term debt, and they also contribute to our calculation of ROIC, which is a nuance I would like to leave the market with, that the similar floor plans you will find in our competitors sitting in current liabilities because they're specifically funding working capital. When you start looking at some of those nuances, it helps to really unpack what makes the debt for Zeda and where are the risk, if any, where do they sit?
From a shift of what has happened with the diversification, part of what we've also achieved is moving more into unsecured funding, which has improved to 77% in this financial year. Last year, we were sitting at 66%, and from a secured perspective, sitting at 23%. I would also like to confirm that all our financial covenants for the period under review have been met. From an outlook perspective, I mentioned that we still have scope in terms of increasing the proportional contribution of bonds in our mix of instruments.
We will be going for our second bond issuance in July, and we will be engaging the debt capital market and the investors in a roadshow during the month of June. In addition to that, I would like to also leave with the investors to know that this bond issuance will be ZARONIA based. It will be a first for us, and we are really keen to see what the results would look like. From an outlook perspective, we are going to continue to drive operational efficiencies and the consistent discipline in optimizing working capital. With that, I'd like to hand back to Ramasela.
Thank you, Thobeka. We stand at a point of genuine strength, equally at a point of tension. When you look at it, some of the things that preoccupy me now is the supply of diesel fuel due to the Middle East war. That preoccupies the impact it may have on the logistic disruption on our customers' ability to deliver and be productive. Because one of the things we do when we manage the risk, we look at the opportunity, we are exploring alternative source of energy for different vehicles for our customers. Equally, we are still at the point where we're looking up to a different cycle of interest rate.
As Thobeka has indicated, the work that we've done, and because we don't use leverage as a bet, we have already done our sensitivity in understanding to what extent can this increase in interest rate take before it start diluting some of the work. I can tell you now comfortably that before the work that has been done now, when we were still coming in, we were very fresh, at the height of our interest rate, when even at 110 basis point, it didn't even do anything. Now with the work that has been done, we are sitting in a most comfortable position. Another reality that will continue is the Chinese new car market deflation.
Equally there, a rotation of fleet, which we have now moved to a different segment of that market that is mainly below 300, and really the one that we sweat a lot that is on our balance sheet. Our customers on rental still requires the cars that are in a very traffic congested, competitive automotive sector, and that in the main is what we have put under the lease. We are really comfortable that our goal still remain intact of expanding our WACC. Expanding the differential between our WACC and our ROIC. Looking at investment case, look, this remain a compelling case despite what happens out in the market.
We have demonstrated again that we have the ability to generate returns. We continue to be the market leader with our global brand, ability to buy fleet at scale, the agility to choose which vehicle you want and which vehicle you don't want on your balance sheet. Not many have got that on their side. We've got a large customer base, corporate, public sector, that. Really that still gives Zeda a competitive edge. We are a capital deployment business at the point of inflection. The engine is running, the balance sheet is strong, the spread is expanding, and we've got the capacity to expand this spread between ROIC and WACC.
We are now at this point where we're looking at three engines of growth. Organic, we continuously said the leasing business is our growth. Subscription, we understand the mechanics of running a good subscription business. Car sales, as we continue to look at the vehicles that we're supposed to be in, as we're looking at alternative energy to that vehicle, will give us that competitive edge. We need to future-proof our business, and hence what Thobeka spoke about digital transformation.
It's really about future-proofing our business. As we remain capital deployment, the engine that we run, the mechanism should be future-proof. We're looking at inorganic growth. I've mentioned that we've got a maintenance fund of ZAR 1.7 billion. We're looking at alternative, and we are busy evaluating alternative asset-light business. We have seen the impact of what the maintenance fund has done to our balance sheet.
In all of this, and any adjacencies that you may have, each of this engine of growth will be assessed on whether they are expanding our spread and really contributing positively to our ROE. In conclusion, I'd like to say, we are not managing Zeda to maximize this year's earnings. We are managing Zeda to compound the economic profit year-on-year. Our job is to widen that spread that Thobeka and I spoke about. Thank you very much for listening.
Thank you, Ramasela. Thank you, Thobeka. Ladies and gentlemen, I will now give you an opportunity to ask questions. Can I please have the roaming mics ready for questions? Please raise your hand and introduce yourself. We'll take your question. I think we have a question here, Olwethu.
Thanks, Babalwa George. This is Olwethu from Nedbank. A couple of questions from my side. What is the earning sensitivity to fuel price increases and interest rates? Let's put that differently. How do interest rate hikes affect demand, fleet mix, and utilization? Second question from my side is, why subscription and replacement down year-on-year? From a replacement point of view, are we seeing less accidents, or are we seeing more competitive pricing from peers? From a subscription point of view, are you finding that the Chinese in the new vehicle market are putting pressure on that subscription rate in terms of competitiveness? That's it for now. Thank you.
Thank you. Litha, do you want to start with the subscription end?
Yes.
Replacement.
Good morning, everyone, and Olwethu, thank you for your questions. My name is Litha Nkombisa. I'm part of the Zeda winning family. Ramasela and Thobeka emphasized that among other growth pillars, subscription remains our growth pillar. The reason why it remains our growth pillar is because it takes us away from the traditional car rental business. Our addressable market is mobility, not holidays, not travel. It's not subject to ups and downs of affordability or rather of people going on holiday and choosing to pay school fees or going on holiday. It is a requirement for you to have mobility.
Therefore, the 600,000 people that bought vehicles in the last calendar year is our addressable market. Obviously, what has happened, we've mopped up the pent-up demand that was there. The next frontier is to go out there in the marketplace and tackle the 600,000 car-buying customers that alternatively could use our services. They can use our services because it's not a risk for them to take residual value. It's not a risk for insurance. It's not a risk for them to be tied by a bank for seven years, eight years, unable to get out of a vehicle.
That, for us, is our future. We are adamant that, given our tools that we have, we'll be able to do that. You mentioned replacement. Replacement is a base load for us. It is there to give us length because it's one of the longer length businesses. We use that, as I said, as a base load, and we go and yield in other customer segments, having this base load to make sure that we get utilization in place. Thanks. I'll leave the other questions to the other colleagues.
Can we conclude on subscription, Olwethu? I don't know if all your questions regarding subscriptions have been answered. I just want to add a question from Rowan on subscription. Rowan's question reads as follows: Are you finding quality customers in the subscription business, or are they people who cannot get normal vehicle finance? Can you close on it?
If you look at our customer base in subscription, it is a cross-section of our customers. Once again, the diversity of where we get our business comes through there. It is the individual who doesn't want to tie themselves to a long-term installment sale finance from a bank for 72 months. It is a customer who's got a specific project that has 12 months in it.
It is a company that has a contract, but the contract is only 18 months. It is individuals that are coming to South Africa because they're busy with an audit for only eight months. Therefore, that cross-section of customers gives us the diversity of who we're dealing with in that marketplace. Therefore, it's not the person who cannot afford a car. It's something different altogether. It's the mobility that we're fulfilling in that space. Thanks.
Thanks, Litha. Can we answer Olwethu's second question? Is that you, Tlhabi? Tlhabi?
Thanks, Olwethu. It's Tlhabi here, from Zeda. Just on the sensitivity of fuel, let me start with that. If you look at a lot of our fuel cost is a pass-through cost, that cost goes directly to the consumer. From a leasing perspective, the customer has the vehicle, it's dedicated to them, they will refuel, they will absorb that. From a rental perspective as well, that is a full-on pass-through cost to the customer, where we do have a small component of it, is within our driven services products. We will need to price accordingly for it. I think the pricing pressure of the oil is mainly with its impact on our customers, and therefore, on the economy as a whole. That's, I think, where the big point is.
Regarding interest rates, I think Thobeka covered at length the journey where we've come from. Coming from 11.1% two years ago and having absorbed that quantum of interest, where in the leasing book, that interest charge is a direct pass-through to the customer, and within the rental business, obviously then the macros work together for us to be able to consume it. I think coming from that high of 11.1% and now being at 8.7%, I think we can say that we've got a bit of headroom.
On the replacement, you asked about whether it's a pricing or if it's a number of incidents. Replacement has always been a pricing game, but it's largely contracted. What we've seen is that we've seen a reduction in the number of incidents from our own fleet, 15% down in terms of just the number of incidents. The replacement market is seeing the same. Part of that is also what we're seeing on the length of rental, where the price or parts availability has reduced that turnaround time, impacting that as well.
Thanks, Tlhabi. I will now read questions on the webcast. I will read three questions. First question is from Daniel. The question reads as follows: Ghana was targeted for divestment in the first half of FY 2025 and now is being retained. What drove that decision? I will leave that for you, Ramasela. The second question is from Rowan. With new car deflation caused by these Chinese, is there a risk on the residual values of your fleet? That is one for you, Tlhabi. The third question is there has been a significant increase in the interim dividend, plus 45% growth. Is this signaling a potential change in dividend policy, or should we assume that the existing 30%-50% payout ratio will remain in place going forward?
Thank you, Babalwa. Thanks, Daniel, for the question. Last year when we did our results presentation about the reversal of the decision on Ghana, it was based on one thing. We developed a greater Africa strategy, and that to the, we'd call over and above assessment of the growth area and the potential was also boosted by Avis Budget Group when they allocated additional license for us to expand.
We see Ghana as really the hub of us getting into the east and the west of Africa, and that's the position about Ghana. Ghana is poised for growth. We've seen significant growth. Our exit was that it was just one country that is sitting in isolation with not a bigger strategy. Post the strategy, we believe we're in the right direction.
Thanks, Ramasela. The dividend question?
The dividend question, all that it's signaling is that management believe that there will still be growth in this business. We'll still continue to generate cash. There are no indication at the moment of any policy change, but there are indication that we believe that more growth is yet to come. Even as we're looking for the increase in the interest rate cycle, we are sitting in a good position.
Thank you, Ramasela. Tlhabi, can we take the question on deflation of the vehicles?
Thanks, Babalwa. In terms of the new car deflation, the opportunity that we've got, and I guess it's built into the operating model, is the agility to shift between the risk fleet as well as the vehicles that are on operating leases for the rental vehicles. One of the tactical things that we've done, in light of the new car deflation, is that for the type of vehicles where there is congestion and where there is a lot more deflation, that is ZAR 300,000 and above, we've opted to do a lot more operating leases within that sector. We have bought a lot more of the smaller vehicles. Below ZAR 200,000, is a market that we still believe is still poised for growth. We do not anticipate any adverse impact from an RV perspective.
Thank you. Can I check if there are additional questions? Marc, you can go ahead first.
Thank you very much. Marc Ter Mors from SBG Securities. First of all, thank you for the presentation and for the very attractive shareholder payout. Well done on that.
Thank you.
Further question on the procurement strategy. First question is clarification, has indeed the residual values been fully written down, is that reflected in the new residual values? How does management see its procurement strategy change because of the increase in Chinese manufacturers' market share in South Africa? The last question, I see that the Africa regions now deliver 21% to the top line. Can you explain a bit more what that growth strategy will look like in both the car rental as well as the leasing business?
Thanks, Marc. Can I take your question, Olwethu, before we answer?
Thank you. From a Chinese vehicles perspective, what are you guys seeing from a residual value point of view? I know they don't make a big chunk of your guys' overall portfolio, but based on what you do have, what are the signs that we are seeing there? I had one more question which I cannot find. Yes. Just from an earnings growth point of view, if you take that ECL release and the interest expense coming down, how much of those earnings are sustainable versus once off? Thank you.
Thanks, Olwethu. Can we start with you, Ramasela, on Africa?
Thanks, Marc. Our strategy, as I say, we used to have 10 countries outside South Africa. Now we have been given additional that we'll be sitting at 20 countries, the growth rate of those countries surpasses South Africa. Yes, they're high risk in those countries, and hence even our growth will be more staggered in how we're going. We're not looking to just go and build those, but actually do the learnings that we've done in a number of countries, but also treat each country with its own risk separately. We should expect growth coming out of greater Africa region.
The one thing we do in greater Africa, because we follow our customers that are in South Africa, we are also industry focused when we go to the country, be it mining, so we zoom with the telecommunication industry. Rental is really a back foot to the growth and even to a country. We've been in Zambia for a very long time. We've never had our own rental business. We've given it licensing. Our leasing business have grown so much and our customers are global players, either coming from South Africa or internationally, that look for rental in those countries.
We have now opened a rental business under our own corporate in Zambia to service that corporate customers that are begging and are picking the business and are coming there. The interesting part is that we are now getting asked about can we expand the services to subscription that we have in South Africa and Zambia. Rental is not our game to go into the countries. It's really a backup. Thank you.
Thank you, Ramasela. Thobeka, do you want to talk about sustainable earnings?
Yes. If I start with the interest component of it, Tlhabi mentioned it in her earlier response. Our contracts, especially with the leasing customers, they are prime rate linked. Any benefit that Zeda gets from the reduction of prime rate, the customer gets the benefit. If the interest rates go the other way, the customer gets the benefit. What you're seeing is the upside for Zeda in these results, that is purely the effort of Zeda management from reducing its cost of funding with their own lenders.
That element is sustainable into the future. When we talk about ECL, I highlighted the impact that we took last year. What we've done now is really put processes in place, dedicated staff, but also productivity tools that help us to better understand the credit risk profile of our customers, but also to accelerate the collection effort. That was not a once off investment. It's a new infrastructure that we've put in place, and thus it will serve us well in continuing to then mitigate any new impact from an ECL perspective.
Thanks, Thobeka. Tlhabi, do you want to conclude with the procurement strategy and the RVs questions?
Thanks, Babalwa. I'm going to answer both of them in one. I think one of the, probably a fallacy, is to bundle up all of the Chinese together. There are ones who have been in the country for longer, and there are ones who are very new in the country. There's one that has been here for 19 years, and there's others that have not been here for two years. They've got different infrastructure altogether. They've set up their after-sales capability differently. Their footprint is different. Those are all things that support the residual value strength. We have seen, and we do take risk on some of the ones where residual values have stabilized, and these are vehicles that we are comfortable to sell into the used car space. We do have Chinese vehicles on risk.
The ones where there's still a lot of model changes, and we don't have actual empirical evidence, those are the ones that we take in on operating leases. From a strategy perspective, the good thing is that we are brand agnostic from a OEM perspective. We build relationships with all of the OEMs. We've got strong relationships with Chinese OEMs, the ones who are established and the ones who are only establishing now. They give us insights into what their strategy is, and that informs then how we manage our risk on our side.
Thank you, Tlhabi. Ladies and gentlemen, we have now reached the end of our session. We are looking forward engaging with you over the next few days. Thank you for joining us. For our guests, refreshments are served, and for everyone else online, enjoy your day further. Thank you