Zeda flags demand for heavy trucks as Transnet rail service falters
• Car rental, leasing and sales group benefits from rail woes
Car rental, leasing and sales group Zeda is reaping the rewards of its strategy to shift the focus of its Avis fleet leasing business towards heavy commercial vehicles amid high demand for trucks in logistics, with the momentum anticipated to continue.
Zeda, which operates the Avis and Budget car rental businesses, is benefiting from Transnet’s rail woes and the subsequent mass switch towards road freight by businesses including the booming mining, fast-moving consumer goods and e-commerce sectors.
The Johannesburg-based group reported 44% growth in heavy commercial units in the year to end-September.
The upswing comes after it ramped up its focus on leasing medium, heavy and extra heavy specialised commercial vehicles, evolving its fleet mix towards bakkies and large fleet vehicles that are in demand thanks to inefficiencies in the rail network.
“The growth strategy is yielding positive results. Our rental and leasing businesses reported double-digit growth underpinned by growth in rental activity and heavy commercial strategy,” CEO Ramasela Ganda said.
“The rail challenges experienced in SA have resulted in increased demand for freight and road usage vehicles, though the adverse impact to the road infrastructure cannot be denied.”
Its latest annual report shows the improved performance in the category came with new growth opportunities in differentiated sectors as the leasing business entered industries such as healthcare and last mile.
Zeda delivered its first 10 electric trucks to a last-mile customer in the period.
Ganda said the group is well positioned to capture more long-haul and last-mile opportunities in the market and the business is expected to grow.
“We believe we will maintain the current growth trajectory,” she said.
Zeda, which was spun out of Barloworld, settled unbundling debt of R1.55bn in September, two months ahead of schedule. This resulted in the company closing the financial year with net debt of R4.8bn.
Group financial director Thobeka Ntshiza said despite the expensive debt during the year and rising interest rates, the business achieved 17% growth in headline earnings per share.
“The benefit of diversified revenue streams, our strategy of growing the heavy commercial fleet, corporate and greater Africa businesses, supported by our culture of cost-containment initiatives to improve efficiencies in our business processes continues to yield positive results,” Ntshiza said.
“This has enabled the business to achieve 17% operating margins, notwithstanding the impact of margin declines in used cars.”
When its rental and leasing fleet reaches the end of its life cycle, Zeda sells these used cars through the Avis dealerships and online channels. Margins of the car sales business were affected by a downturn cycle in the usedcar market, the increased availability of new cars and higher interest rates.
Grey imports — new and used vehicles sold through legal but unauthorised trade channels at discounted prices — were also a challenge in most of Zeda’s greater Africa territories.
SA car rental companies have been diversifying to mitigate risk and expanding their leasing offerings to give consumers more flexibility.
Zeda said its rental business is benefiting from its diversification strategy aimed at balancing discretionary services such as inbound and domestic travel with contracted services including subscription, insurance, public and corporate travel.
In November, Zeda extended its subscription model and launched a “next-level mobility leasing product”, known as iLease, which is an alternative to ownership aimed at individuals for 12-48 months.
Ganda said the group aims to further strengthen the lucrative vehicle subscription model, highlighting that “subscription is one of our key growth areas; it diversifies and strengthens our mobility offerings”.
Car subscription, or leasing, was mainly designed for corporates and travellers. It was reported last year that local vehicle dealerships are anticipating a huge increase in subscriptions as cash-strapped consumers look for cheaper options to outright ownership.
As part of its bid to diversify, the company said it will explore new markets, expand product or service offerings, and target niche segments that will help mitigate the risk of relying too heavily on a single brand or revenue source.
“This will provide opportunities for growth and reduce the business’ vulnerability to competitive pressures,” Zeda said.
The JSE-listed company with a market cap of R2.4bn is also broadening its funding, adding it has attracted a diverse spectrum of funders on the back of securing its first credit rating of A1.za from Moody’s on a national scale and Ba3 on a global scale.
“We are diversifying our funding to optimise our cost of funding,” Zeda said, attributing the improved confidence by investors to the group’s effective stakeholder management and sustained management performance.
Zeda was listed at R18 in mid-December 2022. Its shares closed down 1.86% at R12.66 on Friday.
GROWTH STRATEGY IS YIELDING POSITIVE RESULTS. OUR RENTAL AND LEASING BUSINESSES REPORTED DOUBLEDIGIT GROWTH
Ramasela Ganda
Zeda CEO