FIFI PETERS: You will remember that around this time last week we spoke to the CEO of Barloworld, Dominic Sewela, on the news that the company would be separating its car fleet and leasing business – which houses the Avis and the Budget brands – and listing [it] separately on the JSE as Zeda. The reason they are doing this is because they tried to sell that part of the business but it didn’t go so well, that part of the business being greatly impacted by the pandemic. But Barloworld couldn’t get the right price and so they chose to take the route of unbundling the business Zeda and then listing it. They say that this was the best deal for shareholders.
Well, today we have the CEO of Zeda herself joining the Market Update to talk about the upcoming listing that will be taking place next month if all goes to plan. Her name is Ramasela Ganda. Ramasela, it is great to speak with you once again. Are you excited about the journey ahead and, if so, how excited?
RAMASELA GANDA: Thank you very much for speaking to us again. I am really excited. I think the decision that has been made was initially unexpected when we started discussing it, but one that we believe will benefit the market, having a new entry and it gives the investors an opportunity of a segment that does not [appear on] the JSE at the moment. When we try to look at peer comparison, we can see that this creates a different set of markets. So for me it is a very, very exciting time and, and within the Zeda family we are really thrilled about this time.
FIFI PETERS: The Zeda group, as I understand, you have operations in 10 countries in sub-Saharan Africa outside of South Africa. You have around 1 600 people working for you across the group. So what changes when you come to the JSE as a standalone company next month?
RAMASELA GANDA: From a company structure point of view, nothing will change. To a large extent in the last two years we really have cast ourselves and are busy cutting ourselves out of Barloworld to really operate, even though we were internally, but in a separate way. We did our restructuring early in 2020, and because of Covid the whole year of 2020, restructuring the new strategy [around] listing ourselves as a separate entity because Barloworld had already indicated in October 2020 that they were planning to pivot the car rental and the leasing business. So we have really structured ourselves and set ourselves ready for any investor that works in the market that will be able to get to us.
I think the one thing we’ve done very well, we said to Barloworld in 2020 we are not going to make it easy for anybody to buy. It’s going to be an asset and it’s going to be worth it – and I think Barloworld did not believe us at that time, because we were in the midst of Covid – that we will get into the groove, challenge the high growth rates of the group. And we did that two years in a row. We’ve proven to Barloworld that, and we are here today and Barloworld and the shareholder’s will actually benefit, the Barloworld shareholder will benefit by holding us as a separate listed entity.
FIFI PETERS: Okay. So to describe your business a little bit more, [there are] three major divisions where you rent cars, the car rental business, for a short period of time to tourists and corporates and governments and the like.
You’ve got the leasing business, where you do a similar thing in renting cars, but this time for a longer period.
You also have the division where you sell cars.
So let’s talk first about the car rental business and what you’re seeing there. We had a statement coming out of City Lodge playing in the hospitality and travel industry, saying that things are looking good in that space. Is the picture as bright for you in the car rental business right now – and the outlook, I suppose?
RAMASELA GANDA: The future in car rental has never been this great. If you look at it, 55% of our business that we reported today comes from non-tourism business, if I may [put] it that way. It is more contracted, it is on the insurance business, is on the subscription business. And when you look at it, those businesses are long term.
And then we’ve got discretionary, which is what we are talking about, about tourism, both domestic and foreign. At the foreign [end] we are still operating at 40% of the 2019 pre-Covid level. So it’s been great, but the recovery has been slow. If you look at our numbers, we still have a lot of [inaudible] that we see coming out of that business of short-term rental. We have been challenged by a shortage of fleet because the market will have been able to absorb even more. There’ve been talks about current [inability to] supply the fleet, but the issue was we ourselves could not get our hands on enough fleet to be able to service the market. So this is how the economy in this space has just been looking good and people want to travel – especially exploring our country.
The same with Namibia. We’ve seen the same thing. And that has been really positive growth. I think when you look at the biggest growth that we have year on year, even on our revenue, an additional half a billion [rand] just additional revenue on car rental, that really is nothing to frown upon.
FIFI PETERS: The leasing business or the leasing division, where there was recent news regarding the confiscating of around 2 500 vehicles from the City of Joburg over issues regarding the contract. Are you able to comment on that? I believe the matter is sorted at this stage, but what are you doing to position this side of the business for future growth?
RAMASELA GANDA: Yes, I am. Just maybe to put it on record, we had a 530-odd fleet that was with the city, but it was really the end of the contract. And how the business works, at the end of each contract, because it’s a lease agreement, you collect the fleet, you inspect it, you [inaudible] it and, as we’ve indicated, we also sell it in our car [sales] side. So there was nothing untoward with regard to us collecting our fleet. It was just the normal process of the end of contract.
Unfortunately for the City of Johannesburg, they have not appointed the replacement and that was bit disruptive on their side. But from a contextual point of view, we were doing exactly what we normally do with any other – whether private or public – company. The public [sector] company is an important part of our ecosystem as a country, and where there is a need then we’ll look at it. But in general we treat every contract the same and we do [not handle them] in any way different from any other end of contract. And that’s basically what we do – and that’s what we did.
FIFI PETERS: Ma’am, a parting shot. On listing day, if everything goes according to plan, the general public will be able to buy shares of Zeda on the JSE, particularly those retail investors who like to do a little bit of their own portfolio management on the various applications where you can buy and sell your own shares. So why should they consider investing in you? What are you bringing to their table?
RAMASELA GANDA: Firstly, our portfolios have indicated that […] the asset that we have now is unique. We are sector-leading, delivering a 32.7% upper return on equity [which] you would struggle to find in a similar area – any company that can give you this level of return on equity.
One thing about our business when you look at short-term car rental, we keep our cars for 12 months. So we generate cash in this business because in every 12-month cycle we buy, we utilise through short-term car rental, and based on the kilometres there it can even be out [for sale on the used vehicle market]. We generate cash. So we are able to reimburse our cash efficiently back into our business and allow ourselves for growth. So we are investing in a company that does generate cash on short-term rental. Obviously in the leasing business, long lead times go into that cycle. But more importantly you will get a decent return on equity.
We are a well-run business. We hold ourselves to high standards of governance; that’s why everything that we do, and any investor will really benefit from the appreciation out of this valuation.
FIFI PETERS: All right, we’ll see then. Ramasela Ganda, the CEO of Zeda, was just talking to us about the upcoming listing of the company on the JSE’s main board next month.
