After a two-year evaluation of its unprofitable Ghanaian portfolio and the notable depreciation of the cedi, JSE-listed Zeda says it is investigating ways to withdraw from its business there and instead allocate cash where it can be better spent.
Operating across the Southern African Development Community region, the car rental, leasing and sales group reported growth in its greater Africa segment, attributing the improved performance to the portfolio review from the previous year, which produced targeted growth efforts and in particular, positive results from Zambia, Lesotho, Mozambique and Namibia.
Ghana continued to underperform in the year to end-September, the group said. The Ghanaian leasing business generated net losses for the year and was at the core of the R46m foreign exchange losses it posted, with the cedi having lost more than a quarter of its value against the dollar in about a year.
Foreign exchange fluctuations also affected group earnings, resulting in an 18.1% fall in headline earnings per share.
“Ghana was placed on portfolio review for the past two years,” Zeda said. “The board resolved to explore options to disinvest ... as capital allocation to Ghana no longer fits the group’s growth focus.”
Zeda said it would prefer to “effectively allocate the group’s resources to stable and profitable operations”.
CEO Ramasela Ganda said that since the review started, it had battled to turn that business around.
“We see it appropriate to disinvest,” she said, adding that Zeda would continue to invest in technology to drive growth, after the launch of the digital dealership earlier this month which it said had attracted good quality customers.
Zeda, which was spun out of Barloworld, operates the Avis and Budget car rental businesses.
Ganda said the R2.7bn market cap company was looking to expand and diversify its fleets as it looks to leverage from the observed increase in public sector activities. It also plans to start a leasing and short-term rental business in Zimbabwe.
Zeda reported lower annual earnings, despite achieving record revenue, as the “challenging” used car market continued to put pressure on used vehicle sales.
Revenue for the year was up 14.5% to R10.47bn. Earnings before interest, tax, depreciation and amortisation were up 1% at R3.35bn, but operating profit fell 6% to R1.465bn. The operating margin was also lower, at 14% from 17%.
This was against the backdrop of a year characterised by high interest rates, inflation, fuel price hikes, a challenging competitive landscape and the end of super profits in the used car market, it said.
The long-term leasing business delivered double-digit revenue growth of 12.3%, which was in line with the strategic focus on growing the corporate sector, heavy commercial and greater Africa. “The adoption of iLease in its first year of operation was rather slow, but it continues to be a key growth element as it disrupts the status quo,” Zeda said.
The short-term rental business reported 15.2% growth in revenue driven by double-digit growth in used car sales across the retail and wholesale channels.
The rental business revenue increased 4% driven by growth in the corporate business, inbound and local businesses. This was, however, negatively affected by the replacement market, which is highly price-sensitive.
Zeda posted cash and cash equivalents of R1.2bn, up from R842m.
The company said it could maintain growth and profitability in the future by shoring up its dividend policy from the 2025 financial year.
“Based on Zeda’s growth ambitions and expected cash to be generated by the business in the medium term, the board has resolved to increase the dividend policy from 20% to 30% of profit after tax to accumulative annual payout ratio within a range of 30%-50% of profit after tax subject to sufficient cash available,” it said.
“Our dividend policy is designed in line with Zeda’s capital allocation framework that considers its long-term strategic growth and its ability to generate cash.”
The CEO said tailwinds, including falling interest rates and positive business sentiment, boded well for future growth.
After losing as much as 3.74% in intraday trade, the company’s share price recovered to end the session 1.04% lower at R14.29. It is up more than 12% so far this year.
Update: November 26 2024
This story has been updated with new information.
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