Choppies profits fall
Choppies Enterprises Limited, the leading grocer in the country, has announced in a cautionary note that it is expecting profit to drop following tough trading conditions in East Africa as well as currency fluctuations that have affected their home operations.
“Choppies is currently finalising its results for the half year ended 31 December 2016, which are expected to be released on BSE and SENS on 14 March2017. The group’s EPS is expected to show a reduction of 40% – 50% from the EPS reported for the half year ended 31 December 2015.
Earnings per share will therefore be in the range of Thebe 4.08 to 4.85 compared to Thebe 8.08 last half year. The group’s HEPS is expected to show a reduction of 30% – 40% from the HEPS reported for the half year ended 31 December 2015. Headline earnings per share will therefore be in the range of Thebe 4.08 to 4.85 compared to Thebe 6.84 last half year,” said Mr. Ramachandran Ottapathu, Choppies CEO, in a note to shareholders.
Mr. Ottapathu added that Choppies, which has been aggressive on its expansion plans, will incur trading losses from new regions such as Zambia, Kenya and Tanzania. The local retail giant suffered a 48 percent drop in profit after tax in 2016 after Group operating margins were negatively impacted by the costs of establishing new geographical locations and opening new stores and distribution centres.
The leading grocer targeting budget consumers commenced operations in Zambia and Kenya in 2016, with five stores in Zambia and 8 stores in Kenya. In the same set of the full financial results for the year ended June 2016, Choppies warned that operations in these countries will remain loss making until 2017 as they continue to expand their store base and invest in operational infrastructures.
Choppies first established presence in Zambia with one store in November 2015 at a time of difficult macroeconomic conditions in the country with the downturn in the mining sector and power cuts presenting major economic and operational challenges. Choppies entered the Kenyan market with an acquisition of seven Ukwala stores, with three more Ukwala supermarkets being taken over in 2017.
Choppies acquired the 10 Ukwala Supermarket outlets in Kenya for R102 million after establishing a joint-venture with a local partner in Kenya who will operate 25% of the company’s operations. The Group has recently head hunted a senior Nakumatt Supermarkets manager to serve as chief executive of the struggling Kenyan operations. Choppies appointed Mr. Vijay Kumar, former chief financial officer at Nakumatt, a position he held since September 2009. Nakumatt is Kenya’s biggest retailer and main competitor to Choppies.
The Botswana based Choppies says Mr. Kumar will also be responsible for the retailer’s foray into the Eastern Africa region, where it plans to set foot in Tanzania with one store in the pipeline. The Group plans to grow the loss making Ukwala’s footprint fourfold in as many years to 40 stores, mainly targeting populous areas in urban areas.
The Group is also expecting losses from its South African operations, however Mr. Ottapathu said despite difficult trading conditions in that country, focussed attention resulted in an improvement with losses narrowing compared to 2016. Choppies has had a tough time in South Africa, failing to make profits ever since the company started operating in South African mining towns. In the previous year, Choppies reported that general trading in South Africa remained under severe pressure.
Mining towns, in which the company had a concentrated footprint, were hard-hit by the drop in demand for commodities and accounted for the bulk of the losses. Further, general spending power was curtailed by a stagnant economy, forcing many shoppers to rely on small social grants. Service delivery strikes and political election-related issues also contributed to the lower trading density. Choppies has been forced to change its strategy in South Africa by moving away from mining towns. The Group has since acquired 21 Jwayelani stores in KwaZulu Natal and Eastern Cape, reducing reliance on small mining towns.
Other than narrowing its losses in South Africa, Choppies has also announced that its Zimbabwean operations have returned to profitability despite trading conditions. The Group with about 30 stores in Zimbabwe has endured challenging conditions in the Zimbabwean battered economy marked by liquidity crisis and subsequent introduction of bond notes. Further complicating the matter was the import ban on certain products and Choppies’ close ties to the ruling elites in Zimbabwe.
During last year protests in the country against the import ban, Choppies was singled out by protesters as they trashed some stores and implored people to shun Choppies as it is partly owned by Mr. Phelekezela Mphoko, the other half of President Robert Mugabe’s two vice presidents. Choppies says the situation has stabilised and improved, allowing for trade to return to normal levels.
While the latest cautionary statement from Choppies makes no mention of the profitability of their Botswana operations, the statement says that operations have been affected by the strengthening of rand against the pula. The Botswana operations remain the Group’s biggest cash cow, generating the bulk of the profits. The Group says Choppies remains the market leader in Botswana, supported by extensive logistics infrastructure, further adding that the opportunity to expand formal retail in Botswana continues unabated and currently accounts for around 60% of the market.
While the group pursues regional expansion, shareholders have shown less faith in the Group’s stock after a drastic fall in stock price both in the Botswana Stock Exchange (BSE) and Johannesburg Stock Exchange (JSE). In 2016, the stock lost almost 50% in value in the BSE and further lost about 48% in the JSE.
Choppies now has a market capitalization of P3.2 billion, down by 28% from the market cap of P4.5 billion in June 2016. The fastest growing grocery retailer in Africa has more than 14,000 employees, more than 183 stores spread across five countries. Choppies says its expansion plans are progressing well and they expect to commence operations in Mozambique and add to their single store in Tanzania in the next few months. The Group plans to roll out at least 20 more stores in all regions by the end of 2017 financial year.
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.