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.
Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry started gaining positive momentum towards the end of the year as key markets entered into thanks giving and holiday season.
However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.
The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.
The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.
This halted movement of buyers and shipment of the rough goods , resulting in unprecedented decline of sales, in turn ballooning stockpiles as the upstream operations produced with little uptake by the midstream.
The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.
However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.
De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.
Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.
De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.
“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.
The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.
The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.
Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.
“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.
In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”
All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.
After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.
However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.
Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.
These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.
For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.
Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.
The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering the year 2020 – a 12 months stretch of complete setback.
The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.
National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.
As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.
On the other hand the COVID-19 economic mess is prevailing, the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.
According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.
However reports indicate that the account could be currently holding just about P3 billion. The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.
When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively, since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances.
Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.
Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.
Meanwhile should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian aids and international donors, because foreign reserves are also on slow down.
During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.
The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020. This was revealed by President Masisi during State of the Nation Address in November last year.
The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.
However latest statistics(October 2020) from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with government’s share of these funds significantly low.
Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.
Furthermore, Value Added Tax has been signaled to go up from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.
Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio. The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.
CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.
CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.
“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.
“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”
Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities. We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.”
CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour. Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.