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.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.