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Choppies revenue up 17%

The trailblazing retail giant, Choppies, has posted impressive half year results for the year ended December 2015.

The unaudited group financial results for six months shows that Choppies has not lost steam despite the challenging operating environment made more difficult by slow economic growth.

The Choppies group still relies heavily in its investments in Botswana as its other operations in South Africa, Zimbabwe and Zambia failed to make a thundering positive impact in the latest results.

The group posted a revenue of P3 530 669 000, a 17 percent increase from the corresponding period in 2014. The Earnings Before Interest Tax Depreciation and Amortization (EBITDA) was up 5 percent, while profit before tax stood at P133 474 000, a slight increase of 3 percent. In the end Choppies raked in profit after tax of P104, 103, 000, up by 0.8 percent compared to the six months ended in 2014.

The Botswana based stores remain the main anchor of the group as they contributed 64 percent of the revenue. The revenue was up by 13 percent from the half year period ended in 2014. This modest growth in revenues was despite the sharp devaluation of the rand putting pressure on pula based sales prices.

“However, profitability continued to improve from the scale benefits of our mature infrastructure.  We expect this process to continue going forward,” reads part of the statement. In the current period under review, Choppies opened 5 new stores bringing the total number of stores in Botswana to 78.

The Zimbabwe market showed glimpses of opportunity as the revenue shot up to 49 percent but brought in P952, 000 profit before tax, a sharp decline of 87 percent in the previous corresponding period.

“Profitability was negatively impacted by an aggressive pricing and promotions strategy in new stores, and start-up costs for the 8 new stores opened during the period.

Macroeconomic pressures in Zimbabwe continue to affect the spending power of consumers. In addition, deflationary trends have continued due to the strength of the US Dollar” read part of the statement explaining the large drop in profitability.

Choppies entered the Zambian market in November, a month before the end of the six months statement preparation. The late entry brought in a loss before tax of P1 627, 000, amid challenging trading conditions in Zambia which is underpinned by the struggling Kwacha due to the depressed copper prices, the mainstay of the Zambia economy. The resilient Choppies is planning a further expansion of 10 stores in 2016.

In South Africa, the  challenging trading conditions saw Choppies fall behind their profitability forecasts as the company posted a loss of about P40 million before taxation.

Despite this, Choppies seems to have an appetite for the elusive South African market as it continues with its expansion; opening 4 new stores to bring the total number of stores in South Africa to 40. In another bold move, the Botswana based company recently acquired 21 Jwayaleni stores in South Africa. This acquisition does not form part of the current financial results as it was concluded after.

The Choppies group boasts of a war chest that comprises of cash and cash equivalents of P221 668 000, after the company spent more than P200 million in investment activities for the period under the review.

The Choppies expansion in Africa follows the Brownfield model, which involves buying existing businesses; this has been confirmed by Ram Ottapathu, co-founder of Choppies in previous interviews. The latest acquisitions involve 10 existing stores in Kenya and the 21 Jwayelani stores in South Africa.

The 21 stores might be Choppies biggest gamble yet as it promises big returns but with the usual risks lurking in the background. The Jwayelani brand generated revenues of over R1 billion with a gross profit margin of 20.35 percent and profit before taxation up by 2.84 percent while the gross profit went up by 8.93 percent.

However, Choppies could lose big time as it still struggles in the South African market which operates on the backdrop of labour strikes, weakening rand, low investor confidence and power shortages. But the Choppies group is confident that the acquisition creates a platform for profitable growth in the South African operations.

A closer look at the recent acquisitions reveals that Choppies is moving away from mining towns whose spending power is largely tied to commodity prices, and with the commodity prices currently down, Choppies is hoping for a safe haven in the KwaZulu-Natal and Eastern Cape through Jwayelani brand.  

The investors will be full of anticipation when Choppies finally releases audited results for the end of year in June. Among other things, they will looking at how the recent acquisitions in Kenya and South Africa are faring, and overall it will the group’s expansion plans that will be on trial. No interim dividend has been declared, a final dividend will be declared and distributed after the finalisation of the financial statements for the year ended 30 June 2016.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at 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. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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