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Lifting of BSE suspension puts supermarket giant Choppies on new growth path

Ram Ottapathu

Sale of loss-making operations, new deputy CEO, incoming new CFO and recapitalisation as CEL heightens corporate governance

Supermarket giant Choppies Enterprises Limited (CEL) is poised for a trajectory of growth as it resumes trading on the stock market.

This follows the announcement by the Botswana Stock Exchange (BSE) that with effect from the Monday 27 July 2020, Choppies Enterprises Limited securities will again trade on the market following a decision to lift their suspension by the BSE.

The Company has published the following financial statements, bringing it into compliance with BSE requirements: a) 31 December 2018 Reviewed Interim Financial Statements and the Auditor’s Review Report; b) 30 June 2019 AFS and the accompanying Independent Auditor’s Report; and c) 31 December 2019 Reviewed Interim Financial Statements and the Auditor’s Review Report.

An elated Ram Ottapathu, CEO and founder of Choppies, said the lifting of the stock market suspension paves the way for Choppies to regain its top position as a retailer in Botswana and reclaim the pride and support of the people.

The man who built what is arguably the Southern Africa region’s most ambitious retail brand said Choppies will claw its way back to being a star corporate performer with tighter governance structures, a clear succession plan and a watchful board.

The multinational grocery and general merchandise retailer headquartered in Gaborone, Botswana, has undertaken aggressive restructuring.  It has recapitalised itself; appointed a Deputy CEO with over 25 years of grocery retail experience in Southern Africa, has appointed a new Chief Financial Officer (CFO); and appointed new auditors – international auditing firm, Mazars.

“We have made major strides in creating a solid foundation for the group to build on and believe this has set the course for a rebirth of the company which offers value for money to its customers in a challenging economic environment,” says Mr Uttum Corea, interim Chairman of Choppies Enterprises Ltd.

Choppies heightened corporate governance actions include:

  • the recapitalisation of the business by Pula 150 million comprising a loan of P100m from founding shareholders, Messrs Ottapathu and Ismail, and P50m from trading operations.
  • amendments to the employment contract of Mr Ottapathu in accordance with the King IV Code on Corporate Governance. This includes a 43% reduction in the current guaranteed portion of the CEO’s remuneration to facilitate the introduction of short-term incentives;
  • the appointment of a Deputy Chief Executive Officer with over 25 years of grocery retail experience in Southern Africa, who is expected to join during April 2020; and
  • the appointment of a Chief Financial Officer from mid-April 2020. The CFO, a South African Chartered Accountant brings extensive JSE-listed company experience (including Nampak Group and Edcon). This is subject to the issuing of a work permit by the Botswana authorities.

The latest financials show negative equity for the Group owing to:

  • Unrealised foreign currency translation reserves of P300.8 million. The effect of the deterioration of the Zimbabwean currency alone accounts for P323.2 million of this amount with the balance of P22.4 million made up of a net profit on translating other currencies. These unrealised losses from Zimbabwe were partly offset by the recognition of a hyperinflation reserve of P71.3 million.
  • Trading losses of P435.6 million (2018: P375.1 million) from regions that were closed/discontinued since the June 2019 year-end namely South Africa P306.6 million (2018: P273.8 million), Kenya P95.3 million (2018: P83.7 million), Tanzania P18.2 million (2018: P5.9 million) and Mozambique P15.5 million) (2018:P11.7 million).

The above realised losses were mainly from South Africa, Tanzania, Kenya and Mozambique. As a result, the board took a decision to reduce the losses by exiting these operations.

Going forward, this is expected to build-up value for the Group as management’s focus will be on the profit-making operations, namely Botswana, Zambia, Zimbabwe and Namibia, which should help stabilise the Group and increase shareholder value.

The Board does not expect any material uncertainty over the Company or Group’s ability to continue as going concerns in the foreseeable future.

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Business

Closed border trade conundrum; Masisi’s pragmatic headache

4th August 2020

A graphical picture or statistical publication shows that since 2018, Botswana’s trade balance has been on the lows if not fluctuating on the negatives-a bad economic health. This was shown in the latest International Merchandise Trade Statistics (IMTS), statistics which is one of the major contributing indicators of the performance of Botswana’s economy and its competitiveness in the world market.

This trade balance graphical picture is figuratively akin to that of a Covid-19 patient on life support; struggling to breathe while lying down on a sickbed gasping to salvage the last oxygen left on offer.

Botswana’s affair in foreign trade statistics -which is all about an account of all transactions of merchandise between this country’s domestic residents and the rest of the world- is on feeble health or life support status. The account measures the value and quantity of goods which add or subtract from the stock of material resources of a country, by entering (imports) or leaving (exports) its economic territory.

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Business

Enters SEZA the Game Changer

4th August 2020

By introducing special regulatory, administrative and fiscal regimes, the Special Economic Zones Authority (SEZA) intends to improve the ease of doing business and re-position Botswana as a premier investment destination of choice, thereby ushering in a new era of robust economic growth.

This was revealed by SEZA Chief Executive Officer (CEO) Lonely Mogara, who further explained that the special regulatory, administrative and fiscal regimes will be implemented at the Authority’s eight SEZs in Pandamatenga, Francistown, Selibe Phikwe, Palapye, Tuli Block, Gaborone and Lobatse.

“These special regimes will ease doing business by addressing constraints that may hinder investment in the country like work permits, residence permits, building permits, Environmental Impact Assessment (EIA) permits, and tax incentives through a dedicated One Stop Service Centre (OSSC),” said Mogara.

SEZA was established through an Act of Parliament and mandated to establish, develop, manage and regulate a portfolio of SEZs. The Authority would then attract world class investors to set up mega factories and businesses in these SEZs, thereby growing and diversifying the Botswana economy through increased Foreign Direct Investment (FDI) and export revenue.

Mogara explained that SEZA intends to develop SEZs that are integrated into the domestic, regional and international markets; facilitate clusters development; and create backward and forward linkages anchored by targeted investors. The Authority will also rollout the red carpet for SEZ investors through its robust One Stop Service Centre (OSSC).

“In order to tap into existing resources and avoid duplication, we have initiated discussions with strategic organisations that will be appointed Zone Management Companies. Some of the potential Zone Management Companies that we have identified are Local Enterprise Authority (LEA), Fairgrounds Holdings, Botswana Innovation Hub (BIH), Selibe Phikwe Economic Diversification Unit (SPEDU) and Botswana Agricultural Marketing Board (BAMB),” said Mogara.

Going forward, SEZA will explore partnerships with these stakeholders to leverage on their strengths and optimise the country’s resources. To this end, said Mogara, SEZA has already signed agreements with BIH and Business Botswana; while negotiations with BAMB and LEA are in advanced stages.

In 2005, the Business Economic Advisory Council (BEAC) recommended the implementation of Free Zones to spur economic growth and diversification, create jobs and eradicate poverty post depletion of minerals. Free Zones were identified as suitable vehicles for introducing viable, new economic activities by providing attractive incentives for highly specific, strictly circumscribed investment ventures. Government later adopted the SEZ Policy of 2011, established the SEZA in 2016 and approved the SEZ Regulations and Incentives in 2018 and 2019 respectively.

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Business

De Beers Q2 production down 54 %, sales drop 95 %

4th August 2020
Diamonds

Rough diamond production for global mining giant, De Beers Group declined by 54% to 3.5 million carats in the second quarter of 2021. This is primarily due to the Covid-19 lockdowns across the mining producer countries.

A production report released by Anglo American, De Beers parent company recently , reveals that Debswana, Botswana’s De Beers operation spearheaded the decline, registering 68 % drop in production for the second quarter of the year 2020.

Debswana is jointly owned by both Botswana Government & De Beers Group on equal shareholding. Botswana government has 15 % direct shareholding on De Beers Group, with the remaining 85 % owned by mining conglomerate Anglo American.

Debswana, which is De Beers‘s flagship rough diamond producer has only managed to deliver to 1.8 million carats in quarter 2, principally due to a nationwide lockdown from 2 April to 18 May in Botswana. In addition De Beers says the 68 % production drop is also attributable to curtailed output in both plant and human resource as a result of Covid-19 measures implemented to safeguard the workforce. Operations restarted from mid-May, with production targeted at levels to meet the lower demand.

Since COVID-19 pandemic engulfed the world beginning of the year, demand in polished diamonds significantly dropped as a result of closure of jewelry and retail outlets in the United States.
This then disrupted the entire value chain from downstream backwards, leaving midstream businesses with full and dense inventories subsequently shrinking demand for rough goods from upstream producer entities.

In Namibia where De Beers operate a model similar to that in Botswana, production decreased significantly at NamDeb, the inland mining outfit jointly owned by Namibian Government and De Beers Group on 50-50 shareholding.

However the decrease was offset by Debmarine, a unique mining operation where De Beers recovers diamonds on the Namibian coast of Atlantic Ocean. In 2016 De Beers invested P5 billion on a new vessel of unprecedented sophistication for Debmarine to take coastal diamond mining to another level.

For the quarter under review, the magic was delivered by Mafuta crawler vessel which was under maintenance in Q2 2019. Overall production in Namibia increased by 7% to 0.4 million carats.
In South African where De Beers operates Venetia Mine in Limpopo province, production decreased by 3% to 0.6 million carats primarily due to Covid-19 measures. The production shutdown was partly offset by higher grades from the open pit material prior to transition to the underground.

Production in Canada decreased by 27% to 0.8 million carats, primarily due to Victor reaching the end of its life in Q2 2019. At Gahcho Kué, production decreased by 11% to 0.8 million carats due to Covid-19 measures.

SALES

During Q2, the demand for rough diamonds was significantly impacted by a combination of Covid-19 restrictions impacting consumer demand and access to Southern Africa, as well as severely limited midstream cutting and polishing capacity due to lockdowns, particularly in India.

Rough diamond sales totalled 0.3 million carats (0.2 million carats on a consolidated basis) compared with 9.0 million carats (8.3 million carats on a consolidated basis) in Q2 2019. The third Sight of 2020 was cancelled due to Covid-19-related travel restrictions and, in response to the unprecedented industry conditions, De Beers also offered sightholders the option to defer up to 100% of their allocations at the fourth and fifth Sights.

Rough diamond consolidated sales in Q2 2020 decreased to $56 million, signaling a catastrophic decline from $1.3 billion raked in second quarter 2019. The sharp decline was driven by lower volumes and prices.

The H1 2020 average realized rough diamond price decreased by 21% to $119/carat (H1 2019: $151/carat), driven by a higher proportion of lower value rough diamonds sold and an 8% reduction in the average rough price index.

De Beers has however maintained their production guidance at 25-27 million carats (100% basis), subject to continuous review based on the disruptions related to Covid-19 as well as the timing and scale of the recovery in demand. The guidance was in the first quarter revised from the initial 32-34 million carats forecasted beginning of the year, slashed by 20 % to the current guidance in response to declining demand.

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