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Choppies revenue up to P5.4 billion amid new strategy

CHOPPIES

Choppies Enterprises Chief Executive Officer (CEO) Ramachandran Ottapathu has said the retail giant is regaining its feet after tumultuous spell which saw the company being suspended on the stock exchange as well poor performance of its operations in some countries.

Choppies returned to trading on the Botswana Stock Exchange (BSE), where it is primarily listed, on the 27th of July 2020 subsequent to release of its 2018 and 2019 financial results which have been backlogging for the past two successive financial years.

BSE suspended Choppies in 2018 after the company failed to publish its financial results pending “changes in auditors as well as the legal and forensic investigations” hence a subsequent boardroom fracas played before the media.

For the same reason, Choppies shares were also suspended in its secondary market, the Johannesburg Stock Exchange (JSE). Choppies remains suspended on JSE.

Speaking to WeekendPost on Thursday, the Choppies supremo said they have learnt numerous lessons over the past few years relating to operations expansion, expressing confidence that the strong financial performance that the company posted recently is a testament to creation of a new path.

“The company had few loss making units that have been disposed of. The remaining places where we operate [Botswana, Zimbabwe, Zambia and Namibia] are solid performers from all the four regions in spite of high inflation in Zimbabwe, we still continue to make money. Zambia is growing well and Namibia is also in strong footing,” Ottapathu said.

Choppies recently decided to cease its operations in South Africa, Mozambique, Kenya and Tanzania owing to poor performance. Despite this divesture Ottapathu is confident other regions will be key in the growth of Choppies in the next few years.

“We will get some growth in Zambia, Namibia and Zimbabwe depending on what the country is going through. We are not going to be in a hurry to expand in Zimbabwe but other countries we will do expansion in a phased manner,’’ he said.

Asked on what went wrong in other regions Ottapathu said: “It was too new in those countries. Nobody had the patience to wait, we had to go with a new tide that people have to make money immediately.”

Ottapathu could not rule out the possibility of returning to the markets where they exited, indicating that only time will tell.

“It is too early for me to make a comment on that. We will be expanding in a cautious manner and we will do an expansion programme in a very thoughtful process,” he said.

In the latest financial results, Choppies indicated that it is in the process of restructuring its debt. The Debt Restructuring Plan will allow the Company to repay the lenders in smaller tranches than the previous structure which will release some cash to the Company and improve the cash flow going forward, the statement stated.

The Choppies board is of the view that the buffer that has been provided by lenders coupled with improved profitability levels will go a long way in keeping the Company as a going concern for the short, medium to long term.

“That is one of the lessons we learn in the whole thing, debt is a killer. We want to reduce the debt. We will repay the debt even if dividends are delayed by a year, we will rather pay the debt,” Ottapathu said.

Despite events of the past few years, Ottapathu is self-assured that shareholders are confident about the future of the company.

At the height of Choppies saga, Ottapathu was suspended as the CEO of the company pending investigations resulting from allegation of wrong doing that have been raised by one of the previous auditing team members.

“Majority of them are confident, that is why they put us back in the driving seat. We brought in new board members and they are working well with us,” said Ottapathu.

As he previously indicated, Ottapathu said his suspension followed his proposal to the then board led by former President Festus Mogae to have the company board “refreshed” to bring in people with relevant experience in the retail business.

After garnering support from majority shareholders, the board was refreshed, with Mogae and other board members comprising of Dorcas Kgosietsile, Heinrich Stander, Ronald Tamale and Wilfred Mpai resigning their seats in September 2019.

During the year under review there has been changes in the Board of Directors of Choppies and the current board, which is led by Uttum Corea and comprises of among others; Farouk Essop Ismail, Ramachandran Ottapathu, Carol Jean Harward, and Tom Pritchard.

CHOPPIES FINANCIAL PERFORMANCE

Choppies negative equity increased from P80.1 million at June 2019 to P467.1 million as at June 2020. The main contributor for the increased negative equity is the P469.6 million loss from discontinued operations.

Group revenue, for the year ended June 2020 comprising of sale of goods, from the continuing operations, increased by 1.1 percent to P5 421 million (2019: P5 359 million).

This increase was inflation driven in Botswana and Zimbabwe against a backdrop of negative sale volumes in Botswana and Zimbabwe due to the impact of the Covid-19 pandemic.

The impact of the COVID-19 pandemic on the Group’s continuing operations revenue is estimated at P190 million.

The Board has considered it prudent to not declare a dividend for the period under review.

Botswana

The Botswana business continued to show strong resilience in an increasingly competitive and disruptive market due to Covid-19. This year was a period of consolidation, rationalising and balance sheet management with only 3 new stores opened totalling 91 stores.

Revenue grew by 2.7 percent to P4 260.1 million (2019: P4 147.2 million) despite sale volumes reducing by 4.7 percent. The gross profit margin improved to an impressive 24.4 percent (2019: 24.1 percent) with increased consumer demand in an economic environment of low interest rates and a weak Rand. In addition, improved buying and further addition of house brands contributed to profitability.

Financial services and value-added segments contributed well to the bottom line with significant effort and resources placed behind these to improve the service delivery and profitability.

EBITDA (i.e. before accounting for IFRS 16) grew by P58.2 million or 22.5 percent to P316.6 million (2019: P258.3 million).

Zambia

Choppies is becoming a significant player in the Zambian market and is currently number 2 in its market segment with a total of 21 stores (2019: 21). Revenue grew by 3.5 percent to P604.1 million (2019: P583.5 million) and the gross profit margin to 17.6 percent (2019: 17.2 percent). In the rapid declining currency situation, input costs are not sufficiently recovered by sales proceeds in Kwacha. This situation is made worse by some overheads like rent which are normally fixed in US dollars, a situation currently been re-negotiated.

EBITDA losses (i.e. before accounting for IFRS 16) reduced significantly by P33.6 million to a P4.4 million loss (2019: P38.0 million loss).

Zimbabwe

Zimbabwe is one of the most challenging markets to operate in, with hyperinflation in three digits, concerns surrounding the economy, changes in the money market and public disturbances. Revenue declined by 18.6 percent to P414.1 million (2019: P508.5 million) resulting from an 87.5percent weakening of the local currency against the Pula during the previous 12 months.

Gross profit margins improved slightly to 19.0 percent (2019: 18.8percent) with EBITDA on a comparable basis (i.e. before accounting for IFRS 16) at P15.7 million (2019: P15.1 million). The abrupt changes and volatility in the currency makes operating in Zimbabwe extremely difficult. This resulted in all the gains obtained at country level getting eliminated when converted at group level due to the weak currency when compared to the Botswana Pula.

Despite all these issues, the business remains self-sustaining without any cash flow constraints. However, repatriation of profits to Botswana will continue to be difficult until the economy undergoes a structural change.

Namibia

The Namibian operation is still relatively small, with five stores (2019:5), and is yet to reach a critical mass needed to generate sustainable profitability levels. Revenue increased by 18.7 percent to P142.1 million (2019: P119.7 million) with gross profit margins improving to 18.3 percent (2019: 16.6 percent).

The trends in sales growth and substantial improvement in gross profit levels are indicative of the future potential of the region. Based on the trends and similarities this market has to Botswana, the Namibian operation is expected to be a substantial contributor to the profitability of the Group in the longer term.

EBITDA losses (i.e. before accounting for IFRS 16) increased to P11.3 million (2019: loss P9.2 million) due to the rental payment of three non-operational stores.

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