New capital gives Choppies revenue growth

Champagne corks are popping at Choppies headquarters in Gaborone, Botswana as the country’s biggest retailer celebrates a solid set of results for the year-ended June 2023.

Ramachandran Ottapathu, CEO and foremost Choppies shareholder, and his executive team pulled the company from the edge of a precipice after the retail giant was dragged down by negative equity.

Pessimism has been wiped out thanks to the recent rights issue of BWP300m (R415m) and trading profits, and there is a cheerful outlook now underpinning the one beleaguered company.

The business fundamentals have shifted to a healthy state, with revenue surging past BWP6 billion, a significant milestone for the home-grown chain store since is turbulent phase of internal headwinds two years ago.

The Group’s retail sales increased by 6.5% to BWP6 (433 million) compared to (2022: BWP6 042 million), driven by sixteen new stores coupled with price growth of 6.8%. Sales volumes increased by 1.6% and excluding the new stores declined by 4.6% on a comparable basis.

In Pula terms, gross profit grew by 4.0% to BWP1 359 million (2022: BWP1 307 million) despite the challenging economic environment. Botswana and Namibia marginally grew gross profit rates while rates in Zambia and Zimbabwe declined.

For Choppies, the storm is over, and with new-found optimism, there is talk that the group could declare dividends next year. This must be music for long-suffering shareholders who last enjoyed a payout five years ago.

Consolidation

A beaming Ottapathu said: “The pain we endured has finally resulted in gain. These are very good results. The company had undergone a major revitalisation and consolidation programme and this has paid off – we are well on the way to again assume the position as a leading African multinational retain chain.”

“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 and shareholders in a challenging economic environment.”

The Group faced a demanding economic environment characterised by stubbornly high inflation, higher interest rates and unemployment, all of which continue to constrain consumer spending and the consumer’s ability to digest higher prices. Sales volumes were lower in many categories, exacerbated by competitor discounting, with cost pressures only partly recovered through price increases.

The gross profit margin was accordingly reduced to 21.1% from last year’s 21.6% due to higher supply chain costs, including fuel and managing prices in response to higher cost inflation and competitor discounting.

While expenses increased 5.1%, excluding the depreciation restatement, expenses grew 9.8%, partly due to new stores and inflation. Foreign exchange losses on lease liabilities of BWP31 million (against a gain of BWP28 million last year) were partly offset by foreign exchange gains on Zimbabwean legacy debt receipts of BWP18 million (2022: BWP15 million).

JSE

Choppies’ primary listing is on the BSE, and its secondary listing is on the JSE. Each week, approximately 2.0 million customers visit 177 stores under five formats in four countries.

With annual revenue of more than BWP6 billion, Choppies employs 10 000 people and is the largest grocery retailer in Southern Africa, outside of South Africa.

In a statement accompanying the full financial results, the company’s directors said operating profit (EBIT) reduced by 1.8% from BWP279 million to BWP274 million while adjusted EBIT, which excludes foreign exchange gains and losses on lease liabilities, movements in credit loss allowances, Zimbabwean legacy debt receipts and the reassessment of depreciation, reduced by 7.5% as costs grew faster than gross profit.

Net finance costs were higher than last year due to higher interest rates and interest on new stores lease liabilities.

“The effective tax rate is lower than the standard rate mainly due to the legacy debt receipts from Zimbabwe that are exempt from income tax and the raising of deferred tax on carried forward tax losses.

“We raised a deferred tax asset of BWP23 million for Zambia as we are now confident that this country will generate taxable profits in the foreseeable future.”

Liquidity

The Group continues to manage its cash resources and liquidity prudently with a reduction of BWP132 million in debt with BWP87 million paid out of internally generated funds and the balance of BWP45 million paid out of the proceeds of the rights issue.

Capital expenditure increased to BWP185 million (2022: BWP122 million) as the Group invested in new stores and maintained the distribution fleet.

“We raised BWP50 million from leases to fund the fleet (2022: BWP36 million).”

“Despite the growth in sales, inflation and new stores, our inventory reduced by BWP20 million helped by more stable global supply and the benefits of implementing our inventory optimisation system.

“As the economies in which the Group operates recover and the new stores reach full potential, an improvement in margins is expected,” said the directors.

On 19 July 2023, Choppies acquired 76% (seventy-six percent) of the Kamoso Group for BWP2.00 (two Pula) and took cession of shareholders’ loans to the value of BWP22 million. The Botswana Development Corporation (BDC) will retain its 24% stake.