Choppies leverages on foreign operations
Choppies almost doubled its headline earnings per share in the six months to December 31 last year on the back of its foreign operations, despite a huge debt burden.
The retailer, which has stores in Zambia, Botswana, Zimbabwe and Namibia, says it is the biggest retailer in Southern Africa outside South Africa. It has a primary listing on the Botswana stock exchange and a secondary listing on the Johannesburg Stock Exchange, but no longer owns stores in South Africa.
Choppies operations are food and general merchandise retailing as well as financial service transactions supported by centralised distribution channels through distribution and logistical support centres.
Choppies’ Rest of Africa segment consisting of Namibia, Zambia and Zimbabwe reported a significant improvement in half year earnings before interest and taxes as it moved into profitability of BWP50 million (US$4.34mln) prior period’s EBIT loss of BWP7 million (US$607,876).
Revenue for the Rest of Africa segment rose 89.0 percent backed by five new stores, inflation and volume growth.
Operating expenditure surged by 20.4 percent on inflation in Zambia and Zimbabwe and five new stores.
EBIT margin is a healthy 5.0 percent against the negative 1.3 percent for the prior period, according to the company.
The group’s like for like sales growth was 13.9 percent.
“The group’s revenue increased by 18.9 percent to BWP3 223 million driven by seven new stores coupled with strong volume and price growth in the Rest of Africa,” said the company in a statement accompanying the results.
Botswana experienced modest revenue growth to BWP2 231 million (2020: BWP 2 186 million) mainly as a result of negative volume growth due to the impact of the Covid-19 pandemic on the economy and consumer spending.
In Pula terms, gross profit for the group grew by 14.7 percent to BWP686 million despite the challenging economic environment.
Total operating costs were up 9.7 percent largely to a 15.0 percent increase in administrative expenses which offset a BWP29 million foreign exchange gain on lease liabilities from the Zambian operation following the strengthening of the Kwacha.
Resultantly, EBIT rose 31.2 percent from BWP138 million to BWP181 million. EBIT margins improved from 5.1 percent to 5.6 percent.
However, it still has more debt than assets with BWP2.3 billion in debt and BWP1.9- billion in assets.
It did not declare a dividend, citing economic uncertainty and efforts to rebuild the company.
Botswana store sales were almost flat in a challenging economic environment. Total operating costs rose by 9.7 percent, mainly driven by a 15 percent increase in administrative expenses.
The company has been mired in scandal and was suspended from the Botswana exchange and the JSE in October 2018 after missing a deadline to release financial results.
Its auditor at the time, PwC, delayed releasing the results as it began “reassessing a number of past accounting practices and policies”.
It had concerns about how inventory levels were recorded, accounting, and if there was money laundering from the Zimbabwean stores.
After the publication of 2018 and 2019 results, the discount retail chain was reinstated on the JSE in November 2020 after returning to the Botswana exchange a few months earlier.
The group has been involved in ongoing legal battles in Botswana with PwC over the delayed 2018 audit report.
In September 2019, PwC declined to audit the firm further, citing reputational risk.
Previous auditors, KPMG, did not sign off results of some subsidiaries in 2016 and 2017.
Each week, 1.8-million customers visit 159 Choppies stores in four countries.-ebusinessweekly
