Saturday, July 4, 2020

At long last…Choppies 2018 financials released

The embattled Choppies Enterprises has finally released its audited financial results which were halted for over a year following irregularities picked up by the retailer’s new auditors, and the results reflect massive losses. 

On Friday shortly after the local markets closed, Choppies dropped its much-anticipated results that showed a huge spike in losses. The retailer which operates predominantly in commodity dependent markets says despite difficult trading conditions,  revenue increased by 24 percent to P10.8 billion,   and gross profit increased by 12 percent to P2 billion. 

However, the gross profit margin was decimated by the spike in administration expenses as a result of more store acquisitions, and a deadly blow delivered by impairment losses  which increased to P335 million due to various IFRS adjustments, leaving the budget grocer with a cumulative P2.4 billion in expenditure, causing a massive loss for the year after taxation of P445 million, compared to a loss of P170 million in 2017. 

The impairment losses for 2018 included P77 million for reassessing useful lives of plant and equipment, P126 million goodwill written off on business acquisitions and P132 million impairment of trade and other receivables. Choppies net asset value (NAV) as on 30 June 2018 was P 576 million, which is a decrease of P 458 million or 44 per cent from P 1 billion in previous year. The 2017 NAV was also a reduction from P1.5 billion, a 32 percent reduction mainly due to restatements of 2016 results. 

While the release of the results might bring relief to the shareholders and market participants, Choppies’ auditors, PriceWaterhouseCoopers (PwC), which has since quit the company after it was appointed last year says there were a number of matters which prevented them from obtaining sufficient and appropriate audit evidence as required by International Standards on Auditing. Therefore, the released financials have not been reviewed by the company’s external auditors and have been extracted from the audited consolidated financial statements.

“We do not express an opinion on the consolidated and separate financial statements of Choppies Enterprises Limited (the “Company”) and its subsidiaries (together the “Group”). Because of the significance of the matters described in the Basis for disclaimer of opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated and separate financial statements,” said PwC in an audit report. 

Choppies remains suspended on the Botswana and Johannesburg  for non-compliance with the listing requirements, mainly due to non-publication of the 2018 audited annual financial statements. The share price had plunged by over 70 percent in both exchanges before trading was halted. 

Meanwhile, the company’s the board recently  entered into an bizzare agreement whereby the company’s South African (SA) subsidiaries are to be sold to Kind Investments, a shell company in South Africa, with all the issued shares held by Choppies in the subsidiaries and the loan accounts advanced by the company sold for the purchase consideration of R1 or 73 thebe.

In addition, Kind Investments undertakes to release Choppies from all the guarantees issued by it to trade and lessor creditors and indemnifies the company in relation to any claims under the aforesaid guarantees. As security therefore, the unnamed sole director of Kind Investments has guaranteed the obligations of the purchaser under such indemnity in favour of the company, which means Choppies is responsible for negative equity value of P150 million and claims which might come to P125 million. 

Choppies board has decided to consolidate the business to focus on value adding subsidiaries, resulting in decisions to sell its struggling operations in Tanzania, of which the negotiations are in an advanced stage towards concluding the sale. Furthermore, the retailer will  downscale its operations in Kenya and dispose of the stores to the local operators. Operations of the store in Mozambique have been stopped since September 2019.

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Sunday Standard June 28 – 4 July

Digital copy of Sunday Standard issue of June 28 - 4 July, 2020.