Botswana’s biggest retail grocer has bounced back to profitability following five years of staggering losses that forced the group to exit some loss-making markets.
In the financials for the year ended June 2021 released on Wednesday, the group reported a P60 million profit, up from the P370 million recorded in 2020, and marking the first time the retailer registered a full year profit since 2016. The turnaround has been attributed to restructuring the business, following the exit from under- performing investments.
Choppies last year closed its retailers in South Africa, Kenya, Tanzania and Mozambique following a failed expansion strategy that nearly sunk the company. The expansion weighed heavily on Choppies and caused a rift between company founders and shareholders who were troubled by the diminishing profits and dividends.
Matters came to head in 2018 when the retailer got in trouble with regulators for failure to publish audited financial results on time after the company external auditor flagged some processes and transactions that could distort the true picture of the company’s financial health.
The review of past records uncovered losses and in the ensuing drama, Choppies decided to quit and exit the loss-making markets. The delayed June 2018 financials released in December 2019 stunned shareholders and market observers: a P445 million loss in 2018, and another shocking loss of P170 million for 2017 which was initially reported as a P74.6 million profit when KPMG did Choppies’ books. The losses extended to 2019, with retailer booking in a P428 million loss, and followed with a loss of P370.6 million for the year ended June 2020.
Now the group is focused on growing the market share and profitability in the remaining 154 stores found in four countries. The group’s cash cow, Botswana which is home to 90 Choppies stores, saw revenue decline by 2.7 percent as the business continued to show strong resilience in an increasingly competitive operating environment and poor trading conditions, the group said.
“Operating limitations due to government regulations and precautionary measures taken because of the COVID-19 pandemic, resulted in a lower gross profit margin of 22.9 percent compared to last year’s 24.4 percent. The gross profit margin remains relatively healthy despite the extremely challenging trading conditions.”
Still, the Botswana stores raked in P199.6 million profit after tax, which was reduced by operations from other countries in consolidated basis. Though there was improvement in Zambia, Namibia and Zimbabwe, the combined losses reached P37.7 million.
While Choppies’ external auditors Mazars raised concerns that though the group incurred a net profit of P60 million for the current financial year, it has accumulated losses of 938 million since 2016, and as at that date, the group’s total liabilities exceeded its total assets by P448 million, and the total current liabilities exceed its total current assets by P402 million.
However, the group’s board of directors are confident of the ability of the group to operate as a going concern for at least the following 12 months, after considering the detailed cash flow forecasts as prepared by management against the recently restructured debt facilities with a consortium of banks, undertakings of financial support by the founding shareholders, the economic outlook of the countries in which it operates as well as the possible future impact of the COVID-19 pandemic.