Botswana’s biggest grocer, Choppies Enterprises, will resume trading its shares on the Johannesburg Stock Exchange (JSE) following a two-year suspension for failure to publish audited financials within stipulated time.
On Friday, the retailer, which is recovering from corporate scandals, revealed that after extensive engagement with the JSE, the continent’s most advanced bourse agreed to lift the suspension of the company’s shares, with trading commencing on 13 November 2020. This comes four months after Choppies shares were allowed to trade again on the Botswana Stock Exchange (BSE) on 27 July 2020, following the publication of the delayed audited group results for the years ended 30 June 2018 and 30 June 2019, as well as the interim results ended 31 December 2019. Choppies has primary listing on the BSE and secondary listing on the JSE.
Choppies shares have lost nearly 80 percent of its value on the BSE and JSE since the corporate scandal broke out in late January 2018. Trouble began in January 2018 when the chain grocer failed to release audited financial results for the year ended June 2018 after dropped its long-term auditors, KPMG Botswana, and turned to across town rival PwC. What at first seemed like minor hiccup from change of auditors quickly unravelled into nasty chapters that detailed the messy affairs of the retailer, with Choppies announcing that interim results for December 2017 and full year financials for June 2018 had to be delayed after PwC uncovered number of matters relating to the current and earlier financial periods, which required independent verification and expert legal analysis before disclosures can be made.
PwC had picked up certain transactions and business relationships which were not made fully apparent, therefore not sufficiently considered in preparation of historical annual financial statements. The audit firm abruptly dropped Choppies as a client within 20 months of auditing them, branding the retailer a risky client. In a scathing blow, PwC refused to give an audit opinion over Choppies’s 2018 financials, explaining that there were several matters which prevented the PwC team from obtaining sufficient and appropriate audit evidence as required by International Standards on Auditing to form an opinion. The retailer’s founders, Ramachandran Ottapathu and Farouk Ismail, have since launched a P450 million lawsuit against PwC to claim losses caused to the Choppies brand.
Choppies’ losses have now piled up to over P1 billion in the past two years. The retailer with the widest footprint in Botswana attributed the group losses to discontinuation of operations in markets where the retail chain stores were saddled by mounting losses. The company has decided to exit South Africa, Kenya, Tanzania and Mozambique.
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.
Mazars Botswana, appointed as external auditors in February 2020, reported that Choppies faces uncertainties that casts doubt on its ability to continue as a going concern. In the accounting jargon, a material uncertainty exists when the company is unable to obtain a “high level of confidence” about the entity’s solvency and liquidity for the “foreseeable future”.
“We draw attention to the fact that the group incurred a net loss of P371 million during the year ended June 2020, had accumulated losses of P1 billion, and as that date, the group’s total liabilities exceeded its total assets by P467 million, and the total current liabilities exceed total current assets by P777 million,” wrote Mazars in an independent auditor’s review report on interim financial statements.
However, the Choppies board and management say the retailer remains a going concern, an assumption that the loss-making grocer will meet its financial obligations when they fall due. Though the negative equity gave rise to extensive investigations into the ability of the company being able to operate as going concern for the next year and medium term thereafter, the board says it considered the 2021 budgets, detailed cashflow forecasts – stress tested, banking facilities and covenants, undertakings of financial support by the founder shareholders, the economic outlook of the countries in which it operates as well as the possible future impact of the COVID 19 pandemic.