Wednesday, September 23, 2020

Choppies shares fall in first week of trading

Choppies shares sank to new lows in the first week of trading on the local bourse following a nearly two years suspension caused by the delayed release of audited financials, which have since reflected enormous losses, spooking investors. 

On Friday by the close of trading, Choppies shares were trading at 0.67 thebe, lower than Monday’s opening price of 0.69 thebe, the price the stock closed at when it was suspended from trading in November 2018 after it had lost over 75 percent of its value due to controversy surrounding the delayed financials. 

The suspension was lifted on Monday after the company released its long awaited 2019 financials, sparking curiosity on how shareholders will react to the battered stock and the company’s piling losses. As expected, the retailer dominated volume of shares exchanged this week, and the latest drop in the stock price could be an indication of how investors might be uncertain of the company.

Trouble began in January 2018 when the chain grocer dropped its long-term auditors, KPMG Botswana, and turned to across town rival PwC, and soon after, the company announced that there will be a delay in the release of audited financial results for the year ended June 2018, unravelling a nasty chapter that detailed the messy affairs of the retailer.

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. Following the auditor’s concerns, Choppies’ board of directors appointed Desai law Group to carry out an investigation on the retailer’s corporate structure, while Ernst & Young Botswana was tasked with a forensic report. 

The two reports revealed a company in disarray, fuelled by a board dominated and controlled by co-founder and chief executive officer, Ramachandran Ottapathu, whom the board accused of running the company single handily, and entering into business transactions without their knowledge. The board suspended Ottapathu, but the maverick CEO assailed his detractors during an Extraordinary General Meeting (EGM) in September 2019, and made a spectacular come back to the company he has been largely credited in turning it into Botswana’s biggest retailer.

Last week, the retailer released its interim and full year financial performance for 2019, which reflected staggering losses. Choppies reported a loss of P428.6 million for the year ended June 2019, which was slightly below the P444 million loss realised in June 2018. For the six months ended December 2019, the retailer’s losses piled up, raking in a P139 million loss, also significantly higher than the P59.6 million loss made in December 2018.

 Choppies has attributed the 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. Though the Botswana based stores made losses for the first time in 2018, the nearly 90 stores remained the anchor of the company, showing resilience last year and bouncing back to profitability, but was not enough to parry losses from  stores in discontinued markets.

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The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.