Tuesday, March 5, 2024

Choppies still saddled by losses

The remaining Choppies operations have ramped up on profits, but the group continues to report deep losses that were carried by discontinued operations as the retailer retreats from its loss-making stores  outside Botswana.

The chain stores operator this time around released audited financial results for the year ended June 2020 within the required time , a first for the company since it was suspended on the Botswana Stock Exchange and Johannesburg Stock Exchange for the delayed June 2018 and June 2019 financials, which were both delayed by more than a year. 

The June 2020 financials released on Friday shows that the retailer is climbing its way up from the bottom but still haunted by the piled-up losses from the stores that the group has since disposed. Choppies registered P5.4 billion in revenue, up by 1 percent from the previous year, reflecting restrained growth due to competition and Covid-19 outbreak containment measures that affected the retailer in the last half of its financial year. 

Profit before taxation from continuing operations, made up of Botswana, Namibia, Zimbabwe and Zambia, came at P105 million, three times more than the P30 million recorded as profit from the four countries in 2019. However, when discontinued operations are included, Choppies made a loss of P370.6 million, slightly lower than the massive P428 million loss recorded in June 2019. The discontinued operations comprise of loss-making stores from Kenya, Mozambique, South Africa and Tanzania. Choppies started exiting the markets earlier this year and sold off the South Africa stores for nearly P1 pula.

Choppies’ losses have now piled up to over P1 billion, including the P444 million loss realised in June 2018. The retailer with the widest footprint in Botswana attributed the group losses to discontinuation of operations in markets which have proved hard to penetrate, failing to turn profitable despite the huge sums invested in keeping the stores afloat. 

In the June 2020 full year financials, the Botswana subsidiaries remained the cash cow of the Choppies group; the 91 chain stores raked in P175 million profit before tax, almost double the P90 million they made last year. The Botswana stores contributed 77.7 percent of the total revenue from continuing operations. 

“The Botswana business continued to show strong resilience in an increasingly competitive and disruptive market because of Covid-19. This year was a period of consolidation, rationalizing and balance sheet management with only 3 new stores opened totalling 91 stores. Revenue grew by 2.7 percent to P4.3 billion despite sales volumes reducing by 4.7 percent,” Ramachandran Ottapathu, the company’s chief executive officer, said in a commentary accompanying the financial results. 

“The gross profit margin improved to an impressive 24.4 percent  with increased consumer demand in an economic environment of low interest rates and a weak Rand. In addition, improved buying and further addition of house brands contributed to profitability,” he said. 

Though it made a pre-tax profit of nearly P10 million in Zimbabwe, Ottapathu says the country remains one of the most challenging markets to operate in, with hyperinflation in three digits, concerns surrounding the economy, changes in the money market and public disturbances. 

“The abrupt changes and volatility in the currency makes operating in Zimbabwe extremely difficult. This resulted in all the gains obtained at country level getting eliminated when converted at group level due to the weak currency when compared to the Botswana Pula. Despite all these issues, the business remains self-sustaining without any cash flow constraints. However, repatriation of profits to Botswana will continue to be difficult until the economy undergoes a structural change,” Ottapathu said.

Choppies’ relatively new markets, Namibia and Zambia, made losses which dragged down the overall profit of the group. With only five stores, Namibia is yet to reach a critical mass needed to generate sustainable profitability levels, the company said, but added that the trends in sales growth and substantial improvement in gross profit levels are indicative of the future potential of the region. The stores made reported a P19.1 million loss. 

While the budget grocer is becoming a significant player in the Zambian market and is currently the number two in its market segment, the 21 stores recorded a P65 million loss.

“In the rapid declining currency situation, input costs are not sufficiently recovered by sales proceeds in Kwacha. This situation is made worse by some overheads like rent which are normally fixed in US dollars, a situation currently being re-negotiated,” Ottapathu said. 


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