Monday, September 21, 2020

Choppies’s Biggest Fall…

Local retailer Choppies Limited continues to be under pressure following weeks of negative publicity and subsequent failure to release financial results within the stipulated time.

Since the beginning of the year, the share price of the retailer’s stock at Botswana Stock Exchange (BSE) has fallen by 30.2 percent. Available figures shows that the sharpest monthly decline in share price was register in August when the price fell by 26.4 percent.

On Thursday the Botswana Stock Exchange Limited (BSEL) and Johannesburg Stock Exchange (JSE) halted the trading of Choppies Enterprises on the stock market, only for the two bourses to rescind within hours.

Choppies shares briefly ceased to trade Thursday morning as the BSE – where Choppies is primarily listed – issued the trading halt in order for the leading local retailer to provide clarification to the market in respect of the announcement made by the company on the 21 September. The announcement made on Friday after close of business warned shareholders that the publication of the financial results for the year ended 30 June 2018 will be delayed, also adding that the earnings for the period will be 20 percent lower.

Following the trading halt, Choppies quickly issued a trading statement and cautionary note, clarifying its Friday announcement. The Ramachandran Ottapathu led grocer said the delay in publication of results is due to the current audit for the year ended June 2018. The grocer appointed a new auditor earlier this year after parting ways with KPMG, its long time auditor. The company says the board and auditors have been working together to reassess the past accounting practices and policies.

“The reassessments currently being undertaken relate to historical purchase price allocations on business acquisitions, depreciation and amortization accounting, valuation of inventory and impairment assessments of property, plant and equipment, intangible assets and deferred tax assets,” the company said in the new statement.

Choppies explained that the reassessments which are currently ongoing are complex by nature, requiring careful analysis in order to determine the impact on prior and current periods. Furthermore, the retailer says its board of directors and its new auditors, PricewaterhouseCoopers (PWC), have uncovered number of matters relating to the current and earlier financial periods, which require independent verification and expert legal analysis before disclosures can be made.

“Certain transactions and business relationships hitherto were not made fully apparent and were therefore not sufficiently considered in preparation of historical annual financial statements,” read part of the statement. The transactions and relationships referred to include certain business acquisition transactions undertaken by South African subsidiary during the 2017 and 2018 financial years. Also part of the scrutiny is the ramifications of the “well published shareholder dispute in Zimbabwe.”

Choppies went on to say that while these independent verifications and expert legal analyses have been initiated, their completion date and outcomes cannot be determined with any reasonable certainty at this stage, hence impacting the finalization of the company’s audited financial results, which are a month behind schedule.

On the issue of anticipated profit drop, the retailer says a combination of adverse trading conditions in South Africa, Mozambique and East Africa, as well as inventory losses will most likely affect the bottom line. “The final results for the current financial year may be further impacted by possible restatements on prior periods and accounting for transactions still being verified. As set above, the Group is not in a position to make any reasonable estimate of the impact of these matters (if any), until the necessary verifications, analyses and assessments are completed,” the company said.

It is proving to be a bad year for Choppies, while the first half year results were also delayed due to change of auditors, the company showed signs of upward momentum after revenue and net profit surged by 22 percent. However, soon news broke out that the retailer was in a fight with its Zimbabwe subsidiary shareholders. In Zimbabwe, the business is registered under the name Nanavac Investments Private Limited, trading as Choppies Supermarket Zimbabwe.

For most part, an impression was created that the Zimbabwean shareholders held an interest of 51 percent while Choppies Enterprises held the remainder, as this was done to satisfy Zimbabwe’s indigenisation law which at the time restricted foreigner’s shareholding to 49 percent. Nanavac Investments, which is owned by that country’s former second vice-president, Phelekezela Mphoko, and his son Siqokela Mphoko, believes it is a 51 percent shareholder in the local unit. But Choppies claims that Nanavac’s interest in the business is a mere 7 percent.

Following the fallout, Choppies has accused Siqokela Mphoko of inappropriate behaviour, resulting in his arrest and was arraigned for 170 counts of fraud and theft. In return, Mphoko has deposed an affidavit, accusing Choppies Enterprises of playing dirty by denying the Mphoko’s claim that they are the main shareholders.

The Friday announcement that alluded to the potential 20 percent drop in profits, together with dispute about its shareholding structure in Zimbabwe, has rubbed off shareholders, sending the company’s stock on the JSE to drop by as much as 85 percent on Tuesday, while on the BSE the shares fell by 72 percent. Listed on the JSE in 2015 at R4.90, the shares were trading at o.42 cents by Thursday, a 91 percent drop. In Botswana, the company listed at P1.25, and is currently trading at P1.69.

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Sunday Standard September 20 – 26

Digital copy of Sunday Standard issue of September 20 - 26, 2020.