The Return of Choppies
Now that the troubled fast moving consumer goods (FMCG) giant, Choppies Enterprises Limited has disposed of non-performing operations, Chief Executive Officer (CEO) Ramachandran Ottapathu is confident that Choppies will return to profitability, he spoke to Staff Writer KEABETSWE NEWEL.
On Monday this week, the Botswana Stock Exchange (BSE) CEO Thapelo Tsheole lifted the suspension of Choppies shares. It meant that Choppies resumed trading on the BSE. The shares were lifted after Choppies published all outstanding financial results on the BSE.
To Ram, as Ottapathu is affectionately known, the lifting of the suspension is the end of the storm for Choppies, because Choppies shares will now be traded.
Just after the lifting of the suspension on Monday, Choppies was the largest trader on the Domestic Companies Index (DCI).
Over 1.7 million shares were traded, generating over P1.2 million in turnover according to the BSE daily market report. The share price closed the day trading at P0.69 thebe per share. A stockbroker, who spoke anonymously, said the large trading was probably shares that were bought from the Johannesburg Stock Exchange (JSE) before the suspension and were supposed to be transferred to the BSE. He said as a result of the suspension, the shares could not move. The capital market analyst said Choppies’ real performance will reflect after a week or two, after the crunching and digesting of the Choppies financials.
Ram chose not to speak about the share price since the company is on a closed period, but he hinted that with its large pool of investors, Choppies has always been one of the liquid shares on the BSE.
In the interview, neither did Ram want to comment on the company’s Earnings per Share (EPS) which has declined considerably. EPS refers simply to the value that shareholders derive in each share.
What Ram was confident about however is that Choppies has gotten rid of loss-making operations which were bankrolled by the Choppies group. To the shrewd businessman, disposing of those operations was a strategy geared at ensuring that Choppies becomes liquid and that it operates only profitable, self sustainable operations and only those that will be profitable or sustainable in the near future.
Choppies has disposed of its South African operations. South Africa has never been profitable to Choppies, despite that the operations were funded to the tune of millions in Pula, which drained the Choppies coffers. “We had around 92 stores in South Africa, and yet it was such a small number for us to be profitable. We needed a large number of stores to be profitable in that market. It was draining Choppies financially,” he said in the interview. Further, Ram said Choppies also sold its Mozambique operations because they were loss making. He also said they are winding down in Kenya and Tanzania as well. “We should be done with the process in a few months,” he stressed.
Post the disposal, Ram said Choppies is now fairly liquid. The remaining operations are in Botswana, Choppies’ home ground and most profitable operations. Further, Choppies operates in Zimbabwe, where Ram noted that they are profitable, as well as in Zambia, which is self sustainable. “Namibia is still a small operation with only 5 stores. If we open 5 more stores, Namibia will be profitable. All Choppies operations will then be profitable and our shareholders will be happy,” he revealed, adding that Choppies no longer has cash-flow challenges.
As soon as Choppies returns to profit-ability, Ram said shareholder earnings shall increase, which will improve the attractiveness of Choppies and investor confidence. Asked whether the winding down of other operations will not reduce Choppies revenue and growth prospects, Ram said the problem was that those operations were draining Choppies financially. Ram would rather focus on the profitable markets and expand in those. He said he will soon open shop in Gumare.
There are other plans to expand in Zambia and Namibia. There were questions over Choppies’ corporate governance practices and some financial transactions, which Ram said are now water under the bridge. He said steps have been taken to address all those. He said Choppies will claw its way back to being a star corporate performer with tighter governance structures, a clear succession plan and a watchful board.“We have undertaken an aggressive restructuring. Choppies has recapitalized it-self; appointed a Deputy CEO with over 25 years of grocery retail experience in Southern Africa, has appointed a new Chief Financial Officer (CFO); and appointed new auditors – international auditing firm, Ma-zars,” he revealed, adding that all of them have commenced work, although some are still out of the country owing to travel restrictions.
Some of the measures taken by Choppies include the recapitalisation of the business by P50 million comprising a loan of P100 million from founding shareholders, Ram Ottapathu and Farouk Ismail, and P50 million from trading operations. Choppies also announced amendments to Ram’s employment contract in accordance with the King IV Code on Corporate Governance. This includes a 43 percent reduction in the current guaranteed portion of the CEO’s remuneration to facilitate the introduction of short-term incentives. Ram said Choppies’ unsatisfactory financials are as a result of unrealised foreign currency translation reserves of P300.8 million, for the 2019 full year.
“The effect of the deterioration of the Zimbabwean currency alone accounts for P323.2 million of this amount with the balance of P22.4 million made up of a net profit on translating other currencies. These unrealised losses from Zimbabwe were partly offset by the recognition of a hyperinflation reserve of P71.3 million,” he said, adding that trading losses of P435.6 million (2018: P375.1 million) from regions that were closed/discontinued since the June 2019 year-end namely South Africa P306.6 million (2018: P273.8 mil-lion), Kenya P95.3 million (2018: P83.7 million), Tanzania P18.2 million (2018: P5.9 million) and Mozambique P15.5 mil-lion) (2018: P11.7 million).
He emphasized that the losses were mainly from South Africa, Tanzania, Kenya and Mozambique.
“As a result, the board took a decision to reduce the losses by exiting these operations,” he stated.