Choppies Holding Limited stores in Zimbabwe snapped back in the last half of 2016 amidst the furor over shortage of cash. For the six month ended 31 December 2016, profits increased substantially on the backdrop of a 19 percent jump in revenue.
In Zimbabwe, the company saw an Earnings Before Depreciation, Interest, Taxes and Amortization (EBITDA) growth of 114 percent over the same period for the previous year. The Retailer’s Group Chief Executive Officer (CEO) Ramachandran Ottapathu says “Zimbabwe is already profitable” chiefly because “we improved our margins”.
As at 31 December 2016, Choppies retained 31 stores in Zimbabwe, 10 of which were added the same year the embattled country introduced the controversial bond notes, now dubbed ‘bollars’ to ease out the cash crisis prevailing in the economy. Between 2015 and 2016 profits were estimated to have fallen from P8.2 million to P6.8 million. Shortage of cash in circulation, which at one point was characterized by rationing, caused customer purchases per transaction to drop markedly. Most precisely, for Choppies, the period of February to May 2016 was marked by challenging conditions that saw both basket size and footfall reduce. Political unrests were also a bullish factor.
When the situation stabilised, Choppies says trade returned to normal levels on the back of the introduction of the ‘bollar’. The impact of the latter is yet to be realized. Ottapathu says “Bond notes are treated like other notes, it’s not affecting us”.
In Zambia, Kenya and Tanzania the group says embryonic operations are gaining momentum with the opening of new stores which are progressing well. But these regions are not profitable and they contributed 20 percent to revenue, according to Ottapathu, affectionately known as Ram. Botswana contributed 49 percent to Group revenues, “Trading conditions remained difficult due to the subdued economic conditions in the country. Profits in Botswana were materially impacted by the strengthening of the South African Rand against the Botswana Pula that resulted in a foreign exchange transaction gain lower than expected compared to 31 Dec 2015.”
Overall Group Revenue was up by 34 percent to P 4.7 billion. Going forward, Tshegofatso Tlhong, an Investment Analyst at Afena Capital argues that the proportion contributed by Botswana will be determined by how fast the other operations ramp up and the level of investment made in these geographies. “Botswana is the largest operation therefore it is only normal to see that operation contributing the bulk of revenues to the business.”
Choppies owns 119 stores outside Botswana which are in the red. It appears Choppies generates money through Botswana the cash cow, which is also running dry, to fund expansions which are almost worthless in terms of return, “Expansion activities in Zambia, Kenya, Zimbabwe and South Africa have dragged down performance over the past year,” Andrew Cuff Head of Fundamental Research at Consilium Capital South Africa says. “With the group’s expansion into Mozambique and Tanzania we think it will continue to show depressed earnings related to these expansion activities.” By December 31 2016 Choppies had established 1 store in Tanzania.
The Business Weekly and Review asked the CEO if they do diligence before penetrating the market, and when operations are usually expected to be profitable after setting foot. While he wasn’t specific on details he says the group collects retail/economic statistics and make informed decision on the markets, “We look at the retail penetration in each country and decide to choose a place. We do have our threshold for each country, based on this we move.”