• Choppies clarified it disposed of South African operations years ago and was not in takeover talks.
• Revenue and profit grew in the half year to December 2022 despite challenges.
• Margins fell slightly but are expected to recover as new stores mature and economies improve.

Choppies Enterprises Limited, a Botswana based retail group with operations in Botswana, Zimbabwe, Zambia, Kenya and Tanzania, has issued a response to clarify an article published in the Financial Mail. The article speculated that Choppies was engaged in takeover discussions with various South African retail chains.

Choppies disposed of its South African operations more than three years ago and as part of the sale agreement, the new owner was only allowed to use the Choppies South Africa name for three years. This period has now lapsed, meaning the new owner would have had to rebrand the stores and remove the Choppies name. Choppies has not been engaged in any takeover discussions with Shoprite or any other South African retailers in the past three years.

Choppies highlighted that the article created an incorrect impression by referring to just Choppies, the listed entity, in the headline and initial parts of the article before later mentioning Choppies South Africa. This could have led readers to believe the listed Choppies entity was involved in takeover talks or was struggling financially. Choppies clarified it wished to inform shareholders it was not in discussions with any parties mentioned in the article and that the article referred to an entity it disposed of years ago.

The update also provided a financial overview for the six months ended December 31, 2022. Revenue increased 8.8% to BWP 3.535 billion, driven by 13 new stores and 11.1% price growth. However, sales volumes fell 2% overall and 7.2% excluding new stores. Gross profit rose 7.3% to BWP 736 million despite a challenging economy. The gross margin fell slightly to 21% from 21.3% in 2021 due to higher costs.

Expenses grew strongly due to new stores, while foreign exchange losses of BWP 9 million on leases and BWP 19 million gains on legacy Zimbabwe debt offset. EBIT dropped 22.1% to BWP 141 million and adjusted EBITDA fell 9.6%. EBIT margin declined to 4% from 5.6%. Net finance costs rose on higher interest rates and new lease liabilities. The effective tax rate was below standard due to exempt Zimbabwe legacy debt receipts.

Net debt fell BWP 36 million to BWP 536 million. Capex increased to BWP 122 million to fund new stores and the distribution fleet. Inventory grew to support service, address supply issues and new stores.

Margins are expected to improve as economies and new stores recover. Choppies continues to offer value despite high costs and constrained consumers. Inventory and costs are being closely managed. No interim dividend was declared due to the economic environment and balance sheet rebuild.

Choppies faces significant competition across its markets, especially from South African retailers like Pick n Pay and Shoprite which continue to expand their operations in Africa. However, Choppies remains confident in its value proposition and ability to meet the needs of consumers seeking affordable goods and services. Choppies currently operates 129 stores across Southern Africa compared to over 1500 stores for Shoprite and over 700 stores for Pick n Pay, both across Africa. Choppies has about 20 stores in Zimbabwe, largely concentrated between Bulawayo and Harare. The current number of stores is a climbdown from 32 stores in 2018. It's regional expansion has dissipated owing to technical insolvency. As at December 2022, the company had narrowed its debt by 64 million Pula, but remained with a huge debt, higher than its assets size. While outnumbered, Choppies aims to become a dominant player in select African markets where its model resonates most strongly with customers. Success in these markets can offset competitive pressures in others. Management should remain focused on optimising each market's performance and improving group margins and cash flows.