Choppies moment of truth beckons
The months of May and June present anxious moments for the operations of Botswana’s market leading grocery retailer –Choppies. That’s because it is expected that the findings of the company’s affairs - both financial and governance - will be released at that time.
Currently Choppies has three different types of audits conducted in three countries - Botswana, South Africa and Zimbabwe - being forensic, governance and financial where Choppies operates. Choppies shares remain suspended on both the Botswana Stock Exchange Limited (BSEL) and Johannesburg Stock Exchange (JSE) following the Group’s failure to publish their financial results ending June 2018. Reports reaching Botswana Guardian state that the real action by Choppies leadership is expected in the next 6 - 8 weeks.
It will be based on the outcome and recommendations of the two investigation reports on the financial flows following anomalies and certain discrepancies picked by Choppies Auditors as well as the governance investigation into certain transactions conducted in Botswana.
Financial experts who talked to Botswana Guardian on condition of anonymity posited that the companies doing the forensic probe may make certain recommendations which will impact the current leadership structure of Choppies. This publication has learnt that after the previous audit by KPMG the new auditors PWC picked up anomalies and certain discrepancies which they needed to get investigated. This is what formed the basis of what internally is known as the audit raised concerns, the process of which will be completed by the end of June.
The second is the governance investigation into certain transactions conducted in Botswana. The investigation is done by the Desai group law firm headed by reputable lawyer, Rizwan Desai. It is likely to be completed either by end of May or early June. While the third and most serious is a forensic investigation which relates to transactions which were conducted in South Africa and Zimbabwe. In Zimbabwe, there are allegations of money laundering and impropriety in relation to transactions conducted in South Africa by Choppies, South Africa.
So far no one knows exactly what the position is but the investigation is being conducted by a South African law firm together with Ernst and Young South Africa, which is the main forensic investigator. Sources say the investigation is expected to be completed by the end of June. This means that Auditors cannot release the 2018 accounts until the three silos being audit, governance and forensic are dealt with all of which are expected to be completed by June. A financial expert told this publication that while the outcome cannot be pre-empted one thing which is certain is that the outcome could spell consequences for the current management and board.
He said there is uncertainty in the market and in relation to the shareholder base. The value of the shares climaxed even before the shares were suspended by BSEL to avoid speculative trading. DelayThe position is very simple; the company has not published its accounts for the year ended June 2018. The reason is that auditors PriceWaterhouse Coopers (PWC) say BSE had raised certain queries and concerns around the state of the affairs of the company both financial and governance.
On the financial, up until last year, KPMG was handling the accounts, but PWC took over around February last year, the year ended 31st June. The regulation states that BSE listed companies have to post half year and full year results. The half year results for 31st December 2017 were supposed to come out by March 2018, but were delayed because of the change in Auditors. They came out later. PWC approved them, however those are unaudited accounts. The next big set of accounts was in June 2018, but the auditors raised issues, the set date came and passed.
Regulations demand that results must be released three months after the set date which in this case was end of September. Records show that an extra month given by the BSE extending the submission to 31st October, but still nothing happened. The failure led to BSEL suspending the trading of the shares as did Johannesburg Stock Exchange (JSE), the secondary listing entity.Completion Once the three elements are completed the findings will go to the board. The information may require disclosures to be made in the financial statements or adjustments of the financial statement included on the audit queries as per satisfaction of the auditors and this may lead to the lifting of the suspension. This publication has established that the current board remains as is with former president Festus Mogae being chairman. However, sources say as part of the increased governance requirement stated in the announcement by BSEL the board will have new members. The board will need to have some people with retail and financial experience and background.
Choppies Group operates 107 retail outlets in Southern Africa, comprising 68 stores in Botswana, 26 stores in South Africa and 13 stores in Zimbabwe. Records show that last year, Choppies lost 76.3 percent of its value when the share price plummeted from P1.69 to P0.40 in a single day. Still on that day, its market capitalisation went down from P2.2 billion to P521.5 million. The Domestic Consumer Index (DCI) , which shows aggregate changes in market value on the basis of share prices declined by 11.4 percent for the year 2018 compared to a decline of 5.8 percent in 2017.