The Expansion of Choppies Into Africa

Abstract

On a Saturday morning in early October 2015, Choppies chief executive officer (CEO), Ramachandran Ottapathu, made his weekly visit to a Choppies store. While watching the familiar scenes in the Choppies superstore in Gaborone, he considered the company’s strategy to extend its African footprint.

Choppies was the leading supermarket chain in Botswana, targeting the lower- to middle-income sectors. The company had 134 stores in three countries: 75 in Botswana, 38 in South Africa and 21 in Zimbabwe. Its major strategic objective was to increase its overall number of stores to 200, and the number of African countries it operated in to six, by the end of 2016. Ottapathu wondered how Choppies could achieve this objective while still growing value for shareholders.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: The Choppies Board

Figure
His Excellency Festus G Mogae (75), Chairman

[BA (Hons) (Econ), MA (Development Economics)]

Mogae had been the president of the Republic of Botswana from 1998 to 2008, prior to which he held numerous positions in finance, development planning and election supervision, as well as secretary to the president. He had been part of the special envoy of the United Nations for HIV/AIDS and Good Governance in Africa and, since 2008, has been the chairman of Choppies.

Figure
Ramachandran (Ram) Ottapathu (50), Chief executive officer

[Chartered Accountant (India)]

Ottapathu joined Choppies in 1992 and had been CEO since 2000. He had 22 years’ experience in the retail industry, both in finance and operations. He had combined entrepreneurial and commercial acumen with excellent management skills to grow Choppies in Botswana and expand into South Africa. He was a fellow of the Institute of Chartered Accountants of India and an associate member of the Botswana Institute of Chartered Accountants.

Figure
Farouk Ismail (61), Deputy chairman

Ismail was the founder of Choppies and given his presence in the company since its inception, had a good understanding of the target market and how to address market requirements. He took a keen interest in social responsibility and had played a role in all community activities in which Choppies had been involved. He had served on the board since 2004.

Figure
Dorcas Ana Kgosietsile (55), Independent non-executive director

[BA (Acc, Stats, Econ), MSc (Management)]

Kgosietsile had been a non-executive director of First National Bank of Botswana, Botho University and a further six wholly-owned subsidiaries of FSG Limited. She served as first resident high commissioner of Botswana to India until 2011, after a short stint as consul general based in Cape Town, South Africa, prior to which she managed Business Clinic (Pty) Ltd. She had served on various entities as director and, in 2011, was appointed to the board of Choppies.

Figure
Robert Neil Matthews (71), Independent non-executive director

[Certified Public Accountant (USA)]

Matthews was a fellow of the Institute of Chartered Accountants of England and Wales, and the Botswana Institute of Chartered Accountants. He served as chairman or independent non-executive director on several audit committees of private and public companies. He had been partner at PricewaterhouseCoopers Gaborone, in charge of audit and business advisory services, and offered consulting and advisory services to various organisations. He was appointed as an independent non-executive director in 2012.

Figure
Sydney Alan Muller (65), Independent non-executive director

[BCom (Hons), MBA (UCT), CA(SA), AMP (Harvard)]

Muller was the executive chairman of Woolworths Holdings Limited, and a director of other companies in the Wooltru Group. He was a director of MMI Holdings Limited, and served on a number of its subcommittees. He was chairman of the sub-Saharan review board of Air Liquide S.A and chairman of a number of private operating companies. He was appointed to the Choppies board in 2014.

Figure
Peter Baird (48), Non-executive director

[MA Eco, CFA, MBA]

Baird had been responsible for Standard Chartered Private Equity (SCPE) across sub-Saharan Africa and had 18 years’ experience in private equity, consulting and investment banking. He had spent 11 years at McKinsey in South Africa and in the USA, where he had been a partner in a healthcare practice. Earlier in his career, he had been a principal at Brait Capital Partners and Lehman Brothers. He had served on the Choppies board since 2013.

Source: Choppies (n.d.), “Board of Directors”, available at: http://choppies.co.bw/our-team (accessed 29 October 2015).

Exhibit 2: The Choppies Management Team

Figure

Figure

Figure

Source: Choppies (n.d.), “Experienced Management Team”, available at: http://choppies.co.za/Investor-Portal/management-team-2/ (accessed 3 October 2015).

Exhibit 3: Choppies’ Branding

Figure

Source: Choppies (n.d.), “Home”, available at: http://choppies.co.bw/ (accessed 4 February 2016).

Figure

Source: Tabane, T. (2015), “Farmers want CA to investigate Choppies”, Echo redefined, 25 May, available at: www.echo.co.bw/business/echo-business/321-farmers-want-ca-to-investigate-choppies.html (accessed 4 February 2016).

Exhibit 4: Choppies Timeline from 1986 to 2014

Figure

Source: Choppies (n.d.), “Introduction to the Company”, available at: http://choppies.co.za/Investor-Portal/ (accessed 24 October 2015).

Exhibit 5: Financial Highlights as at December 2014

Balance sheet

In Pula (million)

30 June 2014

31 December 2014

Total assets

1 749

2 143

Non-current assets

1 095

1 223

     Plant and equipment

597

735

Current assets

654

920

     Inventory

408

543

     Accounts receivable

89

209

     Cash on hand

103

118

Equity

869

913

Non-current liabilities

244

401

     Long-term borrowings

210

363

Current liabilities

636

829

     Accounts payable

506

587

     Current portion of long-term borrowings

70

103

     Bank overdraft

46

82

Total equity and liabilities

1 749

2 143

Figure

Figure

Figure

Figure

Source: Choppies (n.d.), “Interim Financial Results for the Six Months Ended 31 December 2014”, available at: http://choppies.co.za/wp-content/uploads/2013/04/Choppies-Interim-2015-Results-Presentation.pdf (accessed 3 October 2015).

Exhibit 6: Annual Financial Statements 2015

Statements of profit or loss and other comprehensive income for the year ended 30 June 2015

Group

Company

in BWP ’000

Notes

2015

2014

2015

2014

Revenue

5 945 234

5 012 418

-

-

Dividend income

-

-

52 989

49 925

Cost of sales

(4 653 413)

(3 933 347)

-

-

Gross profit

1 291 821

1 079 071

52 989

49 925

Other income

8 611

8 729

-

-

Operating income

1 300 432

1 087 800

52 989

49 925

Expenditure

(1 032 864)

(846 389)

(203)

(187)

Administrative expenses

(817 993)

(650 279)

(203)

(187)

Selling and distribution expenses

(48 322)

(44 976)

-

-

Other operating expenses

(166 549)

(151 134)

-

-

Operating profit before net finance cost and taxation

267 568

241 411

52 786

49 738

Net finance cost

(24 342)

(11 977)

187

-

Interest cost

(28 522)

(15 566)

-

-

Interest income

4 189

3 589

187

-

Profit before taxation

1

243 226

229 434

52 973

49 738

Taxation

2

(45 988)

(52 274)

-

-

Profit for the year

197 238

177 160

52 973

49 738

Attributable to:

Owners of the company

202 826

167 882

52 973

49 738

Non-controlling interests

(5 588)

9 278

-

-

Other comprehensive income

Items that will be reclassified to profit or loss:

Foreign currency transaction differences from foreign operations

(16 068)

3 487

-

-

Attributable to:

Owners of the company

(16 542)

5 616

-

-

Non-controlling interests

474

(2 129)

-

-

Profit and total comprehensive income for the year

181 170

180 647

52 973

49 738

Attributable to:

Owners of the company

186 284

173 498

52 973

49 738

Non-controlling interests

(5 114)

7 149

-

-

181 170

180 647

52 973

49 738

Earnings per share – Thebe

Basic

22.1

15.70

14.30

Diluted

22.1

17.11

14.30

Statements of financial position at 30 June 2015

Group

Company

in BWP ’000

Notes

2015

2014

2015

2014

ASSETS

Non-current assets

1 269 313

1 094 808

340 326

340 325

Property, plant and equipment

3

746 050

597 040

-

-

Deferred taxation

5

19 572

15 217

-

-

Investment in subsidiaries

21

-

-

340 326

340 325

Investments in new projects

4.2

30 165

28 509

-

-

Goodwill

6

473 526

454 042

-

-

Current assets

1 149 383

654 663

575 964

121 986

Inventories

7

535 653

407 871

-

-

Investments

4.1

3

3

-

-

Advances and deposits

8

66 023

53 872

-

-

Trade and receivables

9

186 148

84 082

265

19

Amounts due from related entities

10.1

17 735

5 336

575 499

121 747

Cash and cash equivalents

12

343 821

103 499

200

220

Total assets

2 418 696

1 749 471

916 290

462 311

EQUITY AND LIABILITIES

Equity

1 451 538

869 323

902 385

448 399

Stated capital

13.1

875 476

421 474

875 476

421 474

Preference shares

13.2

86

85

-

-

Retained earnings

588 286

438 418

26 909

26 925

Foreign currency transaction reserve

(14 345)

2 197

-

-

Equity attributable to owners of the company

1 449 503

862 174

902 385

448 399

Non-controlling interests

2 035

7 149

-

-

Non-current liabilities

312 429

244 447

-

-

Long-term borrowings

15

273 591

210 164

-

-

Deferred operating lease liabilities

16

38 838

34 283

-

-

Current liabilities

654 729

635 701

13 905

13 912

Trade and other payables

17

453 130

404 160

227

234

Amounts due to related entities

10.2

38 301

101 404

13 678

13 678

Taxation payable

16 742

14 152

-

-

Current portion of deferred operating lease liabilities

16

4 805

4 139

-

-

Current portion of long-term borrowings

15

79 185

66 186

-

-

Bank overdraft

12

62 566

45 660

-

-

Total equity and liabilities

2 418 696

1 749 471

916 290

462 311

Statements of changes in equity for the year ended 30 June 2015

in BWP ’000

Stated

capital

Preference shares

Retained

earnings

Foreign currency translation reserve

Capital and reserves

     Non-controlling interests

Total

GROUP

Balance at 1 July 2013

421 474

85

320 461

(3 419)

738 601

-

738 601

Total comprehensive

income for the year

-

-

167 882

5 616

173 498

7 149

180 647

Profit

-

-

167 882

-

167 882

9 278

177 160

Other comprehensive income

-

-

-

5 616

5 616

(2 129)

3 487

Transaction with owners

Dividend declared

-

-

(49 925)

-

(49 925)

-

(49 925)

Balance at 30 June 2014

421 474

85

438 418

2 197

862 174

7 149

869 323

Total comprehensive income for the year

-

-

202 826

(16 542)

186 284

(5 114)

181 170

Profit

-

-

202 826

-

202 826

(5 588)

197 238

Other comprehensive income

-

-

-

(16 542)

(16 542)

474

(16 068)

Transaction with owners

454 002

1

(52 958)

-

401 045

-

401 045

Dividend declared

-

-

(52 958)

-

(52 958)

-

(52 958)

Issue of ordinary shares

454 002

-

-

-

454 002

-

454 002

Issue of preference shares

-

1

-

-

1

-

1

Balance at 30 June 2015

875 476

86

588 286

(14 345)

1 449 503

2 035

1 451 538

Company

Balance at 1 July 2013

421 474

-

27 112

-

448 586

-

448 586

Total comprehensive income for the year

Profit

-

-

49 738

-

49 738

-

49 738

Transaction with owners

Dividend declared

-

-

(49 925)

-

(49 925)

-

(49 925)

Balance at 30 June 2014

421 474

-

26 925

-

448 399

-

448 399

Total comprehensive income for the year

Profit

-

-

52 973

-

52 973

-

52 973

Transaction with owners

454 002

-

(52 989)

-

401 013

-

401 013

Issue of ordinary shares

454 002

-

-

-

454 002

-

454 002

Dividend declared

-

-

(52 989)

-

(52 989)

-

(52 989)

Balance at 30 June 2015

875 476

-

26 909

-

902 385

-

902 385

Statements of cash flows for the year ended 30 June 2015

Group

Company

in BWP ’000

Notes

2015

2014

     2015

2014

Cash flows from operating activities

Profit before taxation

243 226

229 434

52 973

49 738

Adjusted for:

Depreciation

116 482

122 012

-

-

Interest cost

28 522

15 566

-

-

Interest income

(4 180)

(3 589)

(187)

-

Profit on disposal of plant and equipment

(2 945)

(6 426)

-

-

Increase in deferred lease liabilities

5 221

15 311

-

-

Foreign currency transaction (loss)/gain

(16 068)

3 487

-

-

Operating cash flows before working capital changes

370 258

375 795

52 786

49 738

Increase in trade and other receivables

(102 066)

(32 477)

(246)

(19)

Increase in amount due from related entities

(12 399)

(814)

(453 752)

14 532

Increase in advances and deposits

(12 151)

(7 251)

-

-

Increase/(decrease) in trade and other payables

48 970

30 166

(7)

177

Decrease in amounts due to related parties

(63 103)

(4 705)

-

-

Increase in inventories

(127 782)

(64 691)

-

-

Cash flows (used in)/from operations

101 727

296 023

(401 219)

64 428

Taxation paid

2.1

(47 753)

(56 190)

-

-

Interest received

4 180

3 589

187

-

Dividend paid

(52 958)

(49 925)

(52 999)

(49 925)

Net cash flows (used in)/from operating activities

5 196

193 497

(454 021)

14 503

Cash flows from investing activities

Acquisition of property, plant and equipment

(263 827)

(318 917)

-

-

Proceeds on disposal of plant and equipment

12 459

11 829

-

-

Acquisition of business

-

(192 246)

(1)

(14 485)

Investment in new projects

(26 880)

(25 603)

-

-

Foreign currency transaction differences in property, plant and equipment

14 045

-

-

-

Foreign currency translation differences in goodwill

(19 484)

-

-

-

Net cash flows used in investing activities

(283 687)

(524 937)

(1)

(14 485)

Cash flow from financing activities

Financing obtained from third parties

232 955

246 942

-

-

Capital repayment of long-term liabilities

(156 529)

(57 227)

-

-

Proceeds from issue of preference shares

1

-

-

-

Proceeds from issue of ordinary shares

454 002

-

454 002

-

Interest paid

(28 522)

(15 556)

-

-

Net cash flows from financing activities

501 907

174 149

454 002

-

Net increase/(decrease) in cash and cash

equivalents

223 416

(157 291)

(20)

18

Cash and cash equivalents at beginning of the year

12

57 839

215 130

220

202

Cash and cash equivalents at end of the year

12

281 255

57 839

200

220

Segmental report
Group

Operating segments are identified based on financial information regularly reviewed by the Choppies Enterprises. Limited chief executive officer (identified as the chief operating decision-maker of the group for IFRS 8 reporting purposes) for performance assessments and resource allocations.

The group has three operating segments, as described below, which are the group’s strategic divisions. Operating segments are disclosed by geographical regions.

Performance is measured based on the profit before taxation as management believes that such information is most relevant in evaluating the results of the segments against each other and other entities which operate within the retail industry.

Botswana: Retail of fast-moving consumer goods in Botswana. The business is supported by and includes distribution and service companies.

South Africa: Retail of fast-moving consumer goods in South Africa. The business is supported by and includes a distribution centre company.

Zimbabwe: Retail of fast-moving consumer goods in Zimbabwe.

in BWP ’000

Botswana

South Africa

Zimbabwe

Total per annual financial statements

2015

Statement of profit or loss and other comprehensive income

Revenue:

Trading income

3 806 193

1 275 589

863 452

5 945 234

Other income

5 220

2 322

1 069

8 611

Total segment revenue

3 811 413

1 277 911

864 521

5 953 845

Reportable segment gross profit

851 713

284 248

155 860

1 291 821

Reportable segment EBITDA

330 649

23 052

30 349

384 050

Reportable segment profit/loss before taxation

253 761

(23 712)

13 177

243 226

Reportable segment profit/loss after taxation

200 979

(12 008)

8 267

197 238

Statement of financial position

Reportable segment assets

1 510 388

509 705

398 603

2 418 696

Reportable segment liabilities

556 803

144 754

265 601

967 158

2014

Statement of profit or loss and other comprehensive income

Revenue:

Trading income

3 586 393

1 001 693

424 332

5 012 418

Other income

7 324

1 226

179

8 729

Total segment revenue

3 593 717

1 002 919

424 511

5 021 147

Reportable segment gross profit

789 151

203 054

86 866

1 079 071

Reportable segment EBITDA

330 347

3 018

30 058

363 423

Reportable segment profit/loss before taxation

233 623

(28 525)

24 336

229 434

Reportable segment profit/loss after taxation

178 022

(19 056)

18 194

177 160

Statement of financial position

Reportable segment assets

1 124 217

347 588

277 666

1 749 471

Reportable segment liabilities

524 979

112 809

242 360

880 148

Source: Choppies (n.d.), “Integrated Annual Report 2015”, available at: http://choppies.co.za/wp-content/uploads/2013/04/Choppies-AR-2015.pdf (accessed 3 December 2015).

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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