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