Choppies to buy local farm produce

MASS grocery retailer Choppies Enterprises is negotiating with Barclays Bank of Botswana to amend conditions of a $20 million the group secured last year for an expansion project in Zimbabwe after local net tangible assets went down the prescribed figure of $85 million.

Net tangible assets refers to the total assets of a company, minus any intangible assets such as goodwill, patents and trademarks and less all liabilities. The dually listed Botswana headquartered company secured a $20 million from the bank last year to expand its operations in Zimbabwe.

Part of the loan conditions was to ensure that it makes quarterly repayments of $1 121 218 over five years commencing 1 April 2014. It also stated that the Zimbabwean partners for Choppies Nanavac Investments should hold a minimum of net tangible assets amounting to $85 million during the period of the loan facility until final settlement.

However, in an integrated report for 2015, Choppies Enterprises conceded that its Zimbabwe net tangible assets as at June 2015 were less than the prescribed threshold.

“The loan agreement did not highlight the implications of non-compliance. The bank did not request early payment of the loan as of the date when the financial statements were approved by the board of directors. Management is currently discussing the amendment in the terms and conditions of this facility with the financial institution in favour of the Group,” said Choppies Enterprises.

The group, primarily listed on the Botswana Stock Exchange and secondarily on the Johannesburg Stock Exchange noted that its expansion project was well on course in Zimbabwe with 12 new stores expected to be opened before the end of the year.

Choppies last week opened two shops in Harare and one in Bulawayo. Choppies said it is targeting to hit 50 stores in Zimbabwe in the long term with Harare only likely to be home to 20 stores in the medium term due to a ready market.

“The Harare stores continue to perform well and additional stores are planned in this area during FY2016, with a total of 11 new stores expected.”

Choppies already runs 21 stores and two distribution centres in Bulawayo and Harare. Although the retail chain started in Bulawayo, it has expanded to Harare, Mutare and Bindura and was now eyeing Gweru and Masvingo.

Choppies said it has seen improved sales in Zimbabwe resulting in revenue of BWP863 million ($81,1 million) during the year to June although margins dropped significantly due to shrinkage in consumer buying power.

“Revenue from non-essential food lines also dropped sharply due to the fall in disposable income. The dollarised Zimbabwe economy remains fragile. Average basket sizes dropped considerably given price deflation and the economic pressure felt by consumers but footfall growth was very strong indicating a growing popularity of the Choppies brand.”

It said due to the continued expansion it has now employed 1 560 in the country. The group said it was also going to implement its ethical sourcing system in Zimbabwe and South Africa which will see 75 percent of fresh produce being sourced locally.

Explaining the move in an interview on Friday, Choppies Zimbabwe director Mr Siqokoqela Mphoko said the move was meant to empower local producers and create employment in the value chain as mandated by Zim-Asset.

“We are guided by Zim Asset and what we are saying is that we cannot import such things as cabbages, onions vegetables and all the other fresh produce. We want to empower the local suppliers and farmers. In that way we are creating employment along the value chain as mandated by Zim Asset.”

Mr Mphoko said Choppies’ expansion programme was proof that it was possible to be successful in Zimbabwe despite the challenges.

“We are proving that it is possible to be successful in Zimbabwe.”

In Botswana though its ethical sourcing programme, the group said it has invested in a number of horticultural development projects and assist the farmers to procure agricultural machinery, modern farming technology and fertilisers.

“This has created more than 350ha of new farming area and contributed to increasing their agricultural production. We are in the process of replicating this programme in South Africa and Zimbabwe.”

Choppies made a grand entry in Zimbabwe in 2013 when it acquired 10 Spar stores which were previously operated as Spar Franchises by SAI Enterprises (Private) Limited through its subsidiary Nanavac Investments Private Limited for a consideration of P223 081 485 (US$22,5 million). SAI Enterprises was owned by Bulawayo business man Mr Raj Modi.

“Amounts owing to vendors for acquisitions relates to the remaining balance due to SAI Enterprises (Private) Limited for the acquisition of 10 stores in Zimbabwe in the previous financial year. SAI Enterprises (Private) Limited was classified as a related entity in the prior year due to a common director, who subsequently resigned from the group,’ said Choppies Enterprises.

The group operates 125 retail outlets in Southern Africa, comprising 72 stores in Botswana, 35 stores in South Africa and 18 stores in Zimbabwe. Inclusive of Zimbabwe the group said it intends to add 200 stores in five countries by the end of next year.

It said it employees more than 11 000 people across all of its operations. Apart from the established markets, Choppies said its aim was to expand across the whole of Sub-Saharan Africa.