Botswana retailer Choppies will write off Sh1.6 billion from its struggling Kenyan unit as the supermarket chain seeks to sell nearly half of its local outlets to ease the cash crunch that has left the firm in debt.
The Johannesburg Stock Exchange-listed retailer informed investors that its inability to access loans led to stock-outs in the Kenya operation, which posted a loss of Sh248.7 million, according to the delayed 2018 results.
Now, Choppies has announced plans to sell six of its 15 stores as it struggles to grow market share in Kenya’s increasingly competitive retail market.
The sale plan comes about four years after the retailer bought a 75 percent stake in Ukwala Supermarket for Sh1 billion as a launch pad for its East Africa entry. The remaining shares are held by local shareholders — the Export Trading Group (ETG). The retailer operates more than 130 stores in its core markets, South Africa and Zimbabwe.
Choppies this year shut down outlets in Kiambu, Nanyuki and Bungoma as the retailer experienced stock-outs amid rising operational costs.
“Impairments will be required with respect to Kenya in the financial year ending June 30, 2019 for Sh1.6 billion (178.87 million Botswana pula),” said Choppies.
“The group has decided to downscale the business in Kenya region by reducing the number stores to nine from 15. Offers are already in place for two stores and initial discussions are happening for the other stores. This decision has been taken due to the ongoing distressed business in Kenya region.”
ETG recently offered the Kenyan unit of Choppies Sh400 million as shareholder loan in a bailout aimed at settling supplier debts that had restricted fresh stocks.
The local shareholders also guaranteed a Sh250 million overdraft from I&M Bank Limited in debt deals that will see it acquire an additional stake in Choppies Kenya if the loans are not settled.Choppies has recently been relying on loans, including a Sh300 million facility from Barclays Bank of Kenya, to steady its Kenyan operations, the parent company said in the earnings report.
Southern African retailers have been performing poorly in the rest of Africa, leaving them with the option of retreating back home.
Fashion retailer TFG last month said it would decide next year whether to continue trading in Kenya and Ghana where it has at least six stores in each market
Choppies is also recovering from internal troubles after its CEO, Ramachandran Ottapathu, was reinstated despite his suspension in May on accusations of malpractices, including sale of ghost stocks to inflate sales figures. This anomaly was revealed in a forensic audit.
Choppies chairman and former Botswana President Festus Mogae also stepped down as chairman following a board fallout.
The firm’s shares have been suspended on both the Johannesburg and Botswana stock exchanges since November 1, 2018 on account of the company’s auditors, PwC’s, inability to finalise the 2018 financial statements due to irregularities. The delayed accounts were released last week.