The board of grocery Botswanan supermarket chain Choppies has suspended its CEO Ramachandran Ottapathu. According to a shareholder notice issued the decision was made in a board meeting on the 20th 2019. The suspension comes into effect on the 22nd May 2019.
Choppies has said that it expects its investigative audit of the company’s accounts to conclude in June 2019. Choppies has still not published its accounts for the financial year ended June 30, 2018, and which were due in September 2018. Choppies is listed on the JSE and the Botswana Stock Exchange. Both exchanges have suspended the trading of Choppies’ shares. Trading in the shares is expected to remain suspended until after the investigation has ended.
A reminder: in March 2019 Choppies issued a statement that it expected this detailed audit process to end that month, and to be closed by the end of April 2019. It also reassured investors that the fundamentals of the business, which is still trading as normal, remained solid.
Choppies has appointed an interim CEO: Farouk Ismail, the group’s current Deputy Chairman. It has also appointed turnaround/distressed business specialist Redford Capital to help it restructure.
In recent years Choppies has seemingly pulled off extraordinary growth by expanding into a number of challenging new markets like Kenya, Zimbabwe, Mozambique and Tanzania, all while growing its profile in its core markets of Botswana, South Africa and Zambia.
Until April 2018, operations in South Africa were not profitable, according to Choppies. This suggested that the entire profitability of the business rested on the performance of the Botswanan operations. In May 2018, Choppies reported 22% growth of both sales and net profit for its half year results ended December 2017. That trading statement had been delayed from March 31st. From May 4th 2018, Choppies shares started falling precipitously, although even then the share price was half its 2015 peak.
We do not know what is the exact issue with the Choppies accounts. Ostensibly, the issue is around de-recognition of impairment of goodwill and other tangible and intangible assets, revised depreciation and amortisation of tangible and intangible assets and de-recognition of deferred tax assets previously recognised.
But we strongly suspect that the underlying issue is probably a simple one: Choppies hasn’t been able to deliver the profits it has reported while undertaking the breadth and scale of the growth programme it has in Southern and East Africa. The suspension of CEO Ottapathu, an accountant by training, suggests to us that Choppies may now have some clear preliminary findings but want to dig all the skeletons up so they can release the bad news in one go.
