Botswana-based discount retailer Choppies has resumed trading on the JSE after a two-year hiatus, as it battles to recover from legal and accounting scandals related to its inventory levels.
Choppies, which has a primary listing on the Botswana Stock Exchange (BSE) and secondary listing on the JSE, was suspended from the local bourse in November 2018 after it delayed releasing its financial results.
Then-auditor PwC began “reassessing a number of past accounting practices and policies”; Choppies has recently struggled to publish results with sufficient information to satisfy the JSE.
Choppies said after extensive engagement, the JSE had agreed to lift its suspension with effect from Friday, which follows its reinstatement on the BSE in July. That reinstatement followed the publication of delayed results, including for its year to end-June 2018.
The group published its results for the year to end-June 2020 in September, which included qualifications regarding inventories, but these remain “technical in nature”, Choppies said.
“Continuous monitoring of group profit margins by management has also not identified any unexplainable discrepancies for the periods affected by the inventory qualification, providing further comfort on the inventory balance reported,” the statement read.
Allegations of fraud surrounded the company relating to how it had conducted and recorded stock takes at its SA-owned stores at the time and its Zimbabwe businesses.
In 2019, the retailer announced an investigation by an EY forensic team, which uncovered accounting irregularities. The board then suspended CEO Ramachandran Ottapathu, who was later reinstated. The group has said that “no evidence could be found that any person was prejudiced, nor that fraud was committed.”
Choppies also saw its then auditor PwC terminate its working relationship due to the retailer’s risk profile. Choppies struggled to find new auditors until Mazars took it on, which further delayed its results.
Mazars was only appointed as auditors in February 2020 and, as a result, were unable to observe the physical counting of inventories at certain locations.
Mazars said in its audit opinion for the year to end-June 2020 it was unable to satisfy itself on this issue through alternative means and, as a result, could not determine whether any adjustments to the group’s cost of sales would have been necessary.
Even as its shares were in suspension, Choppies was grappling with unprofitability in many of the markets in which it operates, while Covid-19 has dealt a further blow in 2020.
The group sold its SA business to Kind Investments in 2019 for R1; it also discontinued its operations in Kenya, Tanzania and Mozambique. Instead, the group is focusing on more profitable operations in Botswana, Zambia, Zimbabwe and Namibia, which it says should help stabilise it.
Choppies reported a loss of 370.6-million pula (R537m) to end-June, about a 14% improvement from the period a year earlier but took a 190-million-pula revenue hit from the Covid-19 pandemic.
The group’s share was unchanged at 64c in afternoon trade on Friday, while on the BSE, where it was also unchanged, it has lost about 13% since its suspension was lifted.
From September 21, 2018 until its suspension, Choppies’s share lost almost two thirds of its value on the JSE, leaving it with a market capitalisation of about R1bn.