African expansion costs halve Choppies profit
Staff Writer | Thursday March 16, 2017 18:00
The retail giant posted a 47% drop in Profit After Tax (PAT) to P55 million in the six months ended December 2016.
On the other hand, the group’s total expenditure increased by 28.5% to P847.7 million in the six months ended December 2016 from P606.2 million in the same period the previous year.
Choppies spent P168 million in funding expansion in the period under review.
Moemedi Mosele, a market analyst for Motswedi Securities believes that the biggest reason for the loss in the group’s profit is that the costs are growing faster than the revenue as a result of the group’s regional expansion drive.
“Running costs have impacted on this company’s profitability. Any increase in expenses results in a decrease in profits,” he said.
He said the other factor that could have impacted on the group’s profits is the growing competition as well as shrinking local profits.
Despite the lower profits, Choppies is planning to spend P570 million to expand its footprint across Southern and Eastern Africa between now and June 2018 as the company presses ahead with its growth strategy.
Choppies chief executive officer, Ramachandran Ottapathu told Mmegi Business that he was not worried by the profit drop as the group’s primary target was expanding presence in the seven countries it currently operates in.
He said the capital expenditure would be funded mostly from internal cashflows. “Despite the 45% fall in earnings per share, the group prides itself on its revenues, gross profit as well as operating space that rose significantly, reflecting the results of our growth strategy,” he said.
The group’s revenue was up 34% to P4.7 billion, while the total number of stores jumped 37% to 202 outlets in seven countries.
The retailer also indicated that it plans to open 36 stores in the 2017 calendar year, with 12 of them in South Africa where the retailer is quite close to realising profits.
Having opened its first store in Mozambique two months ago, the group also plans to open new outlets in Zambia, Tanzania and Kenya this year.
Choppies also expects an improvement by scaling up operations on its Zambian, Tanzanian and Kenyan operations that have been making losses. In Zambia, the group has 11 stores and intends to add 10 more stores in Tanzania while in Kenya they will add about five more stores to the existing 10 to break even.
However, the group’s Zimbabwe operations have bounced back to profitability in the six months ended December 2016.