Choppies Enterprises Limited (CHOPPI.bw) 2022 Annual Report
There is a great deal of uncertainty in the economies of Southern African countries due to the duration and intensity of global credit conditions which have turned more negative due to rising interest rates, on the back of runaway inflation, slow economic growth and surging prices for energy and commodities. Renewed supply-chain disruptions, financial market volatility, fluctuating employment trends and consumer confidence have further stagnated economic growth. On the back of the Covid-19 pandemic, we are now facing the effects of the war between Ukraine and Russia.
Notwithstanding these macro-economic challenges, Choppies has performed strongly in all areas of operation and geography. This is mainly due to the sterling efforts of the management and staff led by the CEO who has done an incredible job in difficult conditions. In recognition, the Board is evaluating a long-term incentive scheme to align management efforts with shareholder interests, which will be put to a vote at the upcoming annual general meeting.
Our Zambia operations have started paying off and we are now seeing a return on investment. In Zimbabwe, the team performed strongly even amid the currency drop impact. Namibia shows a lot of promise and the Group is considering opening more stores in the region.
There is a restriction on the import of certain horticultural products into Botswana. While this restriction is a great incentive and opportunity for farmers and future farmers to grow these vegetables so that Botswana becomes self-sufficient, this is a transitional journey of agricultural development.
In the interim, we have to think of our other stakeholders, our customers and their needs for healthy nourishment which are frustrated by shortages and in some cases complete absence of supply.
In a major transitional journey of this nature it is best that the Ministry of Agriculture coordinates and develops policies on a cluster-based methodology, consulting with farmers, retailers, customers representing civil society and academia represented by institutions, such as the Botswana University of Agriculture and Natural Resources, who could advise on modern agricultural methodology suitable for the water scarce and climatic conditions in the country. This is to come up with viable policy imperatives for this important transition. This would then result in a win-win implementation, for all concerned, which could be monitored and evaluated for necessary improvements during this important national journey.
At Choppies we have always been supportive of local farmers who have registered with the Group in record numbers for support and assistance as shown on page 59.
ADVANCING OUR STRATEGY AND LIVING SHARED VALUE
Our strategy and vision continue to be the driving force for the Group and we have seen significant progress in this regard. The successes were hard-earned through the commitment of our employees.
The following objectives have all been advanced during the year:
• Divestment from loss-making regions
• Slow and managed expansion in profitable regions
• Debt restructure and reduction
• Improved corporate governance
• Improved stakeholder relationships
• Developing a shared-value strategy which is the DNA of the Group
• Accelerate the conversion of negative equity into positive equity
We seek to replicate our successful growth model in all the countries in which we operate. This includes our continuous development of new products – be they their own label or financial services – and then expanding them throughout all countries of operation. Financial services is a key growth area and we will also be evaluating ecommerce going forward.
By espousing the concept of shared value, we are committed to ESG and are seeking to further integrate ESG measures into our processes and procedures. This includes implementing solar power projects across seven stores in Botswana and more stores in Namibia.
As a board, we are particularly pleased with our corporate governance and the strides we have taken in that regard. I would, in particular, like to acknowledge the effort and contribution of independent Non-executive Director, Tom Pritchard, towards improving our governance policies and procedures. See page 70 for further detail on our governance report.
CHANGES TO THE BOARD
Independent non-executive Director, Mr Valentine Chitalu, has been appointed to the audit and risk committee, the investment committee and the social and ethics committee.
As predicted last year, we are witnessing the effects of a bounce-back of the global economy following the worst of the pandemic, which has been stemmed by a successful vaccination programme.
However, the recovery has been compromised by supply chain difficulties and the complexities of starting up industries which were partially or completely shut down, and compounded by the effects of the Russian-Ukrainian war, with escalating energy and fuel costs, and not to mention basic food shortages. This has all resulted in spiralling inflation affecting both developed and developing nations, with consequent social distress and political upheaval. Central banks around the world are raising interest rates in the hope of curbing inflation which in turn is slowing growth.
In Botswana, inflation was initially stimulated by steep increases in power tariffs, fuel price increases, other increases in administered prices and the increase of VAT on 1 April 2021. The timing of these could not have come at a worse time as we needed to grow the economy at the time and not burden it with inflationary taxes and administered prices as stated in my message in 2021. The new Minister of Finance, to her credit, has reversed the increase in VAT in August 2022, as a short-term measure, which will have a mitigating effect, but the current global inflationary pressures continue to keep inflation high.
Inflation, which had been contained at 2% to 3%, increased to 8.2% in June 2021. The Bank of Botswana was hoping that inflation would adjust down to previous levels by April 2022. However, inflation is now at 14.6% as at August 2022, as a result of the imported global inflation referred to above. The bank has hiked interest rates three times this year which in the case of Botswana, is ineffective against imported inflation considering the magnitude of our imports. The bank holds the view that “competitiveness” of nascent export industries is promoted through a weak currency. The weak currency only serves to fuel inflation.
Competitiveness arises through “productivity” and not through a weak currency or low exchange rate.
Productivity is the fundamental basis for all prosperity growth. It is heartening to note that the governor of the bank has requested businesses to focus on productivity and innovation in the fight against inflation. This requires certain improvements for a conducive business environment for productivity, while the Bank of Botswana, needs to move away from its belief in a weak currency which only serves to fuel inflation and rather look at the exchange rate from first principles. The managed rate should be set by adjustment of the basket of currencies to reflect an appropriate mix of the SDR and the Rand, based on trading patterns with trading partners, and to move to an upward crawl of the exchange rate instead of a downward crawl.
All countries need to brace themselves for the knock-on effect, of compromised Russian fuel and energy supplies to Europe during this autumn and winter in the northern hemisphere, on energy prices and focus on fighting inflation in the most appropriate manner for that country, as the singular most important challenge to be overcome. This will determine whether economies will succeed or fail in the current global environment.
On behalf of the Board, we wish to express our appreciation to all our stakeholders for their contribution to growing the Choppies business and walking the journey with us. To my fellow Directors, thank you for your guidance and counsel as we continue to drive the business to ensure that our strategic objectives are achieved.
To our CEO and supportive management team, I want to express my gratitude for their unwavering commitment to the Choppies vision, mission, and shared-value approach.
30 September 2022
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