The months of May and June present anxious moments for the operations of Botswana’s market leading grocery retailer –Choppies. That’s because it is expected that the findings of the company’s affairs - both financial and governance - will be released at that time.
Currently Choppies has three different types of audits conducted in three countries - Botswana, South Africa and Zimbabwe - being forensic, governance and financial where Choppies operates. Choppies shares remain suspended on both the Botswana Stock Exchange Limited (BSEL) and Johannesburg Stock Exchange (JSE) following the Group’s failure to publish their financial results ending June 2018. Reports reaching Botswana Guardian state that the real action by Choppies leadership is expected in the next 6 - 8 weeks.
It will be based on the outcome and recommendations of the two investigation reports on the financial flows following anomalies and certain discrepancies picked by Choppies Auditors as well as the governance investigation into certain transactions conducted in Botswana.
Financial experts who talked to Botswana Guardian on condition of anonymity posited that the companies doing the forensic probe may make certain recommendations which will impact the current leadership structure of Choppies. This publication has learnt that after the previous audit by KPMG the new auditors PWC picked up anomalies and certain discrepancies which they needed to get investigated. This is what formed the basis of what internally is known as the audit raised concerns, the process of which will be completed by the end of June.
The second is the governance investigation into certain transactions conducted in Botswana. The investigation is done by the Desai group law firm headed by reputable lawyer, Rizwan Desai. It is likely to be completed either by end of May or early June.
While the third and most serious is a forensic investigation which relates to transactions which were conducted in South Africa and Zimbabwe. In Zimbabwe, there are allegations of money laundering and impropriety in relation to transactions conducted in South Africa by Choppies, South Africa.
So far no one knows exactly what the position is but the investigation is being conducted by a South African law firm together with Ernst and Young South Africa, which is the main forensic investigator. Sources say the investigation is expected to be completed by the end of June. This means that Auditors cannot release the 2018 accounts until the three silos being audit, governance and forensic are dealt with all of which are expected to be completed by June. A financial expert told this publication that while the outcome cannot be pre-empted one thing which is certain is that the outcome could spell consequences for the current management and board.
He said there is uncertainty in the market and in relation to the shareholder base. The value of the shares climaxed even before the shares were suspended by BSEL to avoid speculative trading.
The position is very simple; the company has not published its accounts for the year ended June 2018. The reason is that auditors PriceWaterhouse Coopers (PWC) say BSE had raised certain queries and concerns around the state of the affairs of the company both financial and governance.
On the financial, up until last year, KPMG was handling the accounts, but PWC took over around February last year, the year ended 31st June. The regulation states that BSE listed companies have to post half year and full year results. The half year results for 31st December 2017 were supposed to come out by March 2018, but were delayed because of the change in Auditors. They came out later. PWC approved them, however those are unaudited accounts. The next big set of accounts was in June 2018, but the auditors raised issues, the set date came and passed.
Regulations demand that results must be released three months after the set date which in this case was end of September. Records show that an extra month given by the BSE extending the submission to 31st October, but still nothing happened. The failure led to BSEL suspending the trading of the shares as did Johannesburg Stock Exchange (JSE), the secondary listing entity.
Once the three elements are completed the findings will go to the board. The information may require disclosures to be made in the financial statements or adjustments of the financial statement included on the audit queries as per satisfaction of the auditors and this may lead to the lifting of the suspension. This publication has established that the current board remains as is with former president Festus Mogae being chairman. However, sources say as part of the increased governance requirement stated in the announcement by BSEL the board will have new members. The board will need to have some people with retail and financial experience and background.
Choppies Group operates 107 retail outlets in Southern Africa, comprising 68 stores in Botswana, 26 stores in South Africa and 13 stores in Zimbabwe. Records show that last year, Choppies lost 76.3 percent of its value when the share price plummeted from P1.69 to P0.40 in a single day. Still on that day, its market capitalisation went down from P2.2 billion to P521.5 million. The Domestic Consumer Index (DCI) , which shows aggregate changes in market value on the basis of share prices declined by 11.4 percent for the year 2018 compared to a decline of 5.8 percent in 2017.
Botswana Stock Exchange Limited (BSEL) has announced intentions to revise the local bourse’s equity brokerage commission, following its seemingly biased increase in April 2016.
Indication are that BSE’s equity brokerage commission ceiling of 1.85 percent is one of the highest compared to markets such as Dar Es Salaam Stock Exchange, Stock Exchange of Mauritius and Nairobi Stock Exchange, among others.Thapelo Tsheole, BSEL Chief Executive Officer said the stability of turnover has weakened since the brokerage commission was increased.
He said the development has hindered unlocking value from the investment and the initiatives of the Exchange with respect to the development of the market. “The BSE is not entirely against increasing fees, but is of the view that these increments have to be substantiated by considerable value add from the service providers and should follow an objective and consultative framework that eliminates any perception of conflict of interest particularly as that was the perception at the time the BSE was a mutual entity,” said Tsheole. Sharing BSEL’s concerns on a position paper dubbed: ‘Paper on Revision of the Equity Brokerage Commission’, Tsheole said the benchmarking exercise which was undertaken to review the brokerage commission in 2016 relied on information provided by an interested party - a broker.
He added that the exercise could not have provided an independent and objective analysis for the BSE to make a well informed decision. “The information presented by the broker was not complete and comprehensive and from that end, it selected higher ends (ceilings) of the brokerage commissions to give an impression that brokerage commission in Botswana is very low compared to the chosen markets to support the introduction of the floor.”
The position paper further notes that in most markets, brokerage commission is on a sliding scale, therefore the scales are such that brokerage declines as the value of the transaction increases. “In a few markets, brokerage is negotiable within certain ranges and in some market it is flat,” said Tsheole. BSEL is soliciting for views from brokers, asset managers and all stakeholders, ahead of revising the brokerage commission.
After successfully listing in the Botswana Stock Exchange Limited (BSEL), the directors of the Botswana Building Society remain optimistic to be granted a commercial banking licence by the Bank of Botswana.
BBS board Chairman,Taolelo Mosetlhi said they are targeting the second half of 2019 to start operating as a commercial bank. “We are hopeful that our application to the Bank of Botswana for a banking licence will be successful,” said Mosetlhi. BBS was incorporated as a company (BBS Limited) in April and was the first to list on BSE’s over the counter platform called Serala last week. This enables the company to trade their shares at any given time.
Commenting on BBS financial results for the year ended March 2018, Mosetlhi said until they are issued with a commercial banking licence by the Bank of Botswana, it will continue to conduct the business of a building society. Currently, ordinary shares of existing holders of relevant accounts such as the paid up, indefinite period and Subscription are now listed on Serala.
BBS recorded an increase in profit to P49.9 million compared to P47.8 million in 2017. “It increased by four percent compared to the prior year which affirms the resilience of our business. However, we can only build on this success if we can transform BBS quickly into a commercial bank,” said Mosetlhi.The board recommended lower dividend of P57, 8 million to its shareholders this year compared to P59. 3 million last year.
The chairman indicated that the decline is mainly due to the reduction of the interest rate by 50 basis points by the Bank of Botswana in October 2017.
Botswana Stock Exchange Limited (BSEL) has submitted names of its new board of directors to Non Banking Financial Institutions Regulatory Authority (NBFIRA) for vetting.
BSEL Chief Executive Officer, Thapelo Tsheole without divulging the names of the incoming board, said the regulator is set to conclude the process by end of September. BSEL is regulated under NBFIRA “Eight are independent and two are non-independent,” said Tsheole highlighting that the development is part of reengineering BSEL, now a public company.
Tsheole is one of the non-independent directors by virtue of being the exchange’s CEO and the other non-independent director is a broker.He said once the new board is approved by the regulator, BSEL will revisit its strategy to incorporate the aspect of corporatization.“Our target is to move fast past the strategy post demutualization,” said Tsheole who is upbeat of the recent demutualization.
“The good thing is that it (demutualization) opens up to a lot of opportunities of companies that want to list on demutualised bourse,” said Tsheole at the sidelines of the 4th opening bell ceremony at BSEL headquarters in Gaborone.BSEL joins 28 other stock exchanges across the globe that has undergone the process.On operations, Tsheole said the exchange continues with a lean workforce and more efforts will be on business development initiatives, to improve both equity on the bourse and profits for BSEL.
Tsheole also highlighted that two or more listings should be expected on the bourse before the year end, while Botswana Building Society (BBS) has started trading this week, registered on the Serala over the counter (OTC) board, where its stock is currently traded amongst limited