Q & A
Ram Ottapathu takes Choppies south
Q Why is it that a company in growth mode is paying out so much — 30% — in dividends (with the plan to move that up to 50% as the business matures)? Particularly in the light of your raising expensive equity capital on the JSE? A If you asked me, personally, that is my view as well. Money grows better within the business. But that is not the only view. We did debate this for a long time. Before the IPO it was debated between ourselves and the four people who were involved in the process and we came to a consensus. It was a corporate decision, taken by the board.
Q Why have you listed in SA?
A The biggest problem with the market in Botswana is liquidity: the share price has grown reasonably well but the liquidity situation is really poor. The JSE is one of the most liquid exchanges in Africa and this is our natural progression to a more liquid stock exchange with access to more capital. That in turn will expose us to the entire South African business community and give a better profile for the company to expand.
Q You’re raising R574m in new capital — is that enough to fulfil your growth ambitions?
A Yes. It’s a fairly good cash generative business. We don’t need to have too much capital currently to fulfil our rollout plan. This is a fast-track IPO.
Q What about the pricing of the IPO, at a PE of about 22 times? Quite a few local analysts feel it’s expensive.
A I’m not going to argue about the pricing because there is a reference price on the Botswana stock exchange — this is already a listed stock.
We gave an indication to the book builders that this was the reference price and we have taken permission from the shareholders that that is the parameter.
Q You said in your pre-listing press release that there were “many factors that distinguish Choppies from its competitors” — what are those factors?
A If you go into a Choppies store and you go into any other South African supermarket you see a distinct difference.
We’ve got a slightly more compact space than our opposition and our reliance on our food and service departments is much stronger than the other retailers in the region.
Our service department contribution is very strong: like your butchery, fruit and veg, your takeaway and your bakery.
Q The South African retail market is already fiercely contested; why do you want to expand here?
A We are coming into the market in SA where we have experience. We are focusing on the three provinces closest to Botswana. That is where we’re already successful. We feel that the same demographic applies here and the same market conditions. We are very choosy and we are going to remain in those three provinces.
Q What about further north? Zambia and Tanzania are on your radar. You say the scope for formal retail development is significant.
A In Zambia only 14% of the market is formal retail; those countries have much better growth rates than in SA or Botswana for that matter. The middle class is growing. The number of people with disposable income is growing at a much faster rate and that will help in formalising the retail sector as well. We expect that process to continue. In Tanzania, the formal retail sector is less than 10%.
Q Does Choppies have strong brand recognition outside its home market?
A In the places we went into, we’ve been given good support from the consumer base. Wherever we are operating, we are a recognised retailer, whether it is in SA, Botswana or Zimbabwe. And we expect the same to continue in Zambia and Tanzania. In Tanzania we have a very strong local partner.
Q Your compound annual growth rate was 27% between 2011 and 2014 — can you sustain that? A We expect that growth to continue at least for the next two to three years, easily.
With the planned expansion, we should be able to continue that growth rate.
Q Would you say you’ve grown too quickly? In 2011, you had 58 retail outlets. Now you have 125 — so you’ve doubled in three years. Doesn’t that put stress on the business?
A Not at all. We’ve got the infrastructure and management which can take this company up to 250 stores in the next two years.