Botswana retailer Choppies has disclosed that the seven Ukwala Supermarkets stores it took over in March are technically insolvent to the tune of Sh63.8 million.
Choppies, in its latest annual report, says the stores — five in Kisumu and two in Nakuru — have accumulated more liabilities than assets and that they closed the year to June at a loss of Sh126.8 million.
The retailer told the Business Daily that the insolvency position is still recorded in its books since the capital invested in the Kenyan subsidiary is yet to be converted from debt into equity.
This disclosure comes even as Choppies, which opened two stores of its own in Kisii and Kondele, says it plans to invest Sh754.7 million in the subsidiary to open 12 more outlets over three years.
“Choppies…has pledged its continued financial and operational support to certain subsidiaries…in order for these companies to continue operating as going concerns in the foreseeable future,” the retailer states in the 2016 annual report.
“The financial support provided by the company will continue for each individual company until such time as the equity and assets, fairly valued, exceed the liabilities.”
Ukwala is one of 21 Choppies’ African subsidiaries that were technically insolvent in the year to June.
The Botswana retailer spent Sh1 billion to purchase a 75 per cent stake in the struggling Ukwala business in the form of 10 of its 14 stores. The minority 25 per cent equity is held by Export Trading Group, a Tanzanian firm.
Choppies first announced the intention to enter Kenya in May 2015, but its takeover of Ukwala’s property stalled after the Kenya Revenue Authority made a claim of Sh946 million in taxes and interest.
The row, which is being settled out of court, is said to be nearing conclusion after which the supermarket chain will complete the acquisition of three Ukwala stores in Nairobi.
“Choppies is also focusing on expanding the service departments, which have recently been launched. This footprint will be used as a basis for expansion across Kenya and other East African countries,” the retailer states in the annual report.
The South Africa and Botswana-listed retailer has also revealed that Ukwala had revenues of Sh443 million in the year ended June, with the gross profit standing at Sh77.4 million and the gross profit margin coming in at 17.4 per cent.
Ukwala’s average basket size was Sh391.7, indicating that the retailer is still heavily dependent on lower middle class shoppers.
The family-owned Ukwala has trailed its rivals Nakumatt, Tuskys, Naivas and Uchumi in expansion.