AFRICA: UCHUMI sinking like a titanic with no hope of rescue in sight
Uchumi Supermarket runs out of nine lives, faces financial crunch
STANDARD MEDIA – The epic tale of the sinking Titanic is mystified by its captain, Edward Smith who is romanticised as having stayed put on the bridge as the behemoth sank to the bottom of the sea.
But as Uchumi Supermarkets sinks to the bottom of the sea, its former boss Julius Kipng’etich jumped ship abandoning his blueprint for its recovery.
But it is perhaps the exit of the supermarket’s Chief Operating Officer Andrew Dixon, the former executive at British retail giant Tesco — who walks into your supermarket when you are about to get a strategic investor and if he walks out, you are beyond redemption — that tells the true affairs at Uchumi.
Mr Dixon who left Nakumatt in its dying days says his exit in May is because Uchumi was so broke that it was not paying salaries, restocking or making good their rent payments. He opted to jump ship and ‘weigh his options,’ rather than stay put.
“The brand is good but the reality is that the business needs cash to operate, without cash it is difficult to continue operating. I left because basically it lacks investments and was not paying salaries which meant that I could not execute my offices,” Mr Dixon says.
The exits have been massive at the retailer which has burned through the Sh700 million Government bailout in just months. Sources tell Weekend Business that most workers including sweepers have taken the raft to the next ship and have left its fate to chance.
The retailer’s auditor KPMG said that during 2017 financial year, the company has seen a high turnover of staff both at management and other levels.
“However, the key staff who have left have been replaced and the company has remained well-staffed during the year,” KPMG said.
With its Chief Finance Officer Mohamed Mohamed doubling up as the acting CEO, the retailer has opted to see only the silver lining since this massive exits have helped rationalise staff levels in the company reducing staff costs from Sh1.7 billion to Sh1.3 billion.
But it is not just employees who have walked out on the abusive marriage to the ailing giant that was characterised with late payments, its bedrock — the suppliers have pulled the plug off the life support machine that kept Uchumi open albeit on skeleton stock.
The company that broke the surface as a powerful chain of hypermarkets in the 90s was crafted to offer local suppliers access to the market playing patron to some of the businesses that became successful and earning the patriot’s badge.
With a ring of nostalgia, Uchumi which opened branches in Kisumu, Nakuru, Kisii and Mombasa, the retailer’s brand carried with it the loyalty of Kenyans.
With part State ownership, it carried less risk exposure to regulators who have treated it with kid’s gloves.
But the retailer abused this consideration, delaying results at the expense of the Capital Markets Authority for the past two years.
It is emerging that the retailer has also spat on the face of suppliers who have twice offered to save it at the expense of delaying claims on their debt.
The drastic effect is seen in the retailer’s cost of sales, which is the inventory it builds from suppliers, fell three times from Sh1.16 billion to Sh379 million. This meant that two-thirds of their suppliers simply refused to sell to them.
“The Group and company experienced shortage of suppliers during certain months of the year due to delayed payments to suppliers,” KPMG said in the 2017 annual report.
Suppliers had initially agreed on an arrangement to ensure Uchumi’s shelves are not empty and would continue to be stocked until the supermarket chain gets back on its feet.
Under the arrangement, Uchumi was supposed to get 20 per cent of the revenues to pay rent, rates and staff costs and make a margin while the suppliers get 80 per cent.
The escrow accounts were opened at the Kenya Commercial Bank (KCB), Jamii Bora Bank and United Bank for Africa-Kenya (UBA) to hold the proceeds from the sale of goods to clear monthly supplier debts.
“If we look at some of the agreements we had for the escrow account, Uchumi just rubbished most of them,” a former supplier told Weekend Business.
It is these same suppliers that Uchumi imagines it can enter into a deal with to convert Sh3.6 billion old debt into equity.
Last year, it tasked NIC Capital Limited for the almost impossible deal of debt restructuring of old supplier debt to equity. This was expected to be done in the financial year ending 30 June 2017 but up to now, nothing has been done.
NIC did not respond to our queries.
The retailer, once a real estate owner, can now only operate in its premises at the mercy of landlords. Most landlords have opted to eject them for non-payment of rent. Uchumi’s Koingange Street branch near Anniversary Towers was shut down after auctioneers carted away with stock.
In Mombasa, Makini Auctioneers raided its branch on Moi Avenue, in April and made away with goods against a claim of Sh12 million in rent areas.
In Kisumu, Pambo Auctioneers made an attempt to sell the retailer’s property at West End Mall over rent areas before reaching an uneasy truce with the landlord.
The Supermarket has lost 24 branches after it exited prime Sarit Centre and Westlands branches. Capital Centre branch on Mombasa Road was taken over by another supermarket chain.
The retailer says it operates 12 branches but declined to provide us with the list of the outlets still in operation.
With no stock, fewer branches, high costs and debts that are due, the retailer’s own auditors have signed off its debt questioning whether the company can continue operations while it is insolvent.
“The Group and company’s current liabilities exceeded their current assets by Sh4.768 billion and Sh4.635 billion (2015 – Sh3.403 billion and Sh2.601 billion) respectively,” KPMG said.
“In addition, the Group and company’s total liabilities exceed their total assets by Sh2,097 billion and Sh4.248 billion (2015- Net assets Sh739 million and net liability Sh648 million) respectively.”
To save itself, the retailer has decided to strip its remaining assets and sell off its prime land at Thika road’s Kasarani Mall.
Just seven months ago, Dixon estimated that this land was worth Sh3 billion.
Now Mr Mohamed says this land could fetch up to Sh2.8 billion but the retailer is expecting a minimum of Sh1.6 billion.
“We are looking to ensure the value from this land is optimised to ensure Uchumi gets the best deal available. So far the bids are within the expected values as per our most recent valuations in financials published in our previous statements,” Mr Mohamed said.
But as at 2017, the sale was plagued with land ownership litigation by Sidhi Investment Limited on the property whose resolution is still ongoing. “Land sales in Kenya typically take long before being finalised. The process is ongoing and we expect to complete the transaction within the shortest time possible,” Mohamed said.
Uchumi got a relief last year when the Government issued Sh700 million as part of the Sh1.8 billion bailout package approved by the State.
Ship is fast sinking
However, once the money was cleared, the retailer has fallen back into disarray forcing Mr Mohamed to appeal to Parliament last month for Sh600 million.
He said lack of money had made it difficult to pursue the turnaround plan especially the much-awaited strategic investor who needed assurance before committing his money.
The turnaround plan was expected to take between 6 and 30 months. The first phase of the strategy sought to stabilise the business through the establishment of smaller outlets (Uchumi Express and Uchumi Mini) through which Uchumi Supermarket Limited will earn royalties of approximately 4 per cent of the sales. This strategy is yet to pick. But the Uchumi ship is fast sinking. —— AUTO – GENERATED; Published (Halifax Canada Time AST) on: July 08, 2018 at 09:39AM