Listed retailer Uchumi strongly defends position in regional markets

Listed retailer, Uchumi Supermarket Ltd (NSE: UCHM) today came out strong defending their position in the regional markets despite having to battle out with various governance issues, supplier debts and operational problems. The board mentioned that they were keen to making a turn-around for the ailing company hence they had already put a number of measures in place to tackle the underlying issues.

Supplier Debts

The company has taken a KES 500 million term loan facility from Kenya Commercial Bank to be utilized in settling the amounts owed to their key suppliers. Currently the total suppliers’ debt stands at KES 1 billion. They are also keen in building healthier relationships with the suppliers which is paramount for companies operating in the retail industry. This will aid them in getting better terms with their suppliers in the short to medium term thus helping them suitably manage their working capital.

Uchumi is also considering to offload their 20 acre piece of land in Kasarani-Thika road. The land was valued at KES 2.2 billion in June 2014. The capital raised from the sale will help in bolstering their working capital as well as meeting their operational costs.

The retailer is also keen in rationalizing their supplier chain by eradicating the middlemen as well as ensuring there is proper disclosure of any interests held with the suppliers by the internal staff.

Governance Issues

In a bid to ensure that the corporate governance of the firm is in good shape, the company has conducted some board reconstitution over the last few months. They appointed Samuel Kimani, Polycarp Igathe and Margaret Kositany to sit in the board. The company has also appointed Deloitte firm to carry out the hiring of a new CEO, CFO, HR and Company Secretary who are expected to join the company by 01^st October 2015 at the very latest. The company is optimistic that the new team will help in driving the company’ corporate strategy hence bringing a turn around to the once profitable company.

Operational Problems:

Currently a forensic audit is underway being conducted by KPMG. They are expected to give their results in the next 30-60 days. The point of focus for the audit vestiges on performance, location and management of their branches which will help in determining on which stores are non-profitable and which businesses are still viable. Post the forensic audit, we portend to see closure of some of their branches as well as a focus shift to branches contributing positively to their bottom line. The audit is also expected to advise them on whether to incorporate a strategic investor into the business to help in the turn around.

Analyst’s Views:

With competition stiffening in the retail space as marts differentiate their service delivery through incorporating tech-savvy shopping; a case in study of Jumia, an online shopping mall, the company needs an innovation strategy that will see the oldest mart in Kenya turn-around from the loss-making territory. Uchumi Supermarkets has already curved its niche with the older population in Kenya hence, it has an added advantage to tap into the ever growing space. Given the various strategies being carried out, we are optimistic that Uchumi Ltd will soon regain its lost glory, only if the auditors’ views are followed to the letter.

With Jamii Bora Bank as the largest shareholder for the firm we are optimistic that the strong relationship will contribute positively, hence investors are set to achieve value for their shareholding in Uchumi Supermarkets Ltd. Results for the financial year ended June 2015 will be released in the next few weeks. It’s key to note that the payment of debt (suppliers) with another debt instrument (loan facility) might not be prudent, however any negative effect may be mitigated by the sale of non-core assets as well as favourable terms on the loan facility such as a longer repayment period.