Why Uchumi exits Tanzania, Uganda

Kampala. In September 2014, Jonathan Ciano, the then Uchumi chief executive officer, told shareholders in Nairobi, Kenya it was no longer tenable for them to keep operating their branch at Freedom City Mall on Entebbe Road because it had failed to perform to expectation.

Thus, in a statement to shareholders, Ciano said they had closed off the outlet because the mall had failed to attract traffic numbers to cushion the operations of a high end supermarket such as Uchumi.

The outlet had by the time of closure operated for close to four years having opened at the fold of 2011.

But beyond the vagary , there in lay a larger financial mess that insiders said, was buffeting the core of the Nairobi-based retail chain.

Earlier in June the retailer had issued a profit warning, telling shareholders that earnings for the year ending June 31, 2014 would be lower because of increased losses in its Uganda and Tanzania subsidiaries.

A profit warning is a statement of accounts issued through the stock exchange cautioning investors of an anticipated loss or a cut in earnings.

Indeed, the poor performance was highlighted in its subsidiaries, especially in Uganda where the company has since 2011 not posted a profit.

Uchumi Uganda for the year ended June 31, 2013 registered a net loss of Sh10.3 billion, before going on to post another of Sh8.9 billion for the year ending June 31, 2014.

Therefore, the closure of the Freedom City outlet, although inevitable could have been the start into a financial abyss that the retail chain had found itself in.

An investigation conducted by this newspaper in September 2014 found that Uchumi’s operations had started floundering through its persistent failures to pay rent, utility bills and suppliers with the most glaring being at its Freedom City outlet.

The retailer, as we found out, was forced out of the Freedom City Mall for failing to pay more than Sh350 million to Grapes Construction, which had been accumulated in rent arrears, utility bills and supplied goods.

The same would later be manifested in other outlets, worsened by a series of bad cheques to clients, court cases and emptying shelves.

Indeed the fault lines had deepened and in June 2015, Ciano, together with his chief finance officer, Chadwick Omondi Okumu, were sacked for “gross misconduct and negligence” with the board recommending a forensic audit into the company’s fading fortunes and worsening revenue position.

Hipora Business Solutions East Africa, a loss control, management and investigations company, was hired in July with the then acting chief executive officer, Owino Ayondo, saying they would investigate staff theft of merchandise off the supermarkets shelves and theft of hard cash from tills, starting with the Ugandan operations.

In a brief to investors, the Standard Investment Bank warned then about the increasing theft and losses which if not controlled “could have far reaching implications” for the listed retail chain.

“The retailer must seek for ways to stop internal philandering that continues to impact the company’s consolidated earnings,” the brief issued then, reads in part. In a board briefing, Khadija Mire, the Uchumi chairperson, on October 13 told members they had taken a decision to close their regional subsidiaries because they have perennially continued to post losses with no end in sight.

Therefore, the decision to close, according to a statement, especially in Uganda and Tanzania would take immediate effect, pending approval from shareholders. On October 14, a statement to media houses signed by chief executive officer, Julius Kipng’etich said the two subsidiaries, which make up less than 5 per cent of the company’s operations were draining Uchumi’s finances at a time when they needed to turnaround the faltering retailer. Thus, they immediately cease operation.

“Our outlets in Uganda and Tanzania make up only 4.75 per cent of our operations yet they account for more than 25 per cent of our operating costs,” he said.

The board, he said, had decided to shut the two subsidiaries and “all stores in both markets are now closed and will be liquidated”.

The two subsidiaries (Uganda and Tanzania) have been getting a monthly capital injection of more than Sh4.3 billion, according to details obtained from Uchumi Supermarkets.

In a closure notice released on October 15 and signed by the Uchumi company secretary John Wambugu, it was noted that despite the capital injection, “efforts to turnaround these businesses had proved futile and the board considers that it is no longer tenable to continue the support”.

“The financial drain arising from supporting the two subsidiaries which together comprise less than five per cent (5 per cent) of the revenues of the group is placing pressure on the liquidity of Uchumi and it is imperative that urgent action is taken to stem further losses,” Wambugu said in the statement.

Situation in Uganda and Tanzania

But amid all these boardroom decisions, the retail chain in Tanzania owes its suppliers and landlords over Sh3 billion.