Inside Uchumi’s endless determination to stay up

Tuesday, October 3rd, 2023 04:15 | By
Cash crunch trims Uchumi Supermarkets management

Beleaguered Uchumi Supermarket Plc is determined to walk the talk as it seeks to make a breakthrough within four years with just Sh394 total cash flow, giving creditors and shareholders hopes of recouping their dues and dividends

The ambition will be on the back of economic shocks and stiff competition from financially muscled retailers such as Quickmart and Naivas supermarkets, which have been expanding rapidly to take up space left by the Uchumi.

Financial year

In the latest disclosure to the creditors, Uchumi projects to make a profit of Sh96,559 by 2025 and more than triple that figure to Sh323,657 in 2028. It made a loss of Sh28,362 in the last financial year ending June 2023.

On the side of equity, currently at negative levels of Sh6.6 billion, will be reversed to a positive level of Sh309,900 by 2028. The Sh394 cash flow earned by the end of June 2023 is an improvement from the Sh159 it had in the previous year.

The State-owned firm anticipates 2024 to be the last year of making losses, which, if realised, will end its more than a decade downward spiral that started back in 2013 due to gross mismanagement. Uchumi has not given up and has been cutting losses over the past few years. However, the profitability journey will be a rough patch for a retailer relying on just a single branch, Lang’ata Hyper. This is even as creditors also bay for its thin assets and proceeds from the expected sale of some of the property.

The Lang’ata branch, is just 10 per cent stocked and is surrounded by about four profit-making supermarket giants, including Carrefour, Quickmart, Naivas, and Cleanshelf. “Due to the inability of the business to realise funding through the sale of KML (Kasarani Mall Ltd) property, the business was forced to shut all its branches, and now the company operates only one single branch (the Lang’ata Hyper)” Uchumi Supermarket chairman John Karani told creditors.

The ownership of Uchumi’s major assets – 20 acres of KML and Lang’ata Hyper property are currently disputed by the Kenya Defence Force (KDF) and Kenya Airports Authority (KAA), respectively. “The Lang’ata property is currently being optimised to realise lease rentals from licensees and tenants,” added Karani.

The sale of KLM at an estimated Sh2.8 billion will unlock some liquidity to help the chain meet key operation costs and pay off a portion of its huge Sh9.6 billion total debts it had by the end of June 2023.

To give its books some breathing space, Uchumi revised the Company Voluntary Agreement (CVA) in August 2023 after convincing the creditors to switch 50 per cent of their debts into preferential shares.

The CVA, under the watch of insolvency supervisor Mazars Consulting Ltd, was established in 2020 after contention from some creditors. After two years, it did not deliver any significant breakthrough, explaining the new revision, which will, however, exempt government-affiliated lenders from taking a debt-equity switch.

“The revised CVA will give finality to all the creditors and stakeholders of the company,” said Karani.

Biggest shares

Trade creditors, made up of suppliers and landlords, will take the biggest shares, amounting to 2.4 million converted from their outstanding Sh4.8 billion dues. They will, however, take a hit as only 30 per cent of their debt will be paid from the proceeds of KML, with the remaining dues being written off.

The government has equally shown little interest in helping resuscitate the retailer.

Payments to KCB Bank, Kenya Development Corporation (KDC), National Treasury, and Kenya Revenue Authority (KRA), which are owed a combined Sh3.25 billion, will be spread over a period of 5-10 years from 2026. The supermarket’s financial woes date back to 2013 when an ambitious expansion plan, mismanagement, conflict of interest, and corrupt dealings pushed it into a yearly downward spiral.

Since then, the management has tried various measures to resuscitate the retailer amid stiff competition, growth in online shopping, and fast-moving consumer preferences, especially among the young generation that barely knows the Uchumi brand.

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