Dagi Kimani
12 May 2008
Nairobi — Dozens of local and foreign suitors are lining up to buy a stake in Uchumi Supermarkets, barely two years after the listed chain closed its doors and asked for statutory management.
Now, at the beginning of what analysts say is a promising profit curve, and a few months before the chain embarks on an expansion drive, various investors - including current shareholders, locally constituted investment groups, and foreign supermarkets - have expressed an interest in helping recapitalise the chain in a dramatic reversal of fortunes.
"An year ago, nobody important wanted anything to do with us," the chain's receiver-manager, Jonathan Ciano, told The EastAfrican in his office last Friday. "Now we are receiving inquiries every day. It is humbling."
Although Mr Ciano declined to disclose the identities of those who have expressed an interest, sources say at least five local investment funds have informed the management that they will take up any stake offered to them in the chain.
According to Mr Ciano, Uchumi will consider all offers by potential strategic equity partners to the tune of Ksh200 million ($3.2 million). Uchumi wants to raise around $16 million to help retire secured loans owed to the Kenya Commercial Bank and the PTA Bank.
When it temporarily closed its doors to the public on June 1, 2006, Uchumi owed the two banks Ksh957 million ($15 million). Currently, Uchumi pays Ksh14 million ($222,000) a month, plus interest, to service the loans to the two institutions, and has reduced the debt to the current level of Ksh800 million ($13 million).
The choosing of the strategic partner is expected to be completed in the next three months, after which a new board will be constituted. Uchumi will subsequently embark on an expansion programme and request the Capital Markets Authority for a lifting of the suspension on the trading of its shares at the Nairobi Stock Exchange.
The renewed investor confidence in the supermarket chain reflects the retailer's changed fortunes, which have seen the chain emerge again as a viable business. Growing monthly sales, as well as a Ksh300 million ($4.8 million) cash-at-hand recurrent expenditure buffer, illustrate the dramatic turnaround.
In March 2006, for example, the chain, then comprising 28 stores, recorded sales of just Ksh380 million ($6 million). In the same period this year, and despite the upheavals associated with the disputed election and just 14 operational branches in Kenya, Uchumi raked in Ksh720 million ($11.4 million). Sales in December 2007 peaked at Ksh900 million ($14.3 million), almost an all-time high for the chain.
This year's first quarter sales are also 11 per cent above those for the corresponding period last year. Uchumi's sole Uganda branch, in Kampala, has also doubled its sales in the past one year.
According to Mr Ciano, Uchumi customer numbers are also growing phenomenally, at about 40 per cent per year. At the chain's existing branches, Mr Ciano told The EastAfrican, 25 per cent more turnover has been achieved through floor re-organisation and new partnerships.
In line with this growth, the chain last week announced a Ksh113 million ($1.8 million) pre-tax profit for the nine months to March, up from a loss of Ksh257 million ($4.1 million) for the year ended June 2007. The company's net sales also rose from Ksh3.5 billion ($55.5 million) for the year ended June 2006 to Ksh5.2 billion (82.5 million) during the nine months between July 2007 and March 2008, a 69 per cent growth.
"Many pessimists did not see the potential of the Uchumi brand and wrote us off," Mr Ciano said last week. "But now, our transitional and transformational interventions are paying off. We are back with a bang."
Significantly, Uchumi's growing turnover has enabled it to pay 75 per cent of the $13 million it owed to its suppliers when it closed its doors, as well as a further Ksh125 million ($2 million) owed to some of its former employees.
According to Mr Ciano, Uchumi will up the ante against the competition in coming months, opening new branches in Nairobi and Mombasa as well as another two in Kampala. Later in the year or in the first quarter of 2009, the company hopes to be readmitted to the Nairobi Stock Exchange.
The renewed investor confidence in Uchumi is particularly dramatic given that as recently as last year, existing shareholders failed to inject $4.8 million in new capital through debenture stock to help resuscitate the chain. The shareholders only managed to raise Ksh134 million ($2 million).
The government, a major shareholder in the chain, on its part injected Ksh675 million ($10.7 million). Uchumi's suppliers also chipped in, converting debts amounting to Ksh100 million ($1.6 million) into debenture stock.
"The goal was to raise $15.5 million to help the re-launch of the chain," Mr Ciano explained last week. "But when we re-configured our priorities, we found that the money we raised was enough. There was no need, for example, to spend $1.6 million, as projected, to sell an established brand when half of that could do."
According to Mr Ciano, in addition to new capital, Uchumi's turnaround has been predicated on the chain's core strengths, including its extensive connections with small-scale farmers who supply its stores with fresh vegetables and other produce straight from the farm.
"We are a business that intends to help other Kenyan and East African businesses to grow," Mr Ciano said. "That's what sets us apart."
Uchumi's resurgence is expected to intensify its rivalry with Nakumatt Holdings, which is currently the dominant retailer in Kenya with nearly 20 stores. The chain recently announced a $19 million investment in Rwanda, underlining its intention to become the retailer of choice for East Africa.
In Kenya, Nakumatt has also announced its intention to open new stores in the next one year, and has already turned some of its existing operations into 24-hour outlets. The company had a turnover of slightly over $300 million last year.
Be the first to Write a Comment!
Copyright © 2008 The East African. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
