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February 20, 2019

Uchumi optimistic to break-even from 2018 after cutting half-year loss

Uchumi supermarket in Mombasa. Photo / JOHN CHESOLI
Uchumi supermarket in Mombasa. Photo / JOHN CHESOLI

The management of Uchumi Supermarkets has renewed hope of returning the loss-making retailer to a break-even point in the wake of improved performance for the half-year period ended December 2016.

The publicly listed firm yesterday reported a 46.22 per cent drop in half year net loss from Sh1.01 billion to Sh547.31 million in the six months ended December 2016.

The management team, which took over one-and-a-half years ago, attributed the improvement to a rigorous cost cutting exercise which reduced operating expenses by 34.39 per cent from Sh1.04 billion to Sh686.35 million.

“Over the past few months the management has focused on management of costs. This has resulted in a reduction in operating expenses by 45 per cent compared to the same period in 2015,” chief executive Julius Kipng'etich said in a statement. “The current cost management efforts and expected growth have provided optimism of growth trajectory for the business to break even in the next financial year and return to profitability,” he said.

It is alleged the previous management cooked books to give a false financial position.

In January 2016, the new management restated the accounts which showed the firm recorded a net loss of Sh3.4 billion for the financial year ending June 2015.

Prior to the restatement the previous management, led by former CEO Jonathan Ciano and Board chairperson Khadija Mire, had announced a net profit of Sh384 million for that period.

Unaudited financial statements indicate net sales fell by 67.18 per cent from Sh4.2 billion to Sh1.39 billion over the review period.

The drop in sales was attributed to lack of optimal stock levels due to delays in funding.

The retailer is waiting for a Sh1.8 billion bailout cash from the government to settle a Sh3.6 billion debt owed to suppliers.

This is part of a turnaround strategy that is meant to woo key suppliers to resume restocking its stores.

“The management anticipates recovery and growth in sales from continued supplier support, optimal stocking and realisation of funding,” Kipng'etich said.

Uchumi has also shut-down non-performing branches in Uganda, Tanzania and Kenya, as part of the turnaround strategy.

The turnaround plan is expected to take between six months and two-and-a half years.

The first phase of the strategy seeks to stabilise the business through stringent financial management, closure of non-viable outlets, strategic opening of stores, rationalisation and competency assessment of staff.

It will also involve refurbishment of key branches to increase footfall, improve relations with suppliers and enhance customer service.

Plans to venture into franchising are in place, and the company hopes this will increase sales, as risks will be transferred to the management of new outlets.

The model will be implemented by setting up smaller outlets (Uchumi Express and Uchumi Mini) through which Uchumi Supermarket will earn royalties of approximately four per cent of the sales.

Kipng'etich said they will continue to pursue strategies aimed at stabilizing the retailer's performance including the sale of non-core assets, sourcing for a strategic investor, building supplier confidence and enriching customer experiences.

 

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