Uchumi spent Sh200m monthly to keep troubled subsidiaries in business

NAIROBI: Uchumi Supermarkets has been spending nearly Sh200 million every month to support the Uganda and Tanzania operations, the firm said Thursday, revealing for the first time the cost of retaining the two subsidiaries.

The revelation came only a day after the retailer announced a full exit from the two markets, which involved shutting down the branches and subsequent disposal of inventories. Managing Director Julius Kipng’etich said in a public notice that the Ugandan operation had been about four times as loss-making as the Tanzanian one, over the past two years. “Uchumi has been providing approximately Sh200 million every month to Uchumi Uganda and Uchumi Tanzania to enable the two entities meet the financial obligations. Unfortunately, efforts to turn these businesses around have proved futile and the board considers that it is no longer tenable to continue support,” the retailer said in a notice.

Uchumi Uganda had reported a net loss amounting to Sh209 million in the past two financial years, while the Tanzanian business lost Sh53 million between June 2012 and June 2014. Tanzania was the bigger of the two operations – in terms of branch network, with six shops compared to Uganda’s five.

Creditors, including suppliers, have raided one of the Uganda branches and carted away inventories over unpaid deliveries worth an estimated Sh5.2 million, as a pointer to how badly the stores were doing. Mr Kipng’etich had on Wednesday said that the two subsidiaries had actually never turned a profit since they were established.

The collective trading losses and the budgetary support from the Kenyan subsidiaries could explain the plunge of the retailer from profitability, after embarking on an aggressive regional expansion into the two economies. Early last month, the retailer issued a profit warning for the financial year ending June 2015, citing the difficult operating environment.

“The challenges that led to an adverse performance for the year 2015 were mainly attributed to challenges on the working capital. The Tanzania and Uganda businesses have continued to impact on the group's growth,” company chairperson Khadija Mire said, detailing how the two operations were Uchumi’s Achilles’ heel.

The 11 outlets in Uganda and Tanzania contributed only 4.75 per cent of the retailer’s revenues but took up a quarter of the group operating costs, Kipng’etich said. "The two subsidiaries have not made any profits over the last five years,” explained Kipng’etich Thursday.