Uchumi lost all of the Sh900 million that was raised in late 2014 to thieving managers, in a fresh shocker for investors of the troubled retailer.
Findings of a forensic audit commissioned by the newly-constituted board of directors have unearthed the scale of the rot in the firm where its resources were plundered in a ‘free for all’ grab.
The news that were released for the first time yesterday during the retailers’ annual general meeting exacerbated the investors’ disappointment, in a financial year Uchumi reported a record Sh3.4 billion in net losses.
“The money was wired to Uganda and Tanzania but it did not reflect in either country in stocks,” chief executive Julius Kipng’etich said on the sidelines of the AGM.
“That is where the criminal element comes in.”
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Distressed by shortage in working capital, Uchumi has asked its shareholders including the Government to invest additional funds in the second half of 2014. The initial target was Sh895 million but the investors, emboldened by the supposed recovery and brighter prospects, offered Sh1.6 billion, crowning the most successful rights issues floated in that year.
Now, Kipng’etich says that fortune was wired to the two East African countries to help the struggling operations there - which included an outlet in the remote town of Gulu in Northern Uganda.
“If we do not have a branch in Thika and we opt to open one in Gulu, then there is a big problem,” said the chief executive, alluding to the fact that some of Uchumi’s outlets, which have since been shut down, could not be justified.
But that was only part of the devastating news for shareholders who poured out their dismay over how the retailer had been managed. Even worse for the investors, the past managers including chief executive Jonathan Ciano were found to have ‘doctored’ the financial performance of the company over the last three years.
In essence, the retailer had not made a profit even when the shareholders had been told otherwise since 2013. More than Sh1 billion losses concealed has been discovered prompting the restatement of the Uchumi’s books.
Polycarp Igathe, a director who chairs the audit committee of the board, told shocked shareholders of the discoveries that also included non-existent internal controls, weak corporate governance and a flawed procurement process – all working against the interests of the retailers and its shareholders.
Senior managers, for instance, doubled up as senior suppliers in a situation that meant Uchumi could not get the best buying prices.
Uchumi has handed over the forensic audit to the Capital Markets Authority and the professional bodies where past managers were members to determine what punitive measures should be taken.
Already, the entire board of directors has been overhauled, while it’s not clear yet whether any of the past directors may have been directly implicated in the theft of funds.
Tens of shareholders had demanded to get an update on what had been done to the past managers who have been accused of deliberately running down the company. Mr Kipng’etich said civil and criminal proceeding would be brought against Ciano and his team of managers in the hope of making some recoveries on the lost funds.
The shareholders also approved a request by the board of directors to bring on board an investor to re-capitalise the business to finance a turnaround plan.
That investor is expected to inject up to Sh5 billion, to be brought in as a mix of equity and debt.
Uchumi said in December it was putting together a capital-raising plan, that would involve debt, shares or a combination of both, with a view to raising up to 5 billion shillings.
Most of the anticipated funds will be used to settle supplier debts worth Sh2.2 billion and costly bank loans estimated at Sh2.4 billion.
In another turn of events, Uchumi has had a change of heart about the disposal of its premises for the Ngong Road and Lang’ata Hyper Branches.
Half of the 2.5 parcel of land that Ngong Road Hyper branch stands on will be hived off and put to market, while the actual premises will be retained.
At the Lang’ata Road branch whose ownership has in the past been questioned, the retailer plans to lease half of the store to an aviation operator – who will likely use it as a hangar for storing planes operating in the adjacent Wilson Airport.