Sh700m State cash injection breathes new life into Uchumi

Uchumi Supermarket attendants at Capital Centre, Nairobi, use special packaging materials to serve clients as they comply with National Environment Management Authority (NEMA) new rules imposing burn on plastic bags on Monday, August 28 2017. [David Njaaga, Standard]
Uchumi Supermarkets is expected to reopen its doors to the public today after stocking its empty shelves following the receipt of Sh700 million from the Government.

The retailer, which now appears to have survived a second threat of collapse through government intervention, has also postponed its planned annual general meeting (AGM) to allow talks with an unnamed strategic investor.

Sources indicate that the retailer is looking for a Sh3.5 billion cash injection from the strategic investor to pull it out of an acute shortage of funds that had left its shelves empty for months.

A public notice sent to investors yesterday said the AGM scheduled for Wednesday next week had been postponed to “allow for negotiations with a potential investor”.

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“Once the negotiations are concluded, a new date for the annual general meeting will be agreed and a formal notice and agenda will be published within the statutory notice period,” said the notice signed by Company Secretary Enid Muriuki on behalf of the board.

The latest talks with the investor are expected to be completed in the next three months.

Bailout package

Mrs Muriuki said the retailer’s board anticipates that the AGM would be held before March 31, next year.

The latest injection from the Government brings the total bailout package from Treasury to Sh1.2 billion in the past one year. The Government, which is the main shareholder, was expected to pump in a total of Sh1.8 billion through shareholder loans, but the delays in disbursing the funds have complicated the retailer’s turnaround plans. This means that taxpayers will still be required to pump in another Sh600 million to fully back up the firm's working capital, a move that could further cause dilution of the wealth of the other shareholders.

Shareholder loans have become a major way to bail out struggling entities that the Government has a stake in, among them Kenya Airways and Mumias Sugar Company.

Uchumi, the oldest supermarket chain in Kenya, has been fighting to get out of loss-making territory for the past two years. The latest financial reports show that the retailer cut its losses by nearly 40 per cent after it reduced them from Sh2.8 billion to Sh1.7 billion in the financial year ended June 2017.

Its weakening financial muscle saw it shut down several branches in the region to remain with just 20 outlets. Though the initiative reduced its sales volumes by 60 per cent to Sh2.6 billion, it helped to boost its margins and in return its chances of survival.   

Rekindled hopes

The improvement in performance has rekindled hopes of striking a deal with the external investor following several failed attempts in the past.

Besides empty shelves, the retailer has also been faced with labour disputes due to delays in paying its suppliers.

But this appears to be coming to an end after it shut all its branches in Nairobi to replenish its shelves.

“The management wishes to inform the public that Uchumi Nairobi branches will remain closed on December 12, 2017, for restocking our shelves,” the retailer said in the closure notice.

“All staff will look forward to welcoming our valued customers back to our stores as we re-open for business on December 14, 2017,” it said.

The development is expected to see Uchumi reap from the December shopping spree ahead of the Christmas festivities, the most important season for retailers.

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Uchumi SupermarketsMumias Sugar CompanyKenya Airways