Uchumi’s Sh4.8b hole that gives CEO nightmares

Uchumi Supermarket CEO Julius Kipng’etich. (Photo: David Njaaga/Standard)

When Julius Kipng’etich landed at Uchumi Supermarket, Kenya’s oldest retailer desperately needed a Midas touch. Dr Kipng’etich is hailed for turning around the fortunes of Kenya Wildlife Service (KWS).

With books suggesting the retail chain owed suppliers about Sh1 billion, Kipng’etich, fresh from success at Equity Bank as Chief Operating Officer, promised to turn Uchumi into “Kenya’s Walmart.”

But on the day light was shone on dark corners of Uchumi books to reveal that the listed firm owed suppliers Sh3.6 billion and a further Sh2.5 billion to banks, the recovery journey was bound to be bumpy.

Some 22 months later, while WalMart Stores Inc, an American multinational retailer, is rolling out giant vending machines for customers to pre-order their shopping and just walk in to pick the goods, Uchumi’s workers have gone for two months without pay and customers can barely get half of the goods on their shopping list.

Uchumi has shown the door to former CEO Jonathan Ciano, sold sizeable parcels of land, closed some stores, retrenched 2,230 workers and got Sh500 million loan from National Treasury but the hole is still very deep.

Employees who spoke to Weekend Business think Kipng’etich may not perform the miracle, after all. Treasury is yet to decide whether the iconic retailer deserves an additional Sh1.3 billion. And Kipng’etich, the man in the arena, knows the challenge too well.

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“If you look at the books of Uchumi, you can see the extent of the hole. Without sealing it, you can’t do much, however ambitious you are,” he told Weekend Business.

And the rare admission, from the holder of a Masters degree in Business Administration from the University of Nairobi – who also gives motivational speeches – may mean that Uchumi’s woes may be far from over without additional money.

Mr Kipng’etich says the blueprint of where he wants to take Uchumi is at his fingertips but only one central thing is missing – money. A lot of it.

“If we raise Sh1.3 billion from Government and at least Sh3.5 billion from potential investors, we will end the problem of Uchumi,” he says. That adds up to Sh4.8 billion, though he is not sure when it will come.

While the CEO stands ready to implement the strategy his team came up with on August 3, 2015, other matters that appear more pressing are emerging.

His employees, the ones who are supposed to be generating money from the few goods on the shelves, revealed that the retailer has not paid them for two months. Having seen the workers march from Nairobi’s Jogoo Road to the company’s head office in Industrial area, a quick decision had to be taken.

In what the return-to-work agreement signed by Mr Kipng’etich and union officials said was as a result of “a key stakeholder’s support pegged on daily sales,” employees were paid May salaries on Wednesday, while June pay is expected next Friday. That solves the problem, but just for now, since July pay day is fast approaching.

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Some workers in management confided to Weekend Business that the problem with salaries began far much earlier. But at least it never delayed past mid of the next month.

In fact, for management, salaries had not reached their bank accounts by Friday, meaning that only lower-cadre staff, whose voice can be amplified in labour unions, were given priority.

“Last year, we had a bad Christmas with December pay coming in mid-January. Now it’s even worse because surviving for two months without pay is unbearable,” said a managerial level worker in one of Uchumi’s Nairobi outlets.

About 1,200 Uchumi employees, in a letter to Labour offices though Kenya Union of Commercial, Food and Allied Workers said the retailer has also defaulted on remitting statutory deductions such as NHIF, making it hard for them to access medical services.

It is a claim the CEO confirmed in his response to the Ministry of Labour, saying that the lenders that financed Uchumi were categorical that they were only willing to fund net salaries.

This, happening at a time when the retailer desperately needs to stock up its shelves and bring back loyal customers, has left a heavy load on the CEO’s mind. The tension heightens now that Treasury is yet to give a date when it will release the Sh1.3 billion.

“We are at the edge of so many things and I don’t want to annoy Capital Markets Authority­ ?by talking about Government bailout loan,” Mr Kipng’etich responded when Weekend Business inquired on progress of talks.

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As for the Government, it also has many things in its hands – a new financial year has just set in and the country is headed to the polls in less than a month.

Speaking to Weekend Business on phone from Eldoret, Industry, Trade and Cooperatives Cabinet Secretary Adan Mohamed was non-committal on when Uchumi should expect the Sh1.3 billion loan, instead referring us to his Principal Secretary.

Trade PS Chris Kiptoo said the Government has set some conditions that the retailer has to meet before getting the Sh1.3 billion loan.

“The remaining balance is conditional on certain things that Uchumi has to do. We are committed to give the money subject to those conditions being met,”he said.

Dr Kiptoo said Cabinet had formed a sub-committee that has to ensure that whatever money Uchumi is given meets the set conditions. Among the conditions is to satisfy the sub-committee that the Sh500 million was properly used.

In addition, the board will also have to tell Cabinet exactly what it plans to do with the Sh1.3 billion loan.

“They have to justify the first phase before we move to the next phase. We need to understand a lot of things first. This is public money…they have come for the second tranche and the committee is looking at it. Once satisfied, it will give the money,” said Dr Kiptoo.

The PS, who does not sit in Cabinet said he could not pre-empt the progress of the sub-committee’s sittings.

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It is understood that about a week ago, Uchumi submitted to Cabinet a report on how it spent the Sh500 million. The retailer is counting on the Government – its principal shareholder – to inject more money, which apart from just helping address the stock-out problem will also be a vote of confidence to help the board win the heart of investors.

The Government is cautious since if it lends the money and the retailer then sinks with it, a taxpayers outcry may follow. Cabinet is not giving any timeline yet.

“The Cabinet cannot just give timelines. It depends on what Uchumi does,” said Dr Kiptoo.

Mr Kipng’etich, in the letter to the Labour ministry, says his board had not anticipated that this would be a long-drawn-out exercise.

While the Uchumi board awaits this money and hopefully that from strategic investors, the drop in the stock levels has impacted negatively on sales volumes. A walk to most of its outlets paints a picture of low stock levels.

In the letter on June 27, the CEO acknowledges the trend. “Uchumi has had poor business performance since 2015 to date. This has put a strain in liquidity and cash flows resulting in the company not being able to meet its financial obligations on time,” he said.

But despite the trend, Mr Kipng’etich remains optimistic that if the Sh4.8 billion hole is sealed, the retailer can walk again.

“The problem with Uchumi now is not about strategy or people but just financial capital. Once we have that money, the problem will be solved because it has nothing beyond just having the cash to restock,” says the CEO.

The money will help pay suppliers, who as the clock ticks away are increasingly losing patience in supplying without being paid.

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Some major suppliers including Coca-Cola, Unga group and Bidco have resorted to supplying on cash terms due to Uchumi’s breach on payment in earlier dealings.

While Uchumi waits for Government help, management says that it is working with three potential investors who can pump in money and hope to settle on one in the next three months. Until then, the captain of the ship – Mr Kipng’etich – has little he can do with his ambitious strategy.

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