Uchumi to draw timeline for capital injection- Kipng’etich
Kenya’s Uchumi Supermarkets plans to draw up a timeline for a much-needed capital injection after it receives a report this week from advisers lining up investors, the chief executive said.
Uchumi has been battling to stay afloat since it fired its previous CEO in June for “gross misconduct”, launched an audit into where cash from a rights issue had gone and reported an annual loss of 3.6 billion shillings.
New Chief Executive Julius Kipng’etich was appointed five months ago to rescue Kenya’s only listed supermarket chain. He has overseen the closure of its loss-making Ugandan subsidiary, more than halved the workforce and announced land sale plans.
“The big decisions have been implemented. Injection of capital is the only piece remaining,” he told Reuters.
“We are looking for somebody who wants to build on the Uchumi name, its current locations, the goodwill it has as a 40-year old company,” he said in an interview.
Uchumi secured shareholder approval in January for a recapitalisation of up to 5 billion shillings to help turn the firm around and appointed Kenya’s Pamoja Capital to lead the search for a potential investor.
“Pamoja Capital is working on inviting a new shareholder so this week they will give us feedback and then we shall draw a timeline,” Kipng’etich said.
“If it is a private equity fund, for example, who is looking at the next five to seven years. That would be nice.”
Uchumi shares have more than halved in value so far this year and are down 63 percent from last year’s peak.
Competition in Kenya’s retail sector has been growing as foreign firms look to capitalise on low penetration of the formal retail sector, estimated by analysts at just 25-30 percent of the population.
Kipng’etich said he was not worried by the entry of French retail giant Carrefour through a franchisee, as it was targeting affluent shoppers while Uchumi was focused on middle income earners.
He said the cash from the recapitalisation was needed in tranches over the next one and a half years, for Uchumi to settle debts with suppliers and restock.
Uchumi reported losses of 1 billion shillings in the six months to the end of December after a loss for the 12 months to the end of June 2015 of 3.6 billion shillings, which was restated from 3.2 billion due to the malpractices uncovered.
The new investor would need patience at first but could expect strong returns in two years, he said, adding that Uchumi was also talking to existing shareholders about the injection.
“It can be anybody, even an individual with deep pockets and patience at the beginning, because it will take one or two years to clean up house and then we can look at exponential growth.”
Kipng’etich said Uchumi plans to double its stores to 50 in the next three years before expanding into other African markets using the franchise model.
“There is nothing wrong with expansion but we have to do it right. Of course if you choose the wrong locations, you will get burnt,” he said, blaming the poor locations of its stores in Uganda for forcing them to shut.
“Once you get it right and duplicate it across Africa you will be a winner,” Kipng’etich said.
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