•Saturday, June 03, 2006
today i would be jobless were it not for some last minute hasty telephone call to the human resource guy of the now insolvent uchumi supermarkets ltd. i was thinking with my heart, a gut instinct to call off the deal. thats close to two years ago. on thursday, the premier national supermarket chain closed its doors. at least, it was a mid-morning decision unlike the early evening one by former south african breweries subsdiary; castle breweries. east africa breweries limited, then kenya breweries limited took 100 percent shareholding from the south africans. at least some castle employees were later absorbed by eabl after being shocked when reporting to work, to find the gates closed even for senior managers. no one had a clue about the closure of castle breweries and it seems uchumi directors also held this last card very close to their chests.
uchumi's downfall was written all over the financial market walls, but optimistic kenyans decided to turn a blind eye to the warnings. the sacking of the over-ambitious managing director thairu was one of them followed by the exit of dj ck aka chris kirubi from the board chairmanship. before then, there was the fact that uchumi supermarkets ltd made most of its profits from its non-core business investment arm, the now defunct uchumi investments ltd. the over ambitious expansion strategy and the installation of the erp system which was poorly implemented were also heralds of what to come especially since they were financed out of working capital tying the much needed money to pay off suppliers, employees and other trade creditors. the exit of senior management within this period coupled with the layoffs that followed its first loss report were telling. apparently the erp system is among the best in kenya only rivalled by nation media group and bamburi cement. but it was poorly integrated and implemented and staff were poorly trained. its costs were unjustifiable.
last year, pricewaterhouse coopers fell short of disregarding the potent of the rights issue when they reported that the rights issue will not be successful. but an aggressive marketing campaign and the cajoling of uninformed investors by our financial market strategists made kenyans to give a lease of life to uchumi via the over kshs 1.3 billion rights money. most trade creditors refused to swap their debts with equity including the non-trade lender, the PTA bank which opted for a extending the loan repayment period. most of this money was used to pay off suppliers, to finance debt and an inconsistent, non-sggressive marketing campaign. the sale of assets which was supposed to raise close to a billion shillings attracted a paltry kshs 300m against a backdrop of legal issues as most of the property was attached as security for the loans. In the same year uchumi had issued a profit warning as required by regulations since their losses had nearly doubled to kshs 1.2 billion.
the exit of the government owned and previously majority shareholder ICDCI which had over 51 percent stake and goverment owned Kenya Wines Agency Limited which had over 20 percent showed what the thinking of strategic investors were over uchumi. these key firms did not take up their rights issue and continued to sell off their stake at uchumi even afterwards. by march this year ICDCI had completely bowed out of uchumi with kwal having less than 11 percent shareholding.
this year, there was increased interest in uchumi after it caught the eye of naushad merali the kenya version of warren buffet. but he quickly sold off his stake after he failed to get the board chairmanship, rather the number of director seats he wanted. it also saw the exit of the chairperson eddah gachukia who took over from dj ck less than two years ago. since then the share price has been sliding down the muddy hill. the consistency of losses, rising finance costs, low sales turnover, closing down of branches, failure of the franchise model to pay fast, rising competition from moneyed nakuru mattresses and tusker mattresses have been indications of a grim future for uchumi.
the poor business strategy in the wake of cutting throat competition from newbies such as nakumatt, tusker and ukwala contributed to its slow death. Their policy of having 80 percent stock from local supplies led to high costs to uchumi customers and at times lower quality as opposed to the competitor’s imported brands which coupled with tax evasion led to cost of goods been less at these alternatives.
rumours have been rife within the capital over the last three years of the impending doom at uchumi. ranging from the absurd to the obvious, they told more than they withheld. one of them is that during its recovery strategy uchumi failed to attract a strategic investor from south africa as earlier taunted. the entry of john mastertein smith from south africa served two purposes. first to be a scout for the south africans on the real financial position of uchumi and secondly to make it easier to close down with no hearty and hard feelings for kenyans. there was this one about dj ck's intention of running down uchumi to lower its market value in order to re-purchase it a throw away price.
uchumi's downfall was written all over the financial market walls, but optimistic kenyans decided to turn a blind eye to the warnings. the sacking of the over-ambitious managing director thairu was one of them followed by the exit of dj ck aka chris kirubi from the board chairmanship. before then, there was the fact that uchumi supermarkets ltd made most of its profits from its non-core business investment arm, the now defunct uchumi investments ltd. the over ambitious expansion strategy and the installation of the erp system which was poorly implemented were also heralds of what to come especially since they were financed out of working capital tying the much needed money to pay off suppliers, employees and other trade creditors. the exit of senior management within this period coupled with the layoffs that followed its first loss report were telling. apparently the erp system is among the best in kenya only rivalled by nation media group and bamburi cement. but it was poorly integrated and implemented and staff were poorly trained. its costs were unjustifiable.
last year, pricewaterhouse coopers fell short of disregarding the potent of the rights issue when they reported that the rights issue will not be successful. but an aggressive marketing campaign and the cajoling of uninformed investors by our financial market strategists made kenyans to give a lease of life to uchumi via the over kshs 1.3 billion rights money. most trade creditors refused to swap their debts with equity including the non-trade lender, the PTA bank which opted for a extending the loan repayment period. most of this money was used to pay off suppliers, to finance debt and an inconsistent, non-sggressive marketing campaign. the sale of assets which was supposed to raise close to a billion shillings attracted a paltry kshs 300m against a backdrop of legal issues as most of the property was attached as security for the loans. In the same year uchumi had issued a profit warning as required by regulations since their losses had nearly doubled to kshs 1.2 billion.
the exit of the government owned and previously majority shareholder ICDCI which had over 51 percent stake and goverment owned Kenya Wines Agency Limited which had over 20 percent showed what the thinking of strategic investors were over uchumi. these key firms did not take up their rights issue and continued to sell off their stake at uchumi even afterwards. by march this year ICDCI had completely bowed out of uchumi with kwal having less than 11 percent shareholding.
this year, there was increased interest in uchumi after it caught the eye of naushad merali the kenya version of warren buffet. but he quickly sold off his stake after he failed to get the board chairmanship, rather the number of director seats he wanted. it also saw the exit of the chairperson eddah gachukia who took over from dj ck less than two years ago. since then the share price has been sliding down the muddy hill. the consistency of losses, rising finance costs, low sales turnover, closing down of branches, failure of the franchise model to pay fast, rising competition from moneyed nakuru mattresses and tusker mattresses have been indications of a grim future for uchumi.
the poor business strategy in the wake of cutting throat competition from newbies such as nakumatt, tusker and ukwala contributed to its slow death. Their policy of having 80 percent stock from local supplies led to high costs to uchumi customers and at times lower quality as opposed to the competitor’s imported brands which coupled with tax evasion led to cost of goods been less at these alternatives.
rumours have been rife within the capital over the last three years of the impending doom at uchumi. ranging from the absurd to the obvious, they told more than they withheld. one of them is that during its recovery strategy uchumi failed to attract a strategic investor from south africa as earlier taunted. the entry of john mastertein smith from south africa served two purposes. first to be a scout for the south africans on the real financial position of uchumi and secondly to make it easier to close down with no hearty and hard feelings for kenyans. there was this one about dj ck's intention of running down uchumi to lower its market value in order to re-purchase it a throw away price.
shareholders will be the greatest losers as once the receiver manager moves in, the main interest will be on the lenders recouping their loans and if anything is to be left, the shareholders will share. but there is over kshs 1.2 billion asset deficit and the lenders are barely covered.
maybe the best way is to consider reopening it rather than liquidation. the 1.5 million shareholders could then be asked to be shopping at uchumi in order to make it a going concern once more. after all, they stand to loose their whole investment if the former retail giant is allowed to wind up.
but who is really to blame for this? is it the original board of dj ck or the subsequent ones for hyping up the recovery strategy? could the auditors have fully blown the whistle on the future of uchumi? or is it the capital market authorities who have failed to induce strict corporate governance within the listed firms? or the nse and brokerage fraternity for failing to curb insider trading at the stock exchange which gave a false impression of uchumi's true financial position? or is it the media-led campaign that saw shoppers shun uchumi's shelves?
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5 comments:
Interesting analysis JP, i think they should reopen and pay off their debts too. Guys were starting to shop their again
shiroh, it now looks like the recovery strategy was not well thought out. re-opening is a safer alternative to investors and lenders than winding up. they should reopen even if they just run a few profitable branches and expand later.i am sure kenyans will be ready to support such an initiative than losing their investment.
see...www.collapseofuchumi.blogspot.com
@collapseofuchumi,
get me right, uchumi is the closest kenya can get to enron, the circumstances may not be necessarily similar but its the best case study we can refer to. plus i suspect vital information was withheld from the general investors by past and present directors and management on the survivability of uchumi. the auditors too did not put it in black and white for the shareholders about uchumi being a going concern. its within their scope to state whether the finacial statements present a true and fair view of the company.
Hello...a good analysis. I hope you are in a position to assist. I am doing a dissertation into ERP adoption in the retail market in Kenya and want to specifically look at Uchumi and Nakumatt. I was hoping you are in a position to direct me to the right people to interview, but preferably send questionnaires to. These would be stakeholders like management, business consultants and maybe even the ex-ceo (is he approachable?) himself. Please if you can assist, contact me on bonezj@tiscali.co.uk.
Regards