Uchumi Supermarkets

Uchumi Supermarkets Return to Profitability

The results at a glance

- Uchumi recorded a pre-tax profit of Ksh.106 million for the year ended June 2008; a 141% rise compared to a pre-tax loss of Ksh.256 million in 2006.
- This marks a turning point in profitability for Uchumi after being placed under receivership in 2006.
- The company’s total assets increased marginally by 2.53% from Ksh.1.58 in 2007 to Ksh.1.62.billion this year. This was mainly due to an 11% drop in non current assets to stand at Ksh.729 million.
- This is mainly attributed to increased operational efficiency of the retail chain under the “Uchumi Recovery Plan” (URP) and increased customer numbers (73% in 2007-08)
- Under URP 14 branches were re-opened across the country with a majority of them in Nairobi.
- Net sales in the period under review jumped 48.9% to Ksh.6.7 billion compared to Ksh.4.5 billion in 2007.
- Uchumi last recorded a profit in the 2001 and 2002 financial year
- Uchumi is in the final stages of getting a strategic partner to help it prop up its capital base by injecting at least Ksh.800 million.
- Upon announcement of the strategic partner, the retailer will be seeking to be readmitted on the NSE after it was suspended from trading its shares in 2006, locking many retail investors.
- Former Uchumi Directors are currently facing charges for committing fraud against the Company. They are accused, among other things, for defrauding the supermarket chain property worth Ksh.147 million.

Management Commentary on 2007/8 Performance

Following the closure of Uchumi retail trading by the board in the financial year ending June 2006, revival of the chain stores was commenced under the Specialized Receiver Manager (SRM) and interim management on July 14, 2006.Reopening of only 14 of Uchumi branches continued until February 9, 2007 under the “Uchumi Rescue Plan (URP) whose emphasis was reinvented “Uchumi” for turnaround.

The performance recorded continued to improve following further implementation of the URP during the year 2007/8. The upswing in sales revenue, and trading margins by 27% and 22.8% respectively in 2006/7 compared to the previous year was followed by 50.8% and 61% growth in the sales and gross profit in 2007/8 compared to those realized in 2006/7. The absolute gross profits increased by Shs.585million, or 61% to Shs.1,549 million in 2007/8.This is a gross margin of 22.8% of net sales revenue compared to 21% of the previous year 2006/7.Additionally, customer numbers recorded in the year increased by 73% and 46% compared to the 2005/6 and 2006/7 levels respectively, resulting in the highest customers per square foot per annum recorded in the recent past. These were despite the higher taxes charged on the packaging materials, higher cost of doing business and the inflationary pressure on our esteemed customers. The positive growth results were attributed to focus and redefined core purpose (business objectives) together with operational efficiency, and re-launched Uchumi brand.

The management remained focused on operating costs that increased by Shs.185 million, or 17% to shs.1, 254 million compared to the above noted marked increase in gross profit. After recorded financial costs the profit before tax increased from operating loss of Shs.257 million in the previous year to the profit of Shs.106 million, a turnaround of total Shs.363 million. This is a marked milestone for the chain store as the last recorded profit was back in 2001/2. The resultant performance was equivalent to Shs. 0.53 per share compared to 2005/6 pre-receivership loss per share of Sh.4.17.

Further, the business substantially met its bargain in corporate obligations to the pre-receivership creditors and current suppliers, and the secured debenture holders. Current assets grew from Shs. 764 in 2006/7 to Shs. 900 million of which cash and cash equivalent increased by Shs. 40 million to Shs. 116 million. These were complemented by prudent management of inventory .Post receivership suppliers’ debt is in term and total current liabilities after reclassification from term loans of Shs. 547 million stands at Shs. 1,453 million. In the year settling of term loans of Shs. 150 million and interest charge of Shs. 189 million were done. In the same year, pre-receivership suppliers’ debt equal to Shs.594 million was cleared.

The part implementation of the URP to date has resulted in marked gains in customer and products strategic adjacencies. While the upswing in business performance continues to be realized, the SRM in consultation with the Advisory Committee and the secured creditors recognized that Uchumi will technically require to restructure the balance sheet through increased equity to correct the previously eroded shareholders’ funds and simultaneously align the company competitive positioning through growth strategic adjacencies and lower debt carrying capacities that are planned to plummet profitability. The process of selecting appropriate strategic equity partners which is one of the identified routes to source equities is at the advanced stage, and in the docket of the Advisory Committee. Accomplishment of this exercise will take the company closer ti its journey to the NSE, the ultimate objective of URP.

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