Uchumi loss reveals price of expensive bank loans

What you need to know:

Uchumi posted a half-year loss of Sh262.3 million compared to a net profit of Sh106.9 million recorded a year earlier.
The firm's operating expenses shot up by a tenth, driven mainly by higher finance costs, salaries and rent.
Uchumi turned to KCB for a Sh600 million loan and another Sh405 million from Co-op Bank to pay suppliers before its December rights issue.

Expensive bank loans pushed Uchumi into loss in the first six months of the year, indicating the heavy price that the retail chain had to pay for its delayed rights issue.

The NSE-listed supermarket’s operating expenses shot up by a tenth, driven mainly by higher finance costs, salaries and rent.

The results covering six months to December 2014 reflect Uchumi’s performance in a turbulent year that saw some suppliers interrupt deliveries citing delayed payment, which forced the retailer to rely on expensive bank loans for working capital.

“The Uchumi rights issue transaction was delayed for 15 months and this predicated working capital challenges in the interim period,” said chief executive Jonathan Ciano in a statement.

The supermarket chain posted a half-year loss of Sh262.3 million compared to a net profit of Sh106.9 million recorded a year earlier.

Uchumi turned to KCB for a Sh600 million loan and another Sh405 million from Co-operative Bank to pay suppliers before its December rights issue.

The company’s finance costs more than doubled to Sh60 million from Sh26 million a year earlier, mainly attributed to the bank loans.

Uchumi raised Sh895.8 million through a rights issue last year, an offer that was over-subscribed by 83 per cent.

Mr Ciano said the retailer is banking on the funds raised through the cash call to boost cash flow, pay suppliers in time, refurbish its existing outlets and open 10 new outlets.

“This is already starting to impact positively by freeing cash flows for working capital and we have started normalising accounts with our suppliers,” the Uchumi boss said.

Uchumi’s half-year sales declined to Sh6.8 billion from Sh7.2 billion in December 2013.

Analysts at Standard Investment Bank said the cash crunch at the listed retailer has seen Uchumi fail to compete with rivals such as Nakumatt, Tuskys and Naivas for high-traffic locations such as upcoming malls.

“The retailer has consistently lagged behind competition in identifying prime locations as well as in generating income,” SIB said in a brief to clients.