Uchumi’s Uganda, Tanzania units sink deeper into losses

What you need to know:

Uchumi says in its latest annual report that the Uganda unit recorded its third consecutive loss in the period while the Tanzanian operations continued its loss-making streak since Uchumi set up shop in Dar es Salaam in 2011.
The performance means that Uchumi is relying on its Kenyan operations to turn a profit, clouding its short term profit outlook even as it plans to deepen its regional expansion with an entry into Rwanda by December.

Uchumi Supermarkets saw its subsidiaries in Uganda and Tanzania sink deeper into losses in the year ended June, signalling difficulties in the firm’s quest to expand its share of the competitive regional retail market.

The Nairobi Securities Exchange-listed retailer says in its latest annual report that the Uganda unit recorded its third consecutive loss in the period while the Tanzanian operations continued its loss-making streak since Uchumi set up shop in Dar es Salaam in 2011.

The losses by the subsidiaries weighed down Uchumi’s net profit which rose 7.6 per cent to Sh384 million compared to Sh357 million the year before.

Uchumi chief executive Jonathan Ciano said: “Total group sales registered a marginal growth due a drop in Uganda mainly attributed to competition, supply chain challenges and some locations becoming untenable due to infrastructural and tenancy mix challenges.”

He added that new branches in Kenya and Tanzania “are yet to mature” to begin contributing to the bottom-line.

Uchumi’s outlets in Uganda posted a pre-tax loss of Sh341.6 million in the period, compared to Sh256.4 million a year earlier and Sh75.9 million in 2012.

The poor performance in Uganda forced Uchumi in September to shut down one of its six outlets in Kampala located at Freedom City mall outlet. The closed branch had been opened in June 2012.

The retailer last made a pre-tax profit of Sh32.7 million in Uganda in 2011. In Tanzania, where Uchumi has four outlets, the retailer made a pre-tax loss of Sh125.2 million, a slight improvement from Sh131.3 million loss the year before and Sh142.7 million in 2012.

Uchumi made a maiden loss of Sh11.7 million in Tanzania in 2011 when it set up the first hyper branch at the Quality Centre mall, Dar es Salaam.

The performance means that Uchumi is relying on its Kenyan operations to turn a profit, clouding its short term profit outlook even as it plans to deepen its regional expansion with an entry into Rwanda by December.

The retailer has lined up a Sh895.8 million rights issue due to open on November 10 to raise cash to open more units locally to defend its market share in Kenya and fund regional expansion.

The offer has been priced at Sh9 a piece, just under its current trading price of Sh9.9 on the Nairobi Securities Exchange and representing a nine per cent discount. Existing shareholders are entitled to three new shares for every eight held.

The cash call was approved by shareholders in December 2012 and its delay has seen Uchumi struggle with supplier debts and stock-outs, forcing the retailer to chalk up additional debts to shore up its working capital.

Uchumi –which was once the largest retailer in the region— has dropped to be Kenya’s fourth largest retailer in terms of revenue after it was overtaken by Naivas.

Nakumatt has regional operations in Uganda, Tanzania and Rwanda while Tuskys has outlets in Uganda.