Uchumi Supermarkets has secured a Sh405 million loan from the Co-operative Bank to pay amounts owed to its suppliers, easing pressure on the retail chain’s cash flows.
Chief executive officer Jonathan Ciano told the Business Daily that the retail chain signed the “asset financing” loan on Wednesday, which will also act as working capital. “The capital injection will help fund our existing expansion plans and at the same time help offset debts that we owe some of our suppliers,’’ said Mr Ciano in a telephone interview on Friday.
However, Mr Ciano did not disclose how much the retailer owes its suppliers. In its annual results announced earlier this month, Uchumi reported a Sh1 billion jump in current liabilities to Sh3.4 billion for the year ended June 2014, while its financing costs surged to Sh64 million from Sh16 million in 2013.
The increase in financing costs was occasioned by new loan facilities borrowed from the Industrial and Commercial Development Corporation (ICDC) and KCB.
Uchumi’s after-tax profit for the full year ended June 30 rose 7.6 per cent to Sh384 million, helped by a tax credit that reduced its liability to the Kenya Revenue Authority by Sh64 million. Some of the retailer’s suppliers had expressed concerns in interviews with the Business Daily over a backlog of payment of their dues.
Contacted for comment, the Association of Kenya Suppliers chairman Kimani Rugendo said members had complained to Uchumi on the pending payments that had seen some of them scale down their deliveries to the retailer. “We had notified Uchumi over pending payments because they were hurting both the retailer and supplier operations and we are hopeful the matter will be resolved soonest,” Mr Rugendo said.
The businessman is the founder of Kevian Kenya Limited, which manufactures Afia and Pick n Peel juice. He said most of the debts date back from last year, but was guarded on the overall amount that Uchumi owes the suppliers.
“It’s a lot of money that involves millions but I cannot divulge details,’’ said Mr Rugendo. “It will be a good gesture if the payments are made so that Uchumi could continue with its recovery plans and implement its expansion plans.”
Mr Ciano said recently that the retailer’s expansion would be funded through the rights issue that is slated for November.
Uchumi expects to raise over Sh1 billion from the shareholders cash call. “We have resorted to borrowing to strengthen our financial portfolio and this does not imply that the company is struggling in its finances,” Mr Ciano said.
Uchumi has been pursuing expansion in Kenya, Uganda and Tanzanian markets, with prospects of also starting operations in Kigali, Rwanda.
The retailer is currently building two branches inside Kenyatta University on Thika Road to tap the growing population in the area that mainly comprises students and residents of surrounding estates. KU-Unicity branch is expected to be a hypermarket that will also be used as a training facility for students.
Uchumi also plans to open stores in South Sudan. This month, Uchumi closed one of its under-performing outlet in Uganda and transferred the affected 110 employees to other branches. Mr Ciano said plans are also under way to open two branches in Moshi and Arusha in Tanzania by the end of December.
The retailer, which already has four branches in Tanzania, cross-listed on the Dar es Salaam bourse on August 15. Uchumi is already cross-listed on the Uganda Securities Exchange (USE) and on the Rwanda bourse.
“Going forward, we believe management will sustain Uchumi’s growth trajectory in terms of profitability as well as branch network. We, however, remain concerned about the retailer’s lack of aggressiveness which we believe would grow the top line beyond current levels,” said Standard Investment Bank in an investor research note following the release of the retailer’s annual results.