Weeks after it emerged that former Uchumi chief executive officer Nicholas Ciano was the top supplier of fresh produce to the struggling retail chain, the current chief executive has closed five loss making branches in a painful turnaround bid.
Mr Julius Kipng’etich took over from Mr Ciano, the latter having been fired from the position for gross misconduct and abating poor governance at the listed retailer. Kipng’etich has had to institute a raft of painful measures at the retail chain, including closure of outlets in Uganda and Tanzania as well as closing local loss making branches.
The latest move to shut down non-performing branches in Nakuru, Kisii, Eldoret, Embu and at the Taj Mall in Nairobi will render approximately 253 employees jobless, a painful decision aimed at turning around the retailer by 2017.
Mr Kipng’etich told reporters that the closure of the loss making branches “will enable us channel our resources to fewer branches and optimise operations for maximum gain”.
The rise and fall of Uchumi has been squarely blamed on Mr Ciano, who oversaw reckless plunder through conflict of interest of the retailer’s assets.
An audit carried out by financial advisory firm KPMG paints a picture of how Mr Ciano and the retailer’s sacked chief finance officer Chadwick Okumu oversaw the loot of the supermarket by a cartel of employees, suppliers, financiers and landlords.
It also emerged that Mr Ciano was the largest supplier of fresh produce to the supermarket and he used to pay himself first before anyone else, at inflated costs. The retailer, under Ciano, also manipulated its books of accounts to play down losses while misleading investors and regulators to offer a rights issue in 2014.
The issue of corporate governance in listed companies has been a contentious one in Kenya’s capital markets with some blaming regulators for sleeping on the job. Weak corporate governance structures and enforcement mechanisms have given a leeway to rogue directors or managers to flout rules regarding of issues such as conflict of interest for personal gain.
“Most of the corporate malpractices in Kenya are not due to poor judgement or mere underperformance by boards and management. They can be traced to ethical issues and conflicts of interest where the board and management make decisions that are selfishly focussed on benefitting themselves rather than prudently running the company,” according to analysts at Cytonn Investments.
Company boards and management should never be allowed or given a leeway to do business with the companies they head as this amounts to conflicts of interest that most often than not, lead to driving firms to ruin.
“Management should never engage in any business that competes with their company and should always declare all other businesses they are engaged in while occupying the position of executive management,” the analysts say.
Poor management and conflicts of interest resulted in suspect transactions in procurement of goods and services as well as engagement in fishy deals with financiers. Fraudulent payments were also made to suppliers often with debt money, which seriously affected the retailer’s cash flow. The rot at the retailer was unveiled soon after the exit of Mr Ciano as the supermarket announced huge losses to the tune of billions of shillings.
Barely two months after taking over, Kipng’etich, the new sheriff at the retailer made a drastic decision to close outlets in Uganda and Tanzania in October 2015.
At the time, Mr Kipng’etich stated on October 14, 2015, that Uganda operation was for instance, yet to make profit in the five years it had operated in that market. The Uganda subsidiary was in fact, sucking finances from the Kenya business and there was no indication that it could turn around any time soon should it have been let to continue operating.
Prior to the closure of regional subsidiaries, Uchumi had been operating six outlets in Uganda and five in Tanzania. Back in Kenya the retailer continues to experience tough competition with other retailers such as Nakumatt, Tuskys, Naivas and Ukwala being major players. At the time it exited the regional market, it had in the third quarter of 2015, closed two non-performing branches in Kenya in Maua (Meru County) and Syokimau (Machakos County).
Uchumi’s Uganda operations slid into losses in 2012 and it has been hard to turnaround since then while Tanzania operation has never broken even since launching in the market. Despite the mother company providing approximately KSh200 million each month to the subsidiaries to support them to meet their obligations to suppliers, landlords and employees, the efforts proved futile.
