Uchumi supermarkets held it’s AGM on Tuesday afternoon at the Grand Regency hotel for 2005 – a year during which the company lost a record 1.2 billion shillings. The loss was inherited by the company’s new management who then embarked on a turnaround, which included a successful rights issue and a re-launch of the Uchumi brand.

The board of directors who met just before the AGM were very confident (compared to last year) and throughout the meeting mentioned thanks to customers, shareholders, banks (PTA and KCB), staff and suppliers during the roller-coaster year – February (branch closings), June (record loss), October (rights issue), November (franchising and re-branding).

Restructuring
Involved the rights issue and disposal of non-core assets.

The Rights issue raised 1.2 billion shillings, with a significant number of suppliers taking part – and turning their debt into equity in the company. The number of shareholders increased from 8,000 to 12,000.

Brand re-launch began after the rights issue and will focus on Kenyan suppliers and Kenyan consumers. The stores have been re-branded and re-stocked with new inventory such as electronics, computers, furniture – which are all on consignment basis so Uchumi won’t tie up cash flow in high priced inventory and will only stock these goods and get paid a commission when they are sold.

Also:

• New hyper store will soon open in Kisumu.
• November: Franchising started at old stores.
• December: new loyalty card dubbed the “U Club card” launched in conjunction with RR.

Shareholder Questions

Q: Is the company solvent since liabilities are greater than assets?
A: It’s true liabilities were greater in June (year end) but the rights issue corrected that. Company planned to raise 2 billion this year; 1.2b from rights (which was achieved) and 900m from the disposal of assets (which is on-going and has so far yielded 300m)

Q: Explain the loss?
A: The loss was the result of mounting problems, which had not been properly addressed including overstocking and shrinkage (employee theft). The Company is now managing shrinkage, will not import goods it is unable to sell, and has written off excess stock. When MD Smith took over, Uchumi had 90 days stock on shelves – which he called shocking and un-heard of in the supermarket world. Now they are at 30 days stock on shelves, and the target is 21 days. But he said the main problem Uchumi faced in the past was non payment to suppliers.

Q: Any plans to recover looted assets from previous managers?
A. Company not pursuing any cases against previous management

Q: How will they recover customers and market share lost to Nakumatt, Tusker Matt and other supermarkets?
A: Yes Uchumi has lost ground to some very savvy competitors, who built stores next to theirs, but Uchumi will rely on goodwill, support and returning customers. Management claimed that over 50% of customers have returned to Uchumi since the re-branding and that shareholders are the best ambassadors to help the company recover more market share.

Q: Profits & dividends when?
A: No dividend in immediate future. Other companies such as Kenya Airways and KCB took 4 years after restructuring to turn around and Uchumi shareholders should not expect anything more in their case.

Q: How can ordinary shareholders get elected as directors?
A: Simply write in the nominee, perhaps a month in advance of the AGM. This question is asked at almost all AGM’s and while the answer is true, winning directors all have the sponsorship & vote of some majority shareholders. Uchumi said they look for non-executives who bring key skills to the board and this year added Mr. Arun Devani (Chairman of the Kenya Association of Manufacturer’s), Mr. James Kabuga (who represents PTA Bank) and Mr Albert Ruturi (former general manager of KCB)

Fireworks Moment: This came during the usually boring vote on auditors. Earlier some shareholders questioned the quality of work done by the company’s auditors PricewaterhouseCoopers with one wondering how PWC could keep blessing Uchumi’s books even at the loss increased from 300 million to 600m to 1.2 billion. PWC had also earlier issued a contradictory statement on the business future of Uchumi in the prospectus for the rights issue.

Clearly, shareholders don’t understand what auditors do. They wanted to know why the company lost so much cash over the years and why the reasons for the loss don’t appear in the accounts. They also yearn for internal information about companies, which is not distributed widely outside of investment banks.

Both the MD and Chairperson tried to defend auditors for doing a good job, which is to review and pass the company’s 6- and 12-month accounts and make recommendations, but shareholders clearly wanted blood. Other shareholders defended the auditors saying that we were shooting the deliverer of bad news and that blame should be placed at the feet of the board and management while other said that since the company was making a new start with new board and management, it also needed new auditors.

Nevertheless, the vote on the auditors was deferred to the next board meeting where they will consider the views voiced by shareholders at the AGM today.

Other titbits

• Dr. Eddah Gachukia is properly referred to as chairperson (Unlike KCB’s lady Chairman)
• All Kenyan produced goods are assigned bar codes starting with the number 61
• Goodies: No dividend, gift bags or items this year, but they did offer some tea and snacks after the AGM, which I skipped.
• Also, there was no verification of shareholder names and proxies at the door – just write your name and enter. If there had been a vote/election item at the AGM, the results could have been disputed because the attendance record at the meeting was not accurate.