Nakumatt Holdings, the Kenyan supermarket chain with a presence in Kenya, Uganda, Rwanda, and Tanzania, said in a statement on Thursday that it is facing cash flow problems and is in talks with “local and international financiers” for a capital injection.
The retailer said its problems arose from “unforeseen business challenges,” specifically a downturn in economic activity, higher operating costs, and external factors like managing risks associated with security threats in Kenya.
It said the statement was intended to clarify recent social media speculation about the company’s financial health. The statement said the chain “remains resilient and continues to grow.”
In Uganda, several people have recently drawn attention to empty shelves in the retailer’s supermarkets.
— Charles Onyango-Obbo (@cobbo3) October 27, 2016
To deal with its challenges, Nakumatt – the largest retailer in East Africa – said it is renegotiating terms with suppliers and recruiting “qualified” managers to “handle specialised units.” It has also adopted a new warehouse management system that allows it to order stock based on what is being bought, thus paying suppliers on time and reducing wastage.
There have been claims that the retailer has defaulted on payments to suppliers in Uganda, hence the empty shelves. For example, it has not been carrying some of the more popular soft drink products.
Nakumatt has nine stores in Uganda, and is planning to open another in Ntinda. Last October, it took over a branch building previously occupied by South Africa’s Shoprite, which said it was poorly located.
In August, the retailer reduced operating hours of its first Ugandan store at Oasis Mall (opened in 2009), apparently due to low night foot traffic. Instead of operating for 24 hours as before, Nakumatt said the outlet would close at midnight at open at 6:30am.
Nakumatt’s problems come soon after another Kenyan supermarket chain, Uchumi, downscaled operations in Kenya and exited Uganda and Tanzania. Uchumi was hampered by cash flow problems arising from managerial malfeasance. In August, Kenya’s cabinet approved a Kshs1.8 billion bailout to settle part of its Kshs3.6 billion debt obligations to suppliers.
A credit rating issued by South African rating agency, Global Credit Ratings, in December 2015 said Nakumatt’s profits had been “heavily eroded by rising interest charges, associated with the large quantum of debt that has been used to fund growth.” The rating said Nakumatt’s net profit before tax had fallen to KShs305 million in 2014-15 from KShs823 million in 2013-14.
The retailer’s gross debt had almost tripled from Kshs4.2 billion in 2010-11 to Kshs15 billion in 2014-15, the rating said.
The rating continued: “Nakumatt has been actively seeking a minority equity investor for several years, with the dual intention of raising capital and benefitting from the technical expertise that such an investor would need to bring. According to management, a deal with a new equity investor is expected to be concluded in 2015.
“The deal would see substantial capital injected into the business, which would markedly ease funding pressure and facilitate the further planned rollout of new branches.”
The statement released by Nakumatt reiterated those plans. A new investor “will help retire existing funding tools including bank loans and related debts,” it said. “We are confident that the process will allow us to regain our footing with full supplier settlements and sustainably continue the aggressive expansion plan we have set in our 5-year business plan.”