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How Nakumatt troubles started
Concern about Nakumatt’s business health in Uganda rose around August 2016 when the company reduced its operating hours at its main branch at the Nakumatt Oasis Mall outlet in Kampala in August last year.
In December last year, the South African Global Credit Ratings (GCR) downgraded Nakumatt long-term rating from BB to BB- indicating a weakened ability to meet outstanding financial obligations.
“The rating downgrade reflects the notable deterioration in Nakumatt’s credit risk profile,” GCR in the credit report.
“Growth of the business has been highly leveraged, with the ever-growing working capital and capex requirements having been largely funded through short-term debt.”
The rating agency noted that Nakumatt debt burden had quadrupled in the last four years to Ksh18 billion (Shs 613.5bn) up from Ksh4.7 (Shs 157.4bn) in 2012 “placing unduly high pressure on the group’s gearing and liquidity position, with funding limits having largely been reached.”
The GCR revealed that it did not factor in plans by the regional retailer to sell a minority stake to new investors during the rating process as previous such plans had fallen flat.
Late last year, Nakumatt management said its trouble stemmed from financial stress due to poor economic environment across the region but sources in the retail chain segment said its trouble emanated from lack of proper research in setting up new branches especially in Uganda.
They disclosed that the retail chain set up branches close to each other leading to a reduction in their profitability and so is the cash flow amidst high rental costs.
Mutua, however, said the emergence of many local supermarkets had also increased competition in the retail chain business.
Going forward
Mutua said Nakumatt has no interest to withdraw from the Ugandan market soon saying there’s a huge opportunity a head due to the growing middle-class.
“Our outlook is that this is an economy that is expected to grow in the coming years, and so were are here long term.,” he said. “Yes, we may have had challenges but we are optimistic that things are going to improve.”
He said the retail chain plans to embark on an aggressive restocking exercise once funds are released. He said the company also plans to extend its operations to other parts of the country out of the central region once the business stabilises.
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