Barely five years after emerging out of receivership, there are signs that Uchumi supermarket chain could be headed back into troubled waters, this time for worse.

The board, which met Monday terminated the contract of the supermarket’s Managing Director Jonathan Ciano citing gross misconduct and negligence and appointed Uchumi’s General Manager Operations Owino Ayodo as acting CEO.

Also affected by the latest board initiative to restore market confidence is Chief Finance Officer, Chadwick Omondi whose contract has also been terminated and the suspension of Human Resource Manager Micheal Kibe. The board’s decision comes at a time when Ciano’s contract was set to expire next month.

Mr Ciano helped to turn around the retailer from an insolvent entity after it chalked up losses and failed to pay suppliers in 2006. Since its turnaround, Uchumi has only paid dividends once out of the results of 2014, largely because it does not have the money. Supplies have been cut and for the critical ones, the management has had to beg for time and has even renegotiated payment terms.

Part of the trouble started after senior managers began supplying most of the goods sold in the dozens of outlets owned by Uchumi. It started with a trickle, but with time, the trend got so ingrained, leaving Ciano helpless. With senior managers doubling up as suppliers, it became difficult to separate business interest and self-interest.

According to our source, by virtue of their positions within the company, payments for deliveries associated with them were fast-tracked and often at ‚exaggerated prices‘. The trend is currently being investigated by the board, which has indicated it may initiate criminal proceedings against those found culpable.
In that arrangement, Uchumi bought and possibly still does, buy commodities at prices that are higher than the eventual selling prices. That would translate to outright theft from the company owned by tens of thousands of shareholders, including the Government. Sought for comment, board chairperson Khadija Mire had earlier said that Ciano had gone on leave. “We approved his leave, he has been working for years and he surely needs a break like anyone,” Ms Mire said.

She, however, did not deny that there are investigations relating to misdeeds by some managers. On his part, Ciano said he had taken time off his busy schedule to relax. “I have not taken leave for the past nine years, now I have to,” Ciano told said before the board sealed his fate in Monday’s meeting where the action to terminate his contract was taken. But when asked whether the decision to take leave was prompted by the company’s board, pending investigation, he said: “It is absolutely ridiculous that you are telling me that. What investigation”

He, however, said that some new directors in the board do not understand the business model of the company. He said the new set of board members do not even know how far he had brought the firm. He, however, did not name the directors who are opposed to his continued stay at the helm.

The board of directors has reportedly cracked the whip and an insider who requested not to be named because of the sensitivity of the story confided that Ciano was forced out during a board meeting, which was held last week. “He is not coming back,” said our source. The managing director was accused of knowingly allowing senior managers to enlist as suppliers of the supermarket, and in the process, helped perpetuate a culture that allowed conflict of interest to reign over sound business decisions. “I have managers who are suppliers, and that is a fact we have only come to know about very recently,” said Ciano, adding that something was being done about this.

Uchumi may have embarked on a process to clean up the mess, but it should be obvious that something is amiss, whether Ciano stays on or not. Our source played down suggestions that disagreements may hit the board, saying that official communication would be relayed within the week when a possible replacement for the MD has been sought, even if it would be on a temporary basis.

Resistance from the board would not augur well for any chief executive anyway, far worse when the entity in question is bleeding like Uchumi. The company reported a Sh263 million loss in the half year ending December 2014, down from a Sh106 million profit in the previous comparable period. High finance costs, salaries and rent were cited as the reason for the falter. The Kenya Commercial Bank (KCB) and Co-operative Bank of Kenya have jointly lent Uchumi over Sh1 billion to help cure cash flow problems that had threatened to end deliveries.

A supplier like the Kenya Power, which had a working relationship with the firm in which Uchumi sells its prepaid electricity tokens and collects payments for postpaid customers, has severed ties with the chain over delayed payments. Loss of the dealership, which Uchumi has held for a couple of years now could be catastrophic as it signals the loss of a significant revenue stream. Kenya Power informed its customers that due to unavoidable circumstances, bill payment through Uchumi supermarkets had temporarily been suspended.

The MD of the utility firm, Ben Chumo said the relationship with Uchumi was to the extent that the retailer had been collecting payments but not transmitting the cash – instead using it to trade, without the firm‘s knowledge and permission.

It had been happening for quite some time, he added, and attempts to remedy the situation did not bear any fruits. Mr Ciano put up his strong side, during the interview, and expressed optimism that top officials from the two firms who had met severally to iron out the issues would amicably settle the problem. “We had a shortfall in the rights issue which caused us a little cash shortage. This meant we were unable to pay Kenya Power promptly,” said Ciano.

The incident is just one of the pointers to the bigger underlying problems that Uchumi is dealing with financially. Last weekend, the company had to issue a public apology to its shareholders for delays in paying out the dividends declared in November 2014. “The delay was caused by challenges ranging from tight scheduling, printing to postage, of our selected service providers beyond our control…” the company said in the notice that would move the payment date forward by two months. It is plausible to link the delayed payment to the tight cash flow situation. Ciano said the board had approved the company to seek a loan of Sh500 million, and he had been given the mandate to find the cash.

“I will be away in London for an investor briefing this week, which should tell you we are making some progress.” Uchumi just raised nearly Sh900 million from a rights issue in December, but the funds came through in March. But the issue had been planned for a much earlier date, previously slated for 2012 but had to be delayed because the majority shareholders were not ready,” Ciano said.

It is projected that the loan would enable the company remain afloat, and avert the tragedy of 2006 when it was forced to close down due to insolvency. Its shares were suspended from trading at the Nairobi Securities Exchange, and only made a comeback after more than five years in the cold. Thousands of workers lost their jobs temporarily in a window that enabled rival retail chains to close in on Uchumi and take off with big chunks of its market share. Before the fall, several top managers were arrested and charged for abuse of office, but later released for lack of evidence.

The shareholders were left licking their wounds as a turnaround plan was hatched with the State pumping over Sh600 million in the revival plan. Mr Ciano was then brought in to midwife the turnaround that has been cited severally as miraculous. With his sacking Monday, things have gone full circle for the chief executive who says his record speaks for itself. Half of the board members are new and are the ones who want a change, according to Ciano. “They are still undergoing orientation,” he laughed.

Prominent shareholders, including the Kenya Wine Agency Ltd, have dumped the company‘s shares in the recent past, possibly a pointer to diminishing confidence in the business. The country’s retail business has seen major transformation in the last decade. New arrivals from other countries are also making big statements through new outlets, as they fight for a slice of the business.