Jumia reviewing Africa operations

Monday December 16 2019

jumia

A Jumia outlet in Kenya's capital Nairobi. The firm now operates in 11 countries in Africa, from 14 last month. PHOTO | FILE | NATION MEDIA GROUP 

By The EastAfrican

Jumia Technologies AG, Africa’s largest online retailer, is facing a difficult time on the continent as it battles to shed off integrity issues related to allegations of cheating investors during its initial public offering in April.
The Pan-African e-commerce operator, which has been operating on the continent for close to seven years, is now scaling down its operations in key markets amid mounting losses and concerns over its alleged breach of investor and customer “trust.”

The Berlin-based firm says its African operations, which are now hanging by a thread, have largely been driven by “trust” and it is now reviewing its operations on a case by case basis based on the financial performance of the business, commercial environment as well as the ease and cost of doing business in each market.

“Trust is critical in Africa where people traditionally rely on face-to-face interaction,” said Jumia in its IPO prospectus. “We believe that our targeted marketing efforts and consistent focus on delivering a high-quality seller and consumer experience have helped us to build a strong reputation and create a leading brand that consumers recognise and trust.”

Since May this year, several law suits have been filed against the retailer in the US District Court for the Southern District of New York, the Kings County Supreme Court and the New York County Supreme Court in New York.

“The claims in these cases relate to alleged misstatements and omissions in our initial public offering prospectus and statements made by our company in connection with our initial public offering,” said Sacha Poignonnec and Jeremy Hodara, the firm’s co-chief executives. “These actions remain in their preliminary stages.”

The firm’s troubles began in November when within a space of less than seven days the retailer, which is listed on the New York stock Exchange (NYSE) shut down its operations in Tanzania and Cameroon.

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And last week, the firm made an abrupt exit from Rwanda and announced shedding off six percent of its employees in Kenya, its largest market in East Africa.

“After careful consideration, we have made the difficult decision to undergo some headcount reductions across our business verticals and geographies,” Jumia Kenya said in a statement Tuesday. “While decisions like these are always difficult, we need to put our focus and resources where they can bring the best value and help Jumia thrive. We are supporting all impacted employees during this period of transition.”

The firm has about 686 employees in Kenya.

Jumia’s exit from Rwanda now cuts the online retailer’s Africa operations to 11 countries from 14. These are Nigeria, Kenya, Morocco, Egypt, Tunisia, South Africa, Algeria, Senegal, Ghana, Ivory Coast and Uganda.

The firm cited lack of profitability for its exit from Rwanda, where it had operated for six years.

“We regret to inform you that Jumia will suspend our on-demand delivery operations in Rwanda on January 9, 2020,” the firm said in a statement. “We thank you for your loyalty and continued trust over the years; it's been our pleasure to serve you all.”

Rwanda’s Permanent Secretary in the Ministry ICT & Innovation Claudette Irere said the office would engage Jumia to find out what may have gone wrong.

“We have arranged a meeting with Jumia to understand things from their perspective; when a business like this one closes in our market we have to understand why, there is something we know but it is not enough,” she said.

Jumia said the exits are part of the firm’s regular portfolio review which seeks to optimise profits by channelling resources into businesses and markets that present the best opportunities to support the company’s long-term growth and path to profitability.

WHERE TO INVEST

The criteria for choosing which market to operate will be driven by the financial performance of the business, commercial environment as well as the ease and cost of doing business.

The group’s operating loss for the nine months’ period to September 30 this year widened to $181 million from $130 million in the same period last year, according to the group’s unaudited financial statements.

After its historical IPO on the NYSE in April this year, Jumia’s stock peaked to a high of $46.99, becoming one of the best performing IPOs on the NYSE this year.

And barely a month after the stock price excitement things took a wrong turn after a report by Citron Research accused the firm of fraud, sending its share price tumbling by more than 50 per cent.

The retailer, which rides on the tagline of “100 per cent African” and which is often seen as the “Amazon of Africa,” saw its stock on the NYSE fall 1.81 per cent to $5.43 on December 11.

The firm has a market capitalisation of $426 million.

While the firm has incurred significant losses since inception in 2012, the management said there is no guarantee that it will achieve or sustain profitability in the future.

The retailer has conducted its business through Africa Internet Holding GmbH, incorporated on June 26, 2012 as a limited liability company under the German law.

On December 17 and 18, 2018, shareholders resolved upon the change of the business legal form into a German stock corporation and the change of the company name to Jumia Technologies AG.

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MONEY MATTERS

Operating loss: Widened to $181 million in the nine months’ period to September 30 this year, from $130 million in the same period last year.

Falling stock price: Peaked to a high of $46.99 per share after Jumia’s historical IPO on the NYSE in April this year, becoming one of the best performing IPOs on the American stockmarket this year.

A month later, the stock price tumbled 50 per cent after Citron Research accused the firm of fraud.

On December 11, the stock on the NYSE fell 1.81 per cent to $5.431.

Market capitalisation: Stands at $426 million.

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