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Uganda Clays recovers after years of losses

The Kajjansi junction off Kampala-Entebbe highway has changed so much.

From the mosquito-infested swampy place it used to be five years ago to now the crisscrossing infrastructure and a first-class expressway to the international airport. All this has contributed to changes in the fortunes of Uganda Clays Ltd, which sits metres away.

In the last one month, Uganda Clays Ltd’s share price at the Uganda Securities Exchange (USE) has had the biggest gain – at least 57 per cent from around Shs 12 to Shs 29 per share early this week.

The share price rally, according to some shareholders and stockbrokers, is an indicator of the faith people are starting to have in the company after years of loss-making.

So, what is the source of this optimism?

The answer lies in the 2016 annual report published on October 19 on the company website. Board Chairman Martin Aliker said: “The company performed well during the year [2016]. Revenues grew by eight per cent. The growth was largely driven through emphasis on the production and sale of fast-moving products and the continued emphasis on minimising production cost.”

Beyond this, there were key indicators that showed Uganda Clays Limited was looking up: costs were minimal, production went up, and last year was the only period since 2011 that it operated without having to pay interest on loans.

It paid Shs 1.5bn in income tax and consolidated itself as market leader, producing 55 per cent of all baked clay building products in the country.

Andrew Muhimbise, a shareholder in Uganda Clays Limited, is elated: “The bleeding has stopped as management is harvesting the frugal, clean and honest dividend of its actions in the past three and half years.”

Oscar Emasu, a research analyst at Crested Capital, said: “The current trend of events on the UCL counter, which resulted into a price rally may be a reflection of some level of confidence that investors placed on management efforts including a number of cost-cutting measures to return to profitability”.

“You should note for about five years, the company was in a loss-making position but following possible capital restructure, it began to post some profits,” Emasu added.

The company’s income went up from Shs 24.1bn in 2015 to Shs 26bn in 2016.

NSSF LOAN

Another source of optimism is that a huge loan that seemed to hang onto the company’s balance sheet has been repaid.

The money was borrowed in 2010 but the firm could not make enough money to service it. The prospects for the Kamonkoli plant in Mbale have fallen below expectations. Geopolitics in the region also affected the company with the target markets of South Sudan, DR Congo failing to meet the suppliers’ expectations.

As at December 31, 2016, the NSSF loan and accrued interest stood at Shs 23.2bn. According to Aliker, on Uganda Clay’s request, NSSF board resolved to cap the interest accrual on the loan with effect from December 2015.

On the loan, he said: “The company and NSSF have agreed in principle to convert the entire loan and interest into equity. The details of the transaction are being negotiated.”

As a result of turning debt into equity, finance costs dropped from Shs 4.2bn (2015) to just Shs 121m (2016).

“During the year under review, the company operated without any commercial loan,” Aliker said.

On top of that, NSSF will start the construction of the Lubowa housing project. This is likely to give significant demand for the company’s high-end products including max-pans and bricks.

UNRA BATTLE

Another bit that gives promise to the company’s revenue boost is the battle with Uganda National Roads Authority (Unra) in court over lost clay when its land was taken over to construct the Munyonyo Spur section of the Kampala-Entebbe expressway.

Aliker said: “The Government of Uganda and Uganda National Roads Authority [UNRA] have compulsorily acquired some land at Kajjansi belonging to the company for the construction of the Kampala-Entebbe Express Way/ Munyonyo Spur. The construction is currently underway.”

“As a result of the expropriation of the land, the company has lost large amounts of clay. Uganda Clays filed a case in the High court, land division, for compensation for the surface value of the land and economic loss resulting from the loss of the clay.”

He added: “UNRA has paid partial compensation for the land and the company is still pursuing full compensation for the surface value of the land and for economic loss resulting from the loss of the clay. Verification and computation of the claim has taken some time because UNRA has sought technical advice from several government departments.”
This case can go either way.

THE FUTURE

Even as things look up, the company bosses are aware of the inadequacies that could easily erase the initial gains.

Aliker said the company will need to replace old machinery, improve drying facilities for green products and complete the Kamonkoli plant.

There is also need to acquire more land with clay deposits in the Kajjansi area to guarantee production into the distant future.

“All these will require substantial amounts of capital expenditure. Given the huge call on the capital resources of the company, the board and management will have to prioritize expenditure,” he said.

For the managing director George Inholo, the future is hinged on the new strategic plan for 2017 – 2021. This, he said, will provide a blueprint for the growth and transformation of the business over the next five years.

“Our priorities will continue to be meeting and exceeding customer’s expectations by delivering to them high-quality building products at competitive prices and providing acceptable returns to the shareholders,” Inholo said.

amwesigwa@observer.ug

Comments   

0 #1 Kale Henry 2017-11-11 21:13
As a shareholder, I feel elated with this development. We have over waited for this.
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0 #2 ricardo nyanza 2017-11-11 22:57
Job well done you didn't have to let roofing take ur customer base in the first place.
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