Uganda Clays trims its staff, freezes dividends

Workers arrange blocks at Uganda Clays Ltd. The firm has laid off some staff. PHOTO | FILE | NMG

By JAMES ANYANZWA

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Uganda Clays Ltd has withheld dividend pay-out, trimmed its payroll by 53 workers

and renegotiated its Ush11.05 billion ($2.96 million) loan repayment with its major shareholder, the National Social Security Fund (NSSF), as the company’s cash flow position weakened on falling revenues and rising debt repayment costs.

The company’s earnings have been hit by stiff competition in the construction and building sector, interruptions in the supply chain due to the on-going geopolitical tensions in Europe and operational challenges of the production machinery at the company plants, which resulted in a decline in the production volumes by 15 percent in 2023.

The construction and building materials manufacturing company disclosed in its latest annual report that it spent Ush136.8 million ($36,619) on staff termination costs after 16 percent of them left in 2023, with 32 employees being from the production department followed by management and administration department (17) and sales and distribution department (four).

“With the introduction of new players and massive expansions in the production capabilities of existing players, competition in the roofing sector has become stiffer than ever before,” the company said.

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It added: “At least seven in every 10 households are currently using iron sheets for roofing, a trend we are trying to reverse by making our products more affordable through incentives like discounts and hire purchases.”

The Ugandan Securities Exchange-listed firm, which is majority owned by NSSF (32 percent), depends largely on the cash generated from the sale of its manufactured products as part of its daily operations, and uses short-term financing in its ordinary course of business, to manage its cash flow needs and facilitate purchase of critical spare parts.

In 2023, it experienced a significant decrease in positive cash flow from operating activities, which amounted to Ush1.4 billion ($374,942), marking a 73 percent decline from 2022.

Uganda Clays’ total revenues declined by 20 percent to Ush30.4 billion ($8.14 million) in 2023, from Ush36.6 billion ($9.74 million) in 2022, pushing the company into a loss-making territory.

The company made a net loss of Ush2.85 billion ($763,276) in 2023 from a net profit of Ush2.44 billion ($653,471) in 2022, reflecting the effects of a higher reduction in revenue, compared with the direct and indirect costs.

Its finance costs increased by 325 percent to Ush 1.8 billion ($482,069) in 2023 as a result of the NSSF loan renegotiation to extend the repayment period from 2025 to 2030, resulting in an estimated interest expense for the period of Ush1.6 billion ($428,506).

The directors opted not to recommend the declaration of a dividend for the year 2023, compared with a divided of Ush0.5 ($0.00013) per share that the shareholders received in 2022.

“Despite facing a challenging year, we remain committed to leveraging our financial capital to navigate economic uncertainty and maintain stability,” the company said.

“We seek to position ourselves to capitalise on future opportunities by making strategic investments, implementing cost-cutting efforts, and promoting long-term growth, ensuring that we are well-equipped to propel success in the coming years and also engaging out customers to ensure the best quality is provided to them.”

The company said it is looking for external financing to strengthen its financial position and improve production capacity.

In May 2023, the NSS board and Uganda Clays signed an addendum to the initial loan contract, which now requires the firm to start repayments on January 2, 2025, with 10 equal instalments paid semi-annually and interest chargeable at 14 percent per annum.

“The Company had been experiencing cash flow challenges which affected its ability to meet the original repayment terms hence the freezing of the interest accrual,” the company said.

Uganda Clays has, however, invested Ush7.9 billion ($2.11 million) in its capacity expansion project to address the ageing of its plant and machinery.