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Uganda Clays has struggled to sustain its profit levels since it returned to profitability in 2020. Photo / File
By Deogratius Wamala
Investors in Uganda Clays will invest with caution in the company’s shares after the clay products manufacturer warned it had made a loss for the half year ended June.
In a profit warning published at the weekend, Mr Martin Kasekende, the Uganda Clays chairman, said a machinery breakdown, among others, had subjected the company into a loss position, the first in three years after it returned to profitability in 2020.
“The loss position is mainly due to a shortage of products occasioned by machinery breakdowns. This was exacerbated by unfavourable macroeconomic conditions, characterised by high inflation and depreciation of the shilling against the Euro, which impacted the company’s overall operating and production costs,” Mr Kasekende wrote without giving more details.
This will be the first time in three years Uganda Clays is returning to a loss-making zone, after the company in 2021 announced a return to profitability for the year ended 2020, in which it posted a profit after tax of Shs4.9b from a loss of Shs88.4m in 2019.
The turnaround had come a time when the operating environment had been dampened by Covid-19 related challenges, whose impact continues to-date, worsened by the Russia-Ukraine conflict, which resulted into a rise in fuel prices and inflationary pressures.
In the last three years, Uganda Clays has failed to sustain its profit levels, which have been declining due to increased expenditure, especially on its less productive Kamonkoli plant in the eastern district of Mbale.
Early this year, Uganda Clays reported a 25 percent drop in profits for the period ended December 2022 to Shs2.4b, which was a Shs2.5b or more than 50 percent decline since 2020.
At the weekend, Mr Kasekende told Monitor that cost of machinery from countries such as Italy had become extremely expensive due to foreign exchange losses, adding that even locally “we buy coffee husks but their prices have risen, which has shot up the costs of production”.
It is not clear how the loss will impact the Uganda Clays stock on the Uganda Securities Exchange (USE), which Mr Paul Bwiso, the USE chief executive officer, had last Monday said had attracted investors due to planned activities.
“Some companies, such as Uganda Clays, have attracted investors on the bourse because of their sustainability plans, even when they record poor performances,” he said.
Uganda Clays continues to struggle with a number of challenges, among which include the Shs20.6b loan due to National Social Security Fund (NSSF), the inability of the Kamonkoli plant to meet projections, rising competition and the cost of doing business.
However, Uganda Clays has recently indicated that it had established a dedicated production line that will pay the 12-year old loan due to NSSF.
Mr David Calvin Bateme, the Crested Capital head of research, at the weekend said he was confident that the profit warning would have minimal or no impact on the Uganda Clays stock, noting that any investor “would not panic but look at the business performance and mostly do invest for the longer term. Few will sell their shares now.”
Loan repayments
Loan repayments, which during 2022, amounted to Shs6.9b, according to the company’s annual report, remain on of the biggest challenges for Uganda Clays.
In 2010, Uganda Clays borrowed Shs11b from NSSF, of which – Shs950m and Shs3b – would go into purchase of spare parts for the Kajjansi plant and expansion of the Kamonkoli plant, respectively.
The other money, the Uganda Clays 2022 annual report indicates would go into payment of creditors (Shs60m), repayment of bridge financing by Standard Chartered (Shs3.3b) and retirement of outstanding loan arrears due to Standard Chartered (Shs3.6).
However, by 2015, the loan, which remains one of the biggest challenges on Uganda Clays books, had accumulated to Shs20.6b due to accrued interest and non-repayment.
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