Who will rescue Uganda Clays?

One by one, they streamed to the notice board to read a two-page notice from the managing director, George Inholo.
It was a notice informing Uganda Clays Limited employees of the company’s decision to restructure operations as well as laying off 40 people in the short term.
For some, the future looked uncertain as they read the detailed document.
“We have not been told who will leave so we are waiting for the bosses to call us in,” says one of UCL employees, who spoke to this reporter on condition of anonymity.
The uncertainty was because the lay-offs were not specific to any department.
“I am aware of the stress and anxiety the whole exercise has generated and this communication is likely to generate. I urge all of you to understand that the business needs the ongoing exercise for its survival and return to profitability,” Inholo wrote in the statement dated April 30.

People sent packing
The announcement came almost a week after the company posted a record Shs5b loss at the end of 2014, up from Shs3.2b in 2013.
The 2014 loss marked UCL’s sixth year – with the exception of 2012 - of losses and huge debt obligations.
The current portion of debt is Shs19.5b, a rise from Shs15b reported in 2013. The bulk of this debt is owed to NSSF and another Shs3b owed to Standard Chartered Bank and East African Development Bank.
The debt and dismal performance have strained UCL’s growth, leaving its future uncertain. Its liabilities for the second year running outstripped assets, meaning the company could become bankrupt.
The laying off of 40 people, outsourcing management of distribution centres and cutting back on use of furnace oil would save the company at least Shs1.7b a year. According to Inholo, these moves are only part of the solution to the Uganda Clays problem.
“We will be making significant savings as a company. The wage bill, health, medical insurance, and loans won’t be there anymore. This will have multiplier benefits for UCL. My projection is that in 2015, we could have slightly lower than 10 per cent growth in revenue,” Inholo noted.

Tried this before
What he also hinted at was that the 40 people would only be the start since there will be more layoffs in the near future.
This move to lay-off staff at UCL had been attempted before by Charles Rubaijaniza when he became the managing director in 2011.
In his first few months, he laid off 89 people and by mid-2012, he had wanted to cut more jobs. He was looking at laying off more than 100 people.
These bold steps attempted to bring to light some transformation at the company where by in 2012, he was able to guide the company into a profit of Shs2.8b.
This supposed turnaround was short-lived as Rubaijaniza left the company as pressure mounted on him. He was planning more radical moves for a company he had worked for 23 years but he met stiff opposition from the board and workers union.
The revival of UCL seemed to have since suffered a setback.
However, even with this revival, the debt obligations of the company remained challenging and were not reducing. It would all come down to one shareholder attempting to save the day.

Focus on NSSF
In October 2014 at the Sheraton Kampala Hotel, UCL held its Annual General Meeting. It is here that the chairman Martin Aliker introduced Inholo as the new managing director.
The meeting was largely subdued by a presentation of poor performance read out by auditors, Ernst and Young.
“The conditions, along with other matters…indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern,” the auditors remarked at the time.
With the exception of telling the shareholders that operational costs would be cut by abandoning heavy fuel oil for coffee husks when drying the clay products. Board members looked on, waiting for a saviour.
And as it seemed, National Social Security Fund through Geraldine Ssali, the then acting managing director, proposed that it was ready to turn its debt into shares.
NSSF holds a 32 per cent stake in UCL and is also their largest creditor.
Ms Ssali told shareholders they would convert NSSF debt into equity to free-up cash for the company as well as thinking of closing the Kamonkoli factory.

Not demonstrated ability
In November 2014, appearing before the Committee of Statutory and State Enterprises, Ms Ssali said UCL management had not demonstrated the ability to turn around the company.
NSSF’s take on this has been one; Take the offer to convert debt to equity or they let the company go bankrupt and then recover their money.
Thousands of shareholders prefer the debt to equity conversion as it would save them from losing all their money.
NSSF’s move has been opposed and challenged in court, however, the majority shareholders, NSSF, NIC and a number of minority shareholder support the move.
“The conversion will happen. Both NSSF and UCL have hired transaction advisers for the deal. I am optimistic that it will be concluded in this quarter,” Inholo said when asked on the progrees of the proposal.
The 60-year-old company is holding onto the hope that NSSF’s bailout will save it years of losses.
It also comes at a time when UCL closed its distribution center in Juba, South Sudan amid growing competition, which has eaten into its market share.

UCL History

The company was started on July 10, 1950 by two private investors. In 1969, ownership of the company was turned over to Westomat Construction and Engineering Corporation (WCEC). In 1977, WCEC sold 75 per cent of UCL to National Housing and Construction Company (NHCC). Shareholding in UCL has changed hands many times.

NUMBERS

Shs5b
The loss that Uganda Clays posted in the 2014 financial year.

500
The number of employees that Uganda Clays employs as of December 2014.

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