Machinery failures see Uganda Clays slide back into loss zone

Uganda Clays will, for the period ended December 2023, post a loss, three years after returning to profitability. Photo / File 

What you need to know:

  • This is the second time Uganda Clays has reported a breakdown in its machinery

Uganda Clays has said it will post a loss for the period ended December 2023 due to a lower than planned supply of products. 

This is the second time in a year the company has reported a shortage in products supply resulting from a breakdown in machinery. 

In the half year to June 2023, Uganda Clays reported that it had supplied lower than planned products due to a shutdown of its factories for extension works in 2022, which returned lower sales revenue. 

In a notice to shareholders and other equity investors on Tuesday, Uganda Clays said the loss position was mainly due to shortage of products occasioned by machinery breakdown, worsened by unfavorable macroeconomic conditions, which included high inflation and depreciation of the shilling against the Euro. 

“[This] impacted the company’s operating and production costs, thus impacting the bottom line,” the notice signed by Uganda Clays managing director Ruben B Tumwebaze, noted, cautioning shareholders and the general public to exercise caution while trading in the company’s securities. 

The loss position breaks the cycle of positive and improved revenue performance, which Uganda Clays has been posting since 2019.  

The company has in the three years to December 2022 reported a declining profit level due to production inefficiencies, market dynamics and increased competition from alternative construction material manufacturers. 

However, in the half year to June 2023, the company reported a loss position that has been carried forward into the full year performance. 

The company has been struggling with product shortages, amid increasing pressures resulting from a large loan portfolio, which saw at least Shs6.9b expended towards debt repayments. 

In the half year to June 2023, the company reported a decline in revenue from Shs18b to Shs13.3b, but the value of assets rose by 1 percent to Shs77.6b due to continued capital investment in the capacity enhancement project of its manufacturing plants.

Mr Martin Kasekende, the Uganda Clays chairman, said in August that the company was rejuvenating its manufacturing infrastructure, which included breaking down its existing machinery to increase production capacity.

However, the company continues to struggle to obtain a value for money return in the Kamonkoli plant in the eastern district of Mbale, whose low earnings continue to be a drag-on on its aggregate assets value. 

In the period ended December 2022, Uganda Clays had recorded a 25 percent drop in profits to Shs2.4b, which was a more than 50 percent decline from the Shs4.8b registered in 2020.

However, analysts indicate that Uganda Clays continues to be an important stock, whose projections are positive due to an increase in construction.    

Important stock

Analysts indicate that Uganda Clays continues to be an important stock, whose projections are positive due to an increase in construction.    

At the closes of last year, Mr Paul Bwiso, the Uganda Securities Exchange chief executive officer, said investors continue to invest in the Uganda Clays stock because of its long term sustainability plans.

Similarly, Mr David Bateme, the Crested Capital head of research, said many of the investors in Uganda Clays were in for “in for the long term returns”, noting that its current financial position would have minimal or no impact on the company’s stock.