Uganda Clays managing director, George Inholo is so confident of the roofing tiles maker’s prospects that he is not anxious about NSSF’s recent decision not to turn all of its debt to equity. The company finally turned a profit in the first half of this year after three consecutive years of losses, according to financials released in August.
Uganda Clays owes the largest debt to the pension fund, which is also the biggest single shareholder in the company with a 32.25% stake. Richard Byarugaba, the fund’s managing director, told the press recently that NSSF is hamstrung by the law to convert all of its debt to equity as it would mean holding more than 49%.
UCL borrowed about Shs10.5 billion from NSSF in 2011 at a 15% interest rate. It needed the money to complete construction of a new plant in Kamonkoli, eastern Uganda; the company had already borrowed heavily from commercial banks to finance the project. The situation was not helped by the 2007 post-election violence in Kenya which saw materials held in Mombasa for over a year.
Unfortunately, even the bailout from NSSF was insufficient to complete construction. “The money did what it had to do but could not complete the project. Eventually it became difficult for UCL to pay,” Inholo told Uganda Business News. The debt has since risen to Shs20 billion due to penalties arising from UCL’s defaults on payments.
Converting NSSF’s debt to equity would mean that the fund altogether holds 65% of the company, which goes against regulations to not hold more than 49%. But Inholo says there is nothing much to worry about that development as NSSF was always going to go up to 49%, with the rest involving another investor. “We’re having meetings with NSSF and will get another investor,” he said.
Besides the debt to NSSF, Inholo says the company has no liquidity issues.
Since taking over in August 2014, the former country manager at Unilever Uganda has restructured the company to return it to profitability. The turnaround strategy, he said, begins at production. “We are cutting our costs of production, and we are also producing for the market so that we don’t have products sitting at the factory. For distribution, we have partnerships with hardware and construction companies and now do same day deliveries.”
The company also operates with a much leaner staff, having laid off about 40 employees in 2015. “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 a statement to employees then. Currently, UCL has a little under 600 employees.
The completion of the Kamonkoli factory remains in balance. In addition to finishing construction there, UCL also plans to upgrade the factory in Kajjansi, Wakiso, so it has fully automated systems. Altogether, construction and the upgrades will cost about Shs40 billion according to estimates made last year, although Inholo said the board advised that a new evaluation be made due to market changes. The evaluation will be done in the first quarter of next year, he said, and the upgrades will start soon after.
Contrary to what many analysts have said about the plant, Inholo does not think Kamonkoli was a mistake. “UCL was started in 1950 to serve a population of about 5 million. Right now, Uganda’s population is about 38 million. Now add South Sudan, Congo, western Kenya, Rwanda, Burundi,” he said. “We needed to build another factory.”