The Pressure is on: Reuben Tumwebaze’s Uganda Clays Turnaround Faces Harsh  Realities

When Reuben Tumwebaze assumed the reins of Uganda Clays (UCL) in March 2021, he walked into a company weighed down by its past.

Once a market leader with deep roots in the construction sector, UCL was struggling.

It faced a drop in market presence, hobbled by old equipment, bloated costs, poor governance, and slow response in a fast-modernising sector.

Tumwebaze, with his engineering background, financial expertise, and infrastructure reform, brought not only hope but a plan to reinvent UCL.

For a moment, the promise seemed to work.

By the end of 2021, UCL had posted its highest profit in over a decade, buoyed by cost-cutting, increased kiln output, and renewed market confidence.

There was talk of dividends, plant upgrades, and aggressive market capture.

Tumwebaze’s turnaround blueprint centered on restructuring leadership, modernising production lines, and optimising efficiencies.

It was lauded as textbook crisis recovery. Investors began to see light at the end of the long, clay-lined tunnel.

Then 2022 came

UCL posted virtually flat revenues — UGX36.6 billion compared to UGX36.7 billion in 2021.

This signaled that demand for its products had remained resilient. Yet beneath the surface, the foundations were shaking.

Gross profit shrank by over UGX2.4 billion, and gross margins fell from 47% to 40%.

This wasn’t a pricing problem; it was operational.

The usual problems – line breakdowns – reemerged, which showed a lack of proper maintenance, delayed investment, and overused equipment.

By then, UCL was still generating demand, but it couldn’t meet orders efficiently or on time.

That inefficiency not only weakened economies of scale but also damaged customer trust and future orders.

This operational lag was avoidable.

Had Tumwebaze prioritized an aggressive plant rehabilitation or full automation upgrade back in 2021 — when cash flows were healthier and post-Covid demand was rebounding — UCL could have entered 2022 from a position of strength.

Instead, 2022 became a reactive year: scrambling to fix what had already broken. By then, the damage to earnings was already underway.

Capital was committed, but value was not yet realized.

Operating profit plunged by 61% from UGX7.47 billion to UGX2.9 billion.

Administrative and distribution costs rose, impairments returned, and net profit halved.

Most concerning of all, return on capital employed fell from 11% to just 4% — a flashing red light in a capital-intensive industry.

To his credit, Tumwebaze pushed through a major strategic investment.

The UGX11.2 billion tile plant upgrade was the right call — modern production capacity was long overdue.

But the returns had not kicked in by year-end.

The delay between spending on new equipment and seeing improvements became the biggest factor hurting profits.

This is the classic dilemma for industrial leaders: when to deploy cash before a crisis hits.

Tumwebaze’s strength lay in vision and long-term asset renewal.

His weakness, however, was timing.

He reacted to breakdowns rather than forecasting them.

Had he used predictive analytics or conducted asset lifecycle audits earlier, much of the UGX2.4 billion rise in cost of sales might have been avoided.

Then came the cash crunch

Cash from operations fell by UGX4.1 billion.

At the same time, UCL invested over UGX8.3 billion in equipment and leases.

This double drain shrank cash reserves by 77% — from UGX5.9 billion to just UGX1.37 billion.

Yet despite the tightening liquidity, the company paid out UGX1.35 billion in dividends.

That move — while perhaps politically or board-mandated — worsened the financial strain.

Trying to please everyone can backfire.

The board demonstrated discipline in approving the capital investment, but showed weakness in capital allocation governance.

In a year of such pressure, holding back on dividends could have preserved working capital.

Alternatively, issuing a scrip dividend or partial payout structure would have retained cash while still signaling shareholder confidence.

That route was not taken.

Strategically right. Tactically slow

While the tile plant investment was a necessary, overdue move aimed at boosting capacity and cutting costs, Tumwebaze’s long-range vision contrasted with tactical delays in cost control and liquidity management.

In hindsight, UCL could have planned better.

A risk-adjusted performance simulation in early 2022 — factoring in equipment downtime, inflationary pressures, and working capital needs — might have changed the financial sequencing.

The company could have delayed the dividend, secured longer-term financing earlier, or restructured supplier terms to preserve cash.

In short, 2022 was not a lost year — it was a transition year.

UCL sacrificed short-term profitability and liquidity in the hope of long-term efficiency and competitiveness.

Tumwebaze maintained the company’s strategic direction and aimed to protect the market position.

But underestimated timing risks, overcommitted capital during operational instability, and failed to align payout policy with real-time cash realities.

Then 2023 came in

In 2023, UCL suffered a significant reversal in fortunes, posting a loss of UGX2.85 billion compared to a profit of UGX2.44 billion in 2022.

This sharp decline reflected not only financial strain but deeper operational and strategic challenges.

Revenue fell from UGX36.6 billion to UGX30.4 billion, a 17 percent year-on-year drop.

The decline came despite strong post-Covid construction activity across Uganda.

This suggested two possibilities: either UCL lost market share to competitors, or its production capacity failed to meet growing demand.

Tumwebaze should have treated this as a red flag in quarter two or quarter three and responded decisively.

His options of responses included tactical sales boosts, promotional campaigns, or production scaling.

But there is little evidence of such action.

Despite revenue contraction, the cost of sales remained almost flat at UGX21.7 billion.

This indicated a worrying lack of cost elasticity in operations: the business produced and sold less, but production costs remained stubbornly high.

Gross profit halved — from UGX14.75 billion to UGX8.68 billion — compressing margins and exposing UCL’s vulnerability to volume shocks.

Meanwhile, administrative expenses stood at UGX11.4 billion — only a tiny drop from UGX12.7 billion in 2022.

This showed insufficient cost-cutting discipline during a revenue downturn.

UCL failed to match operational scale to financial reality.

Tumwebaze could have pursued leaner administrative structures or technology-driven efficiencies earlier in the year. But he did not.

Finance costs spiked from just UGX5.6 million in 2022 to a massive UGX1.83 billion in 2023.

The bulk of this is attributable to the May 2023 restructuring of the NSSF loan, which added UGX4.79 billion to “other components of equity.”

While this restructuring helped reclassify debt obligations and might offer repayment flexibility, it also burdened the income statement.

Interest expenses surged, which saw financing costs turn a small operating loss of UGX2.5 billion into a much bigger loss of UGX4.3 billion.

This showed a major strategic mistake: management underestimated the cash flow implications of refinancing a critical loan mid-year.

UCL’s management — though likely trying to secure long-term stability — failed to buffer the immediate profit and loss impact.

Despite the earnings loss, the balance sheet remained stable.

Total assets stood at UGX76.8 billion, almost identical to 2022, which was largely sustained by prudent asset management.

Inventory reduced by UGX485 million, indicating better stock control, receivables rose by UGX3 billion, raising potential liquidity concerns, cash and bank balances fell from UGX1.37 billion to UGX753 million, confirming strain on working capital.

Notably, equity grew slightly to UGX43.2 billion, thanks to the technical impact of reclassifying the NSSF loan.

This, however, was not because of operating strength, but was a cosmetic equity growth that masked real fragility in earnings.

Operating cash flows declined drastically — from UGX5.17 billion in 2022 to UGX1.42 billion in 2023.

Investing cash flows remained deeply negative (UGX-2.5 billion), mainly from UGX7.79 billion spent on property, plant, and equipment.

This was a surprisingly large outlay in a loss-making year.

This suggests that the company was either executing on previously committed capital expenditure or misaligned in its capital allocation timing.

Management should have deferred non-critical investments, pending financial recovery to match capital expenditure decisions to earnings capacity.

In a prudent move, no dividends were proposed for 2023, compared to UGX450 million in 2022.

With retained earnings falling from UGX29.8 billion to UGX27.8 billion, no dividend pay was a necessary safeguard.

In short, UCLs’ 2023 was a sobering reminder of how fragile gains can be without agile, data-driven leadership.

The company entered the year with strong momentum — a UGX2.4 billion profit in 2022, lean inventories, and loyal customers.

But the failure to react quickly to revenue contraction, rising finance costs, and debt-related restructuring led to a UGX2.85 billion loss.

Tumwebaze maintained operations but faced challenges in responding swiftly to market and financial pressures.

Then 2024 came in with more clay, same pain

UCL’ 2024 financial results tell a story that at first appears promising.

But a closer inspection reveals a company still struggling under the weight of structural challenges and delayed execution.

A 4% turnover increase to UGX31.6 billion reflected production finally picking up as kilns fired more consistently.

However, this has not translated into improved profitability.

Instead, the company’s gross profit declined by UGX402 million, with gross margins slipping from 29% to 26%.

This is a clear indication that the cost to produce each unit of clay is rising faster than the company’s ability to increase selling prices.

It also suggests that inflationary pressures, spare parts, labour costs, and the inefficiencies due to continued use of legacy equipment are quietly eroding margins.

This highlights a fundamental problem inherent in UCL’s operations.

Fixed costs, which are considerable in a capital-intensive manufacturing environment, remain stubbornly high.

They have not been effectively diluted by the increase in production volumes.

Typically, as output rises, fixed costs such as depreciation, salaries, maintenance, insurance, and interest expenses spread across more units.

They are effectively reducing the cost per unit and improving profitability.

Yet, in 2024, despite producing more bricks, the company’s loss widened dramatically to UGX5.97 billion from UGX4.3 billion in 2023.

This suggests that these fixed costs are overwhelming the operational improvements.

In otherwards the company’s cost base is simply too large relative to the current level of production.

The very essence of manufacturing efficiency—growing scale to drive down unit costs—has not materialized.

This reflects a deeper operational rigidity and financial strain.

The deterioration in UCL’s profitability metrics further illustrates this malaise.

The shrinking gross profit margin from 29 to 26% is only the beginning.

The net loss margin worsened substantially, moving from –9% to –16%, indicating that the company’s total expenses are ballooning faster than revenues.

More concerning still is the return on capital employed, which has almost doubled in the wrong direction.

It has plunged from –7% to –13% – a sharp decline that signals a troubling reality.

The decline reveals that UCL is now destroying nearly twice as much shareholder value per shilling invested as the previous year.

This points to inefficiencies not just in operations but also in capital management.

Significant investments, including the ambitious new Italian plant, are yet to generate any meaningful revenue uplift.

Instead, they are weighing down earnings through increased depreciation and financing costs.

The ongoing capital expenditure spree encapsulates UCL’s current predicament.

Heavily invested

UCL has invested heavily in critical spares and in a capacity expansion project designed to revolutionize its production capabilities.

The new Italian production line equipment is expected to increase throughput, reduce unit costs, and improve product quality.

It is also expected to open up higher-margin product lines such as glazed roof tiles and interlocking blocks.

However, the benefits of these investments remain unrealized as the plant is yet to be installed and commissioned.

Until then, these expenditures sit idle as work in progress on the balance sheet, while depreciation and finance charges accrue.

Delays between spending money and seeing results are common in industrial turnarounds.

But here they have made UCL’s financial troubles worse.

This distress is visible in the erosion of UCL’s balance sheet strength.

Net assets declined by 11% over the year, shrinking from UGX43.2 billion to UGX38.3 billion, a significant depletion in just 12 months.

Should this pattern persist into 2025, UCL faces the real risk of its net assets diminishing further.

The decline will potentially reduce its ability to support debt servicing, fund working capital needs, or distribute dividends.

This shrinking capital cushion not only raises alarms for investors but also constrains management’s flexibility in responding to operational challenges and market uncertainties.

Looking ahead, the strategic implications for UCL are profound.

The company is in a race against time to commission the new production line.

Each month of delay amplifies cash burn, deepens losses, and eats into shareholder value.

The expectation from shareholders now is for the company’s management to treat the installation and commissioning of this plant with urgency.

It is a survival imperative, aiming for a realistic milestone such as reaching 80% operational capacity by the end of 2025.

Simultaneously, the company faces a delicate balancing act in pricing.

The construction sector, UCL’s core market, is highly price sensitive, and raising prices to cover escalating costs risks suppressing demand.

To navigate this, UCL may need to diversify its product offerings, emphasizing value-added and premium products that command higher prices.

But volume sales must be protected through competitive pricing on standard products.

This segmentation approach could help sustain sales growth without sacrificing margins.

Furthermore, the widening gap between gross profit and net loss points to possible inefficiencies in overhead management and financing.

Administrative and selling expenses, along with finance charges, appear to be climbing unchecked, dragging overall profitability lower.

Only by tightening overheads can UCL hope to arrest margin erosion and improve cash flow in the near term.

Investor confidence, already shaken by two consecutive years of losses, no dividends, and declining share prices, also needs urgent restoration.

There needs to be transparent and frequent communication about progress.

Such transparency is expected to help rebuild trust and possibly stabilize the company’s share performance in a challenging market environment.

Ultimately, the 2024 financials affirm that the modernization thesis championed by Tumwebaze -“fix the machines, then the margins”—remains strategically sound but is hampered by slow execution.

The kilns may be firing hotter and producing more bricks, but the company’s cash flows are still frozen.

This reflects a mismatch between capital investment and revenue generation.

Unless the new capacity comes online swiftly and starts reversing the cost-to-revenue imbalance, UCL’s delays in execution could negatively impact financial recovery and shareholder value.

Compounding these internal challenges are the external risks posed by the broader economic environment.

The construction sector continues to face subdued demand, inflationary pressures, and currency volatility.

All these restrict revenue growth and increase input costs.

Moreover, financial risks such as liquidity constraints, foreign exchange exposure, and credit risks further complicate recovery efforts.

In such a context, a weakened balance sheet and underutilized capital assets become critical vulnerabilities.

A bright future?

Despite a bruising 2024 defined by deepening losses and cost pressures, Uganda Clays now looks to the horizon with a bold, strategic optimism.

At the July 25 Annual General Meeting, board chairman Martin Kasekende addressed shareholders with candour and cautious confidence.

He acknowledged that UCL’s loss was largely due to “faster than anticipated escalation in operational and financing costs”.

But even more striking was the admission that interest expenses surged from UGX1.8 billion in 2023 to UGX3.2 billion.

This was “primarily due to the full 12-month accrual of notional interest on the NSSF loan in 2024.

The remark, while a clear-eyed diagnosis of a misalignment in financial structuring, also implied a lesson in timing and anticipation.

Still, the AGM was not merely retrospective.

It was a turning point: the launchpad for a “ten-year strategy anchored on turnaround, repair, and aggressive growth.”

At the heart of that strategy is a dual commitment to fix internal inefficiencies that have plagued the company.

“Repair,” Kasekende said, “will see optimisation of existing processes, investment in automation and skills, and restoration of operational efficiency.”

And these are not hollow ambitions.

Tumwebaze said that the company has already installed a “state-of-the-art Italian manufacturing line at the Kajjansi plant.”

Once fully operational, this single line is expected to radically enhance output and flexibility.

“We have done aggressive expansion in the clay business,” Tumwebaze said.

“We activated a new tile line that will increase our production by 85,000 tiles per day.”

Currently, Kajjansi and Kamonkoli plants produce 25,000 and 10,000 tiles per day, respectively.

With the new line, output will shoot up to 120,000 tiles daily—a 240% increase.

This positions UCL to serve the surging market demand with unmatched scale and efficiency.

Beyond tiles, UCL is taking aim at its most price-sensitive product: bricks.

“The UGX1,500 is very high,” Tumwebaze says.

“Our competitors on the roadside sell a brick at UGX500. Our new line will be able to produce a brick at around UGX700.”

This price adjustment, made possible by a high-capacity, efficient production line, is a direct challenge to informal competitors.

If delivered as promised, it would drastically lower unit costs and position UCL as both a volume leader and a cost innovator.

“Those two projects,” he says – of the new tile and brick lines – “will deliver sales revenue, way above UGX100 billion and drive profitability.”

This projection reflects management’s focus on scaling operations to drive future profitability.

Laid ground

Indeed, the last four years have quietly laid the groundwork for this transformation.

UCL has overhauled production lines at both Kajjansi and Kamonkoli.

It has expanded clay reserves from 2.5 acres to over 140 acres, securing raw material supply for the next 30 years.

Furthermore, it has acquired new extruders and kilns capable of producing specialty bricks and affordable walling products.

Digitizing inventory systems has helped improve logistics and speed up order processing.

These are not flashy achievements, but form the core scaffolding of the turnaround strategy.

They signal that the company has shifted from reactive survival to deliberate engineering of long-term capacity.

But the vision doesn’t stop at Uganda’s borders.

UCL is gearing up to go regional, tapping into unmet demand in Rwanda, South Sudan, eastern DRC, and western Kenya.

These markets with “similar construction profiles and limited local production of quality clay products” provide immense potential.

This is a smart strategic hedge: diversifying revenue streams while leveraging East Africa’s ongoing urbanization.

UCL’s product roadmap reflects this expansive vision.

“We want Uganda Clays to be at the centre of building a modern East Africa,” Tumwebaze says.

“From affordable housing materials to premium architectural products, we’re designing for every income bracket.”

Plans are already underway to diversify into ceramic tiles, granite, and eco-friendly building materials.

Each of these offers potential to tap into higher-margin segments and position UCL as a total solutions provider in the region.

Ultimately, what emerges from this moment is not the portrait of a company in decline, but one in transition.

2024 exposed the real costs of deferred investment, the penalties of misaligned debt, and the fragility of UCL’s cost structure.

But it also marks the beginning of a more aggressive, structured, and technology-driven future.

The leadership’s clarity in naming its problems—and its commitment to solving them – suggests that the company may finally turn around.

The last word

The journey of UCL under Tumwebaze can be seen much like navigating a ship through unpredictable seas.

UCL has charted a course toward modernisation and expansion, making critical investments amid choppy financial waters and operational headwinds.

While some waves—like delayed execution and rising costs—have battered the vessel, the hull remains intact.

Observers are left to consider whether this steady course, combined with strategic vision, will eventually carry UCL safely into profitability.

On the other hand, analysts are looking keenly to see if the storm of structural challenges and timing missteps will continue to impede progress.

The dots are laid out; the verdict rests with the watchful eye of the market and stakeholders.