November 18, 2014 / 9:04 AM / 4 years ago

Uganda Clays says biofuels will help cut costs by up to 40 pct in 2015

KAMPALA, Nov 18 (Reuters) - African building materials maker Uganda Clays Ltd (UCL) expects its costs to fall by up to 40 percent in 2015, helped by a switch to cheaper, local biofuels from imported oil to fire more of its furnaces, its managing director said on Tuesday.

George Inholo, who took over as managing director in August, said lower costs would help the company to resume dividend payments in 2016 for the first time since 2008.

Costs surged 22.8 percent last year, causing the company, which manufactures roofing tiles and other products, to post a loss of 4.5 billion shillings ($1.65 million), reversing a 2012 profit of 3.9 billion shillings.

Inholo said a threefold surge in the price of heavy fuel oil since 2010 and frequent power outages had undermined performance.

The company has two plants. One already uses a mixture of electricity and biofuels, while the other had been using heavy fuel oil to heat its furnaces.

“We have fully converted to coffee husks and other biofuels,” Inholo told Reuters, referring to the plant that had run on oil.

In addition, he said electricity bills would be reduced by shifting to production at off-peak hours. “This will reduce the cost of production significantly by about 30 to 40 percent next year,” he said.

UCL has assets worth about 71.4 billion shillings.

Inholo said UCL’s performance had also been hindered by interest payments on a 11.1 billion shilling loan from its largest shareholder, Uganda’s state-run National Social Security Fund (NSSF).

NSSF was seeking to convert that loan to equity, he said, although another shareholder was challenging the move in court.

Construction has been one of the fastest-growing sectors in Uganda as rising incomes have driven up demand for homes, malls and office space. State statistics show the industry expanded 8.2 percent in the 2012/13 financial year, up from 3.2 percent growth in the previous year.

Inholo said he expected revenues to grow by 5 percent in 2014, from the 23.1 billion shillings earned last year.

The company plans to open new sales outlets in several major towns in western Uganda, which is expected to benefit from construction linked to the oil industry. Uganda has found commercial quantities of crude, with production slated for 2018. (1 US dollar = 2,730.0000 Ugandan shilling) (Editing by Edmund Blair and Susan Fenton)

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