Oil and gas retail giant, Ardova Plc reported a loss of N3.8 billion for the year ended December 2021. This was contained in its audited financial statements published by the company.
According to details in its financial statement, Ardova’s loss of N3.8 billion is a reversal from the N1.8 billion profit reported in the prior year. This is also the first full-year loss reported by the company since it was transformed from Forte Oil Plc.
The company acquired Enyo Retail and Supply Limited (ERSL) in 2021 making it one of the oil and gas marketing companies with the largest retail network in Nigeria.
A closer look at the results indicates the company’s losses stem from a high cost of sales and operating costs eating into margins. For example, in 2021, the company spent 95% of its revenue on the cost of sales compared to 93% in 2020. Ardova’s business is a low-margin business and has often operated around a gross margin of 7-8%.
So to eke out some profit, the size of the revenue needs to be larger so that there are enough gross profits to absorb the operating costs. Unfortunately, this was not the case this year. Ardova needs an 8% gross margin to declare losses and not the 5% it achieved in the year under review.
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Why the losses
Ardova blamed the losses on its subsidiary, Axles & Cartage, a transport and haulage services business which commenced operations in August 2020. it also cited transformational challenges with its newly acquired Enyo Business.
- “As a group, we were negatively impacted by our subsidiaries, Axles & Cartage Limited, which faced operational environment issues and the newly acquired Enyo, which is presently undergoing a transformation process to drive operational efficiency and profitability. When subsidiaries are taken consideration the group loss amounts to N3.8bn.”
- Ardova also recently look closed out a N25.3 billion bond which is made up of two tranches. Tranche A was N11.44b for a 7-year tenor at a coupon of 13.3% while Tranche was N13.86 billion for a 10-year tenor at a coupon rate of 13.65%. The bond was taken to majorly finance the company’s retails outlet expansion strategy, upgrade of existing infrastructures, and other working capital requirements.
The company CEO also Mr. Olumide Adeosun also blamed the losses on the “strategic inorganic growth programme of the company” which essentially is growth by acquistion.
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- “The loss experienced in 2021 are an expected reflection of the strategic inorganic growth programme of the company, and do not affect the viability of the company, especially as some of the immediate benefits of this programme were illustrated by the better year on year performance recorded in our Q1 2022 results.”
- He also stated once fully integrated, the acquisitions alongside the AP Renewables subsidiary will provide and safeguard Ardova’s capacity to thrive as global energy consumption tilts to cleaner sources.
The company’s 2022 first quarter results also reflects challenges the group will have as higher operating cost from new acquisitions weigh down on their main business. For example, while the main business reported an earnings per share of N1.23 versus N0.65 (2021 Q1), its group earnings per share was just 15 kobo versus 38 kobo recorded the year earlier,
Ardova also said they made further investments in cleaner energy infrastructure, and has commenced onsite work on its 20,000 metric tonne Liquefied Petroleum Gas (LPG) storage facility in Ijora.
- Ardova also won a license to operate an Oil Marginal Field following a successful bid in the 2020 round, thereby increasing the company’s potential for foreign currency revenue generation.