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Ardova revenue grows 10.7%, but financial problem outweighs earnings

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Oil exploration, acquisition forces Ardova to miss financial release deadline

Ardova Plc reported revenue grew 10.7% for year ended December 31, 2021, reflecting all is well with sales, but a closer look shows a rising financial problem in the group’s operation.

In the financial statements released on Thursday, Ardova disclosed that it generated N201.44 billion turnover last year, surpassing the N181.93 billion the company grossed in 2020.

However, considering the company spent 95% of its revenue to make its products and services, the growth in turnover seems less significant, and reduces the value shareholders get for their investment in Ardova.

Analysis of the company’s financials by Ripples Nigeria shows the management is failing in curbing costs, as the firm had used 93% of its revenue in 2020 to finance cost of sales, which was N168.80 billion, rising to N191.59 billion in FY 2021.

Read also: Ardova, 160 other local oil firms secure licenses to develop oilfields; Shell, Chevron snubbed

Ripples Nigeria gathered product expenses overshoot revenue, as cost of sales was up by 13.49%, higher than earnings growth of 10.7%. This means the company is simply generating revenue just to produce, with little or nothing left for shareholders.

It’s no surprise Ardova didn’t declare dividend for 2021, considering it suffered N3.8 billion loss after tax, failing to match or surpass the N1.8 billion profit after tax it reported for the corresponding period of 2020, which is the year Coronavirus sent the earnings of the oil company down, after COVID-induced lockdown depleted demands for oil, knocking the global price below $20. It currently sells for $104.4 per barrel.

At the end of the period under review, Ardova saw its gross profit fall behind the $12.13 billion reported for FY 2020, with the company’s annual report putting its gross profit for last year at N9.84 billion.

The oil and gas firm blamed the loss on its inorganic growth drive, following the acquisition of Enyo Retail and Supply Limited, as well as its other transport and haulage services subsidiary, Axles & Cartage.

These subsidiaries were a burden on Ardova’s group earnings, as Axles & Cartage Limited, which began operation in August 2020, faced operational environment issues, while Enyo is undergoing a transformation process.

“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 into consideration the group loss amounts to N3.8bn.” the company said while defending the downturn in its earnings.

While Ardova Chief Executive Officer, Olumide Adeosun said, “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.”

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