Abu Dhabi National Oil Company for Distribution PJSC (ADNOCDIST) Earnings Call Transcript & Summary

Good day and welcome to the ADNOC Distribution Q3 and 9 Months 2021 Analyst and Investor Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Athmane Benzerroug. Please go ahead.

Yes. Hi. Thank you very much. So good afternoon, ladies and gentlemen, and welcome to the ADNOC Distribution's Third Quarter and First Nine Months of 2021 Earnings Conference Call. So I'm Athmane Benzerroug, the Chief Investor Relation Officer. Joining me today are Bader Lamki, our CEO; and Mohamed Al Hashimi, our CFO. So in today's call, I would cover the key highlights of the first 9 months of the year and the outlook. Our CEO will then discuss in detail our growth strategy update. Then our CFO will take you through the first 9 months operating and financial performance. We will then answer any questions -- [Audio Gap] Okay. So before we begin, I will quickly reiterate our cautionary statements regarding forward-looking statements. So this presentation includes forward-looking statements relating to our business. Such statements involve a number of factors that could cause actual results to differ materially from our expectations. For more information, please refer to the international offering memorandum relating to our IPO and in our other investor communications, all of which are available in on our website. I direct everyone to our website to read the full text of the disclaimer and other important information. So I will now go through the summary of the company's key achievements in the first 9 months of the year and the outlook. So in 9M 2021, ADNOC distribution demonstrated a resilient operating and financial performance. 2021 reported 9M EBITDA net profit increased by 6.2% and 6.3% respectively compared to last year. Total fuel volume and non-fuel transactions continue to improve, and we have witnessed encouraging results, especially since September. This improvement is underpinned by a positive consumer sentiment following the successful vaccination drive across the UAE, further ease in mobility restrictions such as 100% government employees returning back to offices. So this improvement has also been supported by schools reopening for face-to-face learning as well as increase in international visitors coming into the UAE following ease in travel restrictions. We are also pleased to see solid progress achieved on reducing operating costs. In 9M 2021, the company already exceeded its annual cost optimization target of $25 million by achieving $26 million like-for-like OpEx savings. We remain focused on executing our smart growth strategy with solid pipeline in both domestic and international markets. We opened actually 40 new stations in the UAE. In Dubai, we opened 5 new stations with 10 stations in execution and 12 stations approved for development. We opened 16 new convenience stores and refurbished 35 convenience stores to offer an enhanced shopping experience to our customers. In 2021, we plan to refurbish 40 to 60 stores. Regarding the international markets. We added 10 new stations in Saudi Arabia, taking our network to 12 stations and many more are in progress to be integrated into our network shortly. This is a major milestone that solidifies our commitment to expand in international markets. We are on track to open 40 to 45 new stations in Saudi Arabia this year. Lastly, ADNOC distribution is committed to deliver attractive long-term returns to its shareholders underpinned by a solid business model and cash flows, strength in its financial position, and strong growth potential following for setting a progressive policy that heeds high visibility of cash returns. You can see on the right side of this slide our dividend policy for 2021, 2022 and in the long-term. We already paid $300 million -- $350 million, sorry, cash dividend for the first half of this year in October and expect to pay a cash dividend of $350 million for the second half of this year in April 2022, subject to the Board and shareholders' approval. Lastly, from a trading perspective, I would highlight that ADNOC distribution saw a significant increase in share liquidity after key milestone we achieved. First of all, free flow doubled to 20% in September 2020 and to 23% in May 2021 following placements from our major shareholder ADNOC. Secondly, ADNOC distribution shares were included in MSCI EM index in May and in FTSE EM index in September. Inclusion in major indices would further enhance the company's investment appeal and visibility among global investors, attracting more foreign inflows into our shares. Finally, we are committed to long-term sustainability of our business by contributing positively to environment, society and effectively managing governance risks. Recognizing our efforts and approach, ADNOC distribution received a rating A in the MSCI ESG Rating assessment in Q3 2021. I will now hand over the call to our CEO, Bader Lamki, who will walk you through an update on our growth strategy. Over to you, Bader.

Thank you, Athmane. Good morning, good afternoon to everyone, and thank you for joining us today. I will take you today through the progress we have made to achieve our growth plans laid out at the beginning of this year. Before I do so, I would like to reiterate our commitment to the health and safety of our operation and our people, which remains our key priority at all times. In its continued dedication to upholding the highest standards of health and safety, the company has ensured that 100% of its frontline employees working at the service stations have received their vaccination booster dose, an incredible achievement as we continue in our commitment to support the nationwide ongoing recovery and return to normalization. Talking about our strategy, I'll begin with the first key pillar of our growth, namely the fuel business, which includes retail and commercial. The company continues to see steady and progressive recovery. September, total fuel volumes increased by approximately 11% compared to August. It is expected that these volumes will continue to increase going into the fourth quarter as holiday season continues within the UAE hosts -- as well as the UAE hosting major international events, including Expo 2020. In addition, the company has continued to gain market share in Dubai driven by new stations, doubling its September fuel volumes compared to the same period of last year. Strong volume growth in Dubai is a testament to the progress that has been made on the domestic growth strategy. Our domestic fuel network has grown by 10% compared to the first 9 months of 2020, with the addition of 14 new stations in the first 9 months of this year. We maintain a leading market position in the UAE's retail fuel sector and now we are proudly operating 459 fuel stations in UAE as of 30th of September 2021. In the first 9 months of this year, we have opened 5 new stations in Dubai. Our stations network in this particular emirate has doubled to 31 stations at the end of the first 9 months of the year compared to the same period of 2020. Dubai offers high-growth potential for the company to gain market share and is at the heart of our smart growth strategy. Our focus will remain -- remains on high-quality strategic locations in Dubai. There are currently 10 stations in various stages of execution with additional pipeline of 12 more stations already approved for further development. Beyond the growth in the UAE, international expansion remains integral part of our growth plans. You will recall, we announced 3 definitive agreements signed in December 2020 and February 2021 to acquire a total of 35 service stations in the Kingdom of Saudi Arabia. Of these, 3 have added into our network as of 8 of November. In addition, we are pleased to announce that we have added 7 new stations in the Kingdom as of the 8 of November as well, through leasing sites, both greenfields as well as existing assets. This is just the beginning of our growth journey in international market, and we are advancing on our plans to realize international growth opportunities, including Egypt and other markets. Finally, we are also focused to drive growth in our commercial business through proactive sales strategy focusing on increasing customer base, growing our LPG sales and ADNOC Voyager lubricants export sales. We saw higher profitability in LPG business in the first 9 months of this year after announcing a hike in the cylinders price last year. We are now working on further optimization of our LPG distribution model to enhance customers' experience and grow our sales. In the third quarter of 2021, we have added new distributors for ADNOC Lube business, which is now exported to 19 countries around the world. Moving to the second pillar of our growth strategy, namely the non-fuel retail business, we have continued to deliver on our vision to bring modern, digitally-enabled, retail convenience experience to our customers and our communities. We have opened 16 new convenience stores in the United Arab Emirates in the first 9 months of this year, increasing our network by 14% year-on-year to 342 C-stores. After strong momentum in 2020, the pace of convenience stores, the rehabitation -- reinnovation program has continued in the first 9 months, and we have refurbished to date 35 convenience stores. We have made considerable progress to offer a wider product offering to our customers with an improved category management. Larger part of our network now offers fresh food and a Barista coffee service. We have also maintained our focus to provide an increased level of convenience stores and services to our customers through online delivery service and providing special product shelves in our stores. On the back of these initiatives, we have witnessed positive results in our convenience store business with the growth in transaction and improved profitability. Lastly, we are also expanding other non-fuel services, such as vehicle inspection and car wash centers, thereby supporting our growth in the first 9 months of 2021. We continue to look at more options and further expansion in the non-fuel business services in other locations within our operations. Customer experience remains at the heart of our growth plans and a key differentiator to add more value to every visit our customers makes at our stations. A number of offers and promotions campaigns were activated in stores and in stations aiming to offer a range of incentives that meet a wide range of customers' taste and interests. Our ADNOC reward program, which was the UAE's first customer loyalty program from a fuel provider, continue to grow in the first 9 months of this year. We have now over 1.2 million loyalty members, which represents a 20% increase compared to end of 2020 and recorded 23.5 million transactions since the launch of the program. We have launched new partnerships with Etisalat Smiles, which allows members of both platforms to cross exchange points and maximize benefits. We have also now 39 partners offering memberships, even more deals and discounts from some of the UAE's best leisure and entertainment brands. During Q3 of 2021, we have launched a series of promotions throughout the quarter, including the Let's Go Shop and Win Raffle, which shows 16 million entries over the 3 months campaign period. I will now hand over to Mohamed to present the highlights of the financial performance.

Thank you. Thank you, Bader. Good morning, and good afternoon, everyone. At this point, I'm going to take you to the financial performance for the 9 months of 2021. We've delivered a strong set of numbers during the period. At the same time, pushing forward on our growth plans and maintaining a strong balance sheet. Our revenues have increased by 22.6%. This is compared to the same period as of last year. This was driven by higher selling prices, higher -- resulting from higher crude oil prices as well as retail fuel volume growth and recovery in non-fuel revenues. Our gross profit has declined by approximately 10.1% compared to the same period as of last year. This was mainly due to lower retail fuel business gross margin. Now when we get to the business-wise performance in the next couple of slides, we will elaborate on this further. The reported EBITDA has increased by 6.2%, standing at USD 617 million, and this was driven by improved operating performance. The underlying EBITDA, excluding inventory gains, losses and any other one-offs, shows a decrease of approximately 21% for the 9 months of this year compared to the 9 months of last year. Again, this was mainly due to the lower retail fuel margins. But if we exclude the high base effect of exceptional retail fuel margins last year, the company's demonstrated improvement in the operating performance, including growth in retail fuel volumes, growth in non-fuel transactions, the margin improving in non-fuel and both commercial businesses, and increasingly enhanced operating cost efficiencies. So for the 9 months of 2021, our net profit was USD 458 million. This is an increase of 6.3% compared to the same period last year, of course, driven by higher EBITDA. Let's look at the key operating highlights for 9 months of this year. The total fuel volumes have increased by 6.3% year-on-year. The retail fuel volume side, this has gone up by 11.2% year-on-year and by 4.9% in the third quarter alone. This is a combination of new stations as well as the mobility restrictions in UAE going down significantly over the past couple of months. On the commercial side, fuel volumes were down 3% year-on-year, but this was mainly due to lower sales for strategic aviation customers. But on the corporate fuel volumes -- corporate side, the fuel volumes have decreased only marginally by approximately 0.9% year-on-year. Going to the non-fuel part of the business, the transactions have increased 4.3% year-on-year during the 9 months of 2021 and 5% year-on-year in the third quarter alone. Now this was driven by improved consumer sentiment as well as a combination of new stores that we've added onto our network. Also the improved customer offering following the rehabilitation of our C-stores as well as the combination of marketing and promotion campaigns under the ADNOC Rewards loyalty program. All of this, of course, is to attract higher footfall and increase consumer -- customer spending. Now for the convenience store business, the average gross basket size has shown a decline of approximately 5.7% in the 9 months of 2021 compared to the same period last year. But this comes after a strong double-digit growth seen last year as a result of shifting consumer behavior during the pandemic. Now after the normalization of this trend in 2021, we still see the basket size very high compared to levels that we saw in 2019 that was pre-pandemic, of course. Moving on to gross profit performance by segment. The 9-month 2021 gross profit has declined by 10% year-on-year. Now as I had mentioned before, this is mainly due to retail fuel business gross profit, which decreased almost by 21% year-on-year due to lower margins. Now as you will recall, the fuel retail business gross profit margin was exceptionally high throughout the last 9 months of 2020. This was a result of stable retail pump prices despite the significant volatility and decline in oil prices as well as the cost of goods sold from our side, from ADNOC Distribution. Now this has started to normalize this February. That stability at the pump despite oil prices has been removed and the retail pump prices completely follow the movement in oil prices now. This has been now -- this support that has gone away has been partially offset by volume growth and inventory gains of approximately USD 73 million. On the non-fuel retail gross profit side, this increased by 18% year-on-year in the first 9 months of 2021. Again, an increase in the number of non-fuel transactions as well as an overall improvement in the margins. Now on the convenience store side, while the revenues increased by almost 4% year-on-year, the gross profit increased by almost 19% year-on-year. Now this is part of our strategy, which is to optimize the product mix, which results in sales of high-margin products, fresh foods and coffees, also alongside a decrease in sales of low margin products such as telecom card. On the commercial side, the business gross profit has increased by 10%, again driven by higher margin per liter in the corporate part of the business. This was partially offset by lower fuel volumes. While in the 9 months of last year, we were negatively impacted by one-off items of around USD 10 million. Looking at the segment-wise EBITDA performance, 9-month 2021 EBITDA has increased by 6.2%, again driven by higher retail fuel volumes, the non-fuel part of the business recovering nicely, higher inventory gains for the 9 months of the year, increased operational efficiency and lower negative one-off items. Now 9 months in comparison of last year had negative one-offs of USD 142 million. On the retail part of the business, the EBITDA has declined almost 16% year-on-year due to lower gross profit margin in fuel retail. But we're seeing continued improvement in the underlying performance. Higher fuel volumes, we're selling more fuel; non-fuel business growth, as I just discussed; inventory gains; as well as significant reduction in our operating expenditure. On the commercial side, the EBITDA has grown by 41% year-on-year, again driven by higher-margin per liter in the corporate business, lower operating expenditure, but this was partially offset by lower volumes. Now 9 months of 2020 last year also on the commercial EBITDA side included negative one-offs. Let's talk about the operating expenditure update. First 9 months of the year, we're pleased to announce that we have exceeded our annual target of USD 25 million in like for like operating expenditure savings. So we've exceeded USD 25 million and landed on USD 26 million OpEx savings as of 9 months 2021. Now this reduction in the like-for-like OpEx was mainly due to optimization and staffing costs, which of course makes up a major part of our total OpEx. If you look at the total OpEx, it significantly decreased by 14% year-on-year in the 9 months of this year whereas our cash OpEx has decreased by almost 18% year-on-year. Now this is a result of our extreme focus in scrutiny on prudent cost controls and significant number of initiatives to increase our efficiencies across every single line of the business. This will continue going forward. So our transformation efforts will ensure that operating costs are market competitive and that company remains well positioned to deliver our future growth ambitions. Let's look at the cash position. We've generated free cash flow of USD 484 million in the 9 months of this year, again driven by robust cash flow from our operations part of the business. In line with our plans to continue with our expansion strategy, we spent capital expenditure of USD 126 million in the 9 months of the year. We continue to maintain a strong balance sheet. At the end of the 9 months of this year, our net debt-to-EBITDA ratio is 0.71. This, of course, is well below the 2x as per our commitment to the market. Our solid balance sheet position offers sufficient room to continue to grow our business while sustaining our progressive dividend policy. So I'll pause here at this point and hand it back over to Bader.

Thank you, Mohamed. Before we open the floor for Q&A, I would like to reiterate our outlook for ADNOC Distribution. ADNOC Distribution presents a compelling investment story as our third quarter and first 9 months of 2021 results show. The green shoots of recovery are here and accelerated growth is clear to see. We remain committed to pursue our expansion plans in a disciplined manner, deliver an enhanced customer experience, further optimizing our operation to become a leading cost-efficient fuel retailer and generate sustainable value creation for our shareholders. Our domestic and international expansion momentum is likely to accelerate in Q4 of 2021 and beyond. We are also confident that we will sustain an attractive dividend payback, backed by a strong balance sheet and confidence in cash flow generation capability while retaining sufficient cash to support our growth. This concludes our presentation today, and we are happy now to take any questions that you may have.

[Operator Instructions] We will now take our first question from Faisal Azmeh from Goldman Sachs.

Yes. This is Faisal Azmeh from Goldman Sachs. 3 questions, if I may, maybe just starting off with corporate volumes. It seems that they've peaked at the end of last year and the beginning of this year, and then they've been softening since. Would be great if you can kind of shed some color on why that decline has been taking place despite the improvement in the economic activity that we've been witnessing so far this year? And maybe if you can shed some color on what's happening in Dubai and the expansion there. Where are you and in terms of delivering on targets and what should we expect for next year? And how that would bridge into the 2023 EBITDA target that you have? And then finally, maybe on decarbonization, maybe if you can share your views on how you plan to reduce your carbon footprint. If you can provide us some color around what are the low hanging fruits? And if you see any costs associated with decarbonization across your platform?

Just on the corporate volumes part very quickly, you're right, our volumes are down in Q3. Let's say, just bear in mind that we have been very aggressive with our team working on both sides actually towards Q1 and Q2 where we had a very good set of numbers on the commercial side, actually. What we have seen in Q3 is lower sales, but what we expect is that Q4 will be -- we'll see a growth actually versus Q3. On the Dubai side perhaps Bader --

I can respond to Dubai and on the decarbonization topic, if I may. So Dubai, I mean, there's no doubt, it's key in our growth ambition. It's a key market, a key contributor to our business. We have a focused, a dedicated team that's looking after Dubai. We definitely have the right attention there. As highlighted earlier, in the first 9 months of this year, we've definitely doubled our stations there. Since to start with today at 31 stations in the Emirate. I think the point to emphasize upon is that what counts in Dubai is strategic key locations. And that's what we've been focusing on, talking to strategic partners within the Emirate, getting access to prime locations, and that's what we prioritize to develop first. Having said that, we've already shared with you we already have 10 stations in advanced stage of execution, and we have also additional 12 stations that have achieved full permits that are now moving into execution as well. So at least there's 22 stations that are heading towards execution, and that's a substantial amount of stations that we are currently pursuing in the emirates of Dubai. So very bullish, very focused and very determined to increase our market share there, and we've already grown that business quite substantially in the past period. Turning to the decarbonization topic. Of course, we are very aware and very committed. And you've seen our ESG report, and we've already taken significant strides in this direction, looking at the energy transition and looking at the next mobility solutions, which are out there. Of course, EV comes as one of the technologies that are advancing quite fast, if I may. I mean, this is -- the rate of adaptation is and conversion is increasing, and we are working on our strategy. And we feel that I think distribution shouldn't lag behind. On the contrary, our strategy is now in an advanced stage to formulate exactly the model that we may play in this space. But we want to be part of the solution, and we are committed also to support the energy transition and also the decarbonization of the economy, yes. One other point to add. Internally, within ADNOC Distribution, we've recently established a sustainability committee that we look at the pan company-wide sustainability initiatives. This will not stop at only energy, but also water, waste. We are looking at also engaging some solar solutions at our service stations to reduce our carbon footprint and also contribute to the decarbonization of the economy, the nation here. I've made also a commitment to achieve carbon neutrality by 2050. And we are playing our part and the sustainability committee within ADNOC Distribution will formulate a cohesive and comprehensive strategy and targets that we will definitely, once with mature and advance, communicate with you as well and to the market. So very, very much interested, not only as an institution, but me personally as well. Having my background coming from also the [indiscernible] dealing with renewables and decarbonization for many years. I do have that conviction, and we will definitely finalize our internal deliberation and setting of targets and communicate those in due course with the market.

We will now take our next question from Nick Stefanou from RenCap.

It's Nick from RenCap. I just wanted to go back to that Net Zero pledge from the government. I mean, that certainly makes it a little pressing to come up with an energy transition agenda. And one of the things I kind of like -- I mean, become skeptical around this model is that you have very high margins from the liquids. And in the majors, one of the kind of like key sort of like points they make is that having separation like across the electron value chain, which might give them some more like opportunity for them to like make a bit more money, if they go down by the EV routes. To which extent could you guys make something like similar? And then the second question, I guess still on the same topic. BP and Aulton have formed a strategic partnership for clean energy. That's most like upstream and other like Let's Shop, but is this like a similar route you guys might take? I mean, are you considering making some sort of like partnership with BP or some other like partner to do that to move forward with that decarbonization plan? And then finally, my social media picked up about you having a new CEO, Head of the Saudi kind of, like, business. I'm just wondering, how will you run it? Is this going to be like a separate business unit with its own budget and sort of, like I said, targets or are you guys like running in and it's more like from non-operational like nature, will kind of like you looking at it in the country?

Yes. I'll start with the last question. I mean, sorry, we had difficulty to understand all the 3 questions that you posed. But if I understood correctly, on the last question on Saudi, yes, Saudi is a key market, and we have clear ambition there. And that ambition is translated by a number of facts. One, the 35 stations or so that have been approved and received the no objection from the authorities there. And those are underway to be operationalized. Two, we have opened a dedicated office in country in Al-Khobar, not too far from Aramco and our fuel supply, and we have a very strong base now in Al-Khobar. Yes, we've appointed a new country manager as well. So this is serious commitment. Office is opened, a country manager is there, a full team -- fully dedicated team have been mobilized there, covering the entire functions, where there is from business development, from support functions, finance, HR, fully independent, trying to really accelerate our ambition there. And that's the commitment we have with a big market, adjacent market, relevant market, an important market, and that's what we are doing there. Office is open, country managers is there, fully dedicated team is there and execution is well underway. I'm not sure about the other couple of questions. If you can repeat them, please, maybe one-by-one, we'll try to --

Yes, sure. For the energy transition plans you guys have, so what I was saying is that the parent has formed strategic partnerships with BP. That's mostly for the upstream, though. And I was wondering if plan of your -- is a big part of your strategy for this is to form a similar partnership with another party in order to, kind of, like set up -- well, if it's like EV charging points or whatever, it's going to -- it is what you will do.

Okay. So let me just address this. So what our CEO was pointing out just earlier, I'm sure that you are aware that ADNOC, the parent company, and Emirates Water and Electricity Company, EWEC, find a long-term partnership, which will see up to 100% of ADNOC groups [ ripe over ] across its companies supplied by EWEC, nuclear and solar clean energy sources. So ADNOC Distribution, us. So ADNOC Distribution electricity supply is also part of this group-wide milestone initiative, sorry, making ADNOC Distribution, one of the first fuel distribution companies to decarbonize its operations at the scale through a clean pole agreement and strengthening the, I would say, the company as a position in lowering its carbon footprint. So it's part of the capitalization, Nick.

Okay. And this actually takes me to the first question. One of the measures, kind of, like the strategy is to like get the value of electrons across the entire value chain, right. And how, like, reading your [indiscernible], then the distribution of those, so then to the retail clients for the EVs. You presumably would be buying the electrons and then passing it on to the clients for a margin. How is that going to work then? Have you -- is it something you can give color at this point or is it too early to ask?

Nick, is it trying to reason with your question. I find this, if I understood correctly, I mean, our core business is our core business. And within the core business, which includes mobility, EV is the space that we want to mature our strategy and definitely take a noticeable and concrete steps into providing that mobility solution and offering to our customers. So that's what we're sure about and focused about. We've also -- as my colleague, Athmane just mentioned, we are part of a broader global agreement between our Anchor shareholder and EWEC providing cleaner source of energy to satisfy our electricity needs at the station, and we are part of that umbrella agreement, which definitely sees green electrons from nuclear sources and renewable sources, namely solar coming to our stations, which again a serious step forward in the decarbonization agenda that we have. Now to the -- if your question is about the supply chain, and there's something else that you intend to play in that role. At the moment, there's no visibility that I can't share with you. And I'm hesitant to respond to something that I've not fully understood. So -- but at least, I hope my answer is -- gives you that clarity. EV decarbonization through the global agreement is there. Value chain optimization and decarbonization is a step forward, but we are not there yet. Nick -- sorry, Nick, just -- the last thing I want to just add is regarding the fact that we have advanced capabilities to offer actually low-emission natural gas for vehicles, so in JV. So the company today operates 31 service stations with CNG fueling capacity, and we continue to increase our offering across our network. It's just something I wanted to highlight.

Okay. Understood. And just a quick one. In terms of like timing, should we expect a new, kind of, like energy transition strategy to be announced early next year or is it some -- at some point, maybe next year or I just want to understand effectively when we should get an update on this?

Yes. Soon that we have matured our plans will definitely communicate. So I think that's definitely an intent, and we will announce it in due course.

[Operator Instructions] We will now take our next question from Sashank Lanka from Bank of America.

I have 2 questions. Firstly, on your Saudi business. I think at the beginning of the year, you guided that the 35 new stations you acquired should contribute around $5 million in EBITDA on an annualized basis. So just wanted to understand the ramp-up so far this year. I know you have opened 10 stations so far in November, but what's the EBITDA contribution and how has the ramp-up been? That's the first question. And the second question is, is there any update on the agreement with the parent over the minimum fuel retail gross margins that are set to expire in 2022?

Yes. So let me just take the question regarding Saudi. Yes, you're right, we announced that this station, the 35 stations will generate, we said roughly $4 million to $5 million of EBITDA. The average throughputs that you have in Saudi is roughly 8 million to 10 million liters per station per year. And what we intend to do across our portfolio to have the average throughput, and therefore, this kind of EBITDA per station that we have been communicating in the first batch. The second question -- can you just repeat the second question if you don't mind?

Yes. The second question, Athmane, is on your minimum fuel retail gross margin agreement you have with the parent. It is set to expire in 2022, right? So any updates on the renewal of that?

Yes. Well, you all know that we have this backstop agreements with ADNOC Group that runs until end of next year, actually. Yes, end of next year. We are in discussion with ADNOC obviously, and we will update the market on this backstop. I guess what is really important, Sashank, is to be in mind that ADNOC Distribution benefits from very high margins, I would say, secured margins since end of mid-2015, I would say like [ in opening remarks ]. So I would say that the regulatory framework is very strong and attractive for players like us, given the fact that we are providing the level of service that the government is expecting from us, and we don't see any reason to not have this kind of, level of margins going forward. And I'll just repeat what we said already in Q1 and Q2, we still believe that given the fact that since August 2015, when the new regulatory framework has been unveiled, we did not have any inflation adjustment on our margins, and we have told the market that, obviously, we are and will continue to chase for higher margins going forward.

We will now take our next caller. [Operator Instructions]

This is Ildar Khaziev from HSBC Bank. I had one question really. I was wondering if you could give us a sense of how the retail volume progressed during the three months of the quarter versus the same period of 2019. I think you mentioned that September was especially strong. I was wondering how strong it was versus September 2019, and what was Dubai contribution, [ was it ] possible? And maybe if you could comment on October, retail volumes performed certainly also great.

You were saying – just to repeat your question, you were asking how Q4 is looking compared to Q3. Was that it?

I was – so, my question was about the three months of third quarter, so basically how maybe summer months compared to 2019 and the September, which you said was very strong, compared to September 2019, which is the pre-lockdown period basically. So, I was wondering what was the increase, which recorded in September so far? And maybe if you could say the same about October, that would be great too.

Just if I understand your question correctly, you were saying how did Q3 stack up versus Q2? And then how are things looking from October onwards, is that correct?

So, my question is about comparison to a similar period in 2019, rather, which is the last year before lockdown.

Got it. Got it.

$1.6 billion...

Got it. Compared to right now, if you look at 2021 for Q2 and Q3, we have not hit 2019 levels yet. So, if you look at the volumes that are starting to show up, especially the latter part of September, with a wider network, more stations, more additional new stations that we've opened up, particularly in Dubai and Northern Emirates, we're getting to almost 2019 levels for the same period. Yes, that's it. So, with the bigger network, yes. So, October onwards, if the trend keeps up, perhaps we'll reach that inflection point when we're able to meet and exceed the 2019 levels, both for Q3 and for Q4, hopefully. So far, second half of September leading into October and then leading into November, as we said during the call, the trends, the volumes are picking up, and we like the trends that we're seeing.

As there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remark.

Okay. Thank you very much for attending this call, and feel free to reach out the Investor Relations team if you have any questions. And thanks again for participating in the call. Have a nice evening.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.