Abu Dhabi National Oil Company for Distribution PJSC (ADNOCDIST) Q3 FY2025 Earnings Call Transcript & Summary

Good day, and welcome to the ADNOC Distribution Earnings Call for Q3 2025. Today's conference call is being recorded. At this time, I'd like to turn the conference over to Athmane Benzerroug. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome to ADNOC Distribution 9 Months Results Conference Call. My name is Athmane Benzerroug, Chief Strategy, Transformation and Sustainability Officer. It's a pleasure to have you with us today. I'm joined on the call by Bader Al Lamki, our Chief Executive Officer; and Ali Siddiqi, acting Chief Financial Officer. In today's call, our CEO will begin by highlighting our key achievements and sharing the company's outlook. Then I will walk you through the progress we have made on executing our growth strategy. Following that, our acting CFO will present the operational and financial results. After the presentation, we will open the floor for your questions. 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 for more information, please refer to the international offering memorandum relating to our IPO and to our other investor communications, all of which are available on our website. I will now hand over to Bader, who will highlight our key achievements and discuss the company's outlook.

Thank you, Athmane. Good morning, good afternoon, everyone. Let me begin with HSE highlights. Safety at ADNOC Distribution is not just a priority. It is a core value that shapes every decision we make. Over the first 9 months of 2025, we've achieved an outstanding safety record. This success reflects a deeply embedded safety culture, ownership at every level, continuous investment in our facilities and more importantly, rigorous training programs. Our commitment to health, safety and environment safeguards our people, partners and communities while driving sustainable growth. Sustainability is embedded in everything we do. We are actively decarbonizing our operations and aligning our financing strategy with our sustainability goals. Our target is clear, a 25% reduction in carbon intensity by 2030. To get there, we are executing a focused set of initiatives ranging from energy intensity optimization and installing energy-efficient equipment to deploying solar panels and using biofuel in our supply fleet. We are seeing results. Our ESG performance continues to improve with rating above the industry average from leading agencies. This is not just about compliance, it's about building a more resilient, future-ready business that creates long-term value for all our shareholders. The major strength of ADNOC Distribution's equity story is that we operate in a resilient and a robust regulated framework with industry-leading margins and limited exposure to oil price volatility. A 5-year supply agreement with our supportive majority shareholder, ADNOC, protects us from inventory losses and allows us to benefit from inventory gains, an important advantage in today's dynamic oil market. Last month, we participated in ADNOC's Investor Majlis and delivered 5 key messages. Number one, we are growing faster than communicated and are confident in the future growth. Therefore, we have announced a set of new operating targets. We are upgrading our network guidance by 15% and now expect to achieve 1,150 service stations by 2028. We also announced plans to double the number of nonfuel retail transactions by 2030 versus the 2023 baseline. This means that we expect a more material contribution from this fast-growing segment in the future. We have also proposed changes to dividends. Subject to shareholders' approval in the next AGM in March 2026, our dividend policy will apply for the next 5 years till 2030 versus 2028 before. We will continue to pay USD 700 million or a minimum of 75% of net profit, whichever is higher. This change provides additional visibility on the shareholders' return with a potential upside from the future earnings growth. In addition, starting 2026, we will shift to more frequent quarterly payments to our shareholders. As demonstrated in the first 9 months of 2025, ADNOC Distribution is well positioned to achieve sustained growth and create sustainable value for its shareholders. Now let's talk about our key achievements. We had again a stellar quarter. In 9 months and the third quarter, we delivered double-digit growth in fuel gross profit. This was supported by the highest on record total fuel volumes across the 3 markets in the UAE, Kingdom of Saudi Arabia and Egypt. Meanwhile, our nonfuel retail segment continued to grow faster than fuel with a double-digit rate of nearly 15%. We saw a strong contribution from all nonfuel retail verticals from convenience stores to car service and property management. As a result, we generated record 9-month and quarterly EBITDA, demonstrating that we are executing our smart strategy and delivering growth above market expectation. Net profit increased again at a double-digit rate, driven by strong volume growth and higher contribution from nonfuel retail and international activities. We have also delivered an industry-leading return of capital employed of 34%, which is 2x greater than the global fuel distribution sector average, which clearly demonstrates our focus on efficient capital allocation. ADNOC Rewards is a strategic growth engine designed to transform our service stations into vibrant, high-traffic destinations and accelerate the expansion of our nonfuel retail business. With 130 partners, ADNOC Rewards program helps us to understand our customers in a way that fully matters. It connects over 2.5 million members or more than half of the UAE cars. In the past 12 months alone, the membership increased by 17%, adding nearly 370,000 new loyal members. When customers feel recognized and rewarded for their loyalty, they are significantly more inclined to increase their spending, both on fuel and within our convenience store. This is supported by data. Our reward members constantly exhibit higher fuel volumes and larger basket size as a result of targeted upsell campaigns and hyper-personalized offers tailored to individual preferences and purchasing patterns. Personalization is the cornerstone of modern loyalty program. By harnessing data and analytics, ADNOC Reward delivers relevant timely incentives that resonate well with each customer. With scale, precision and customer centricity at its core, ADNOC Reward is unlocking incremental growth across our network. We are growing faster and above expectation. First, on our network expansion, we are upgrading our full year guidance for the second time this year to 90 to 100 new stations, including 80 to 90 in the Kingdom of Saudi Arabia. This follows addition of 85 stations in the 9 months that exceeded our full year guidance of 60 to 70 new stations. Secondly, on our fast and superfast EV charging infrastructure, we are also upgrading our full year guidance to 180 new charging points in 2025. We have exceeded by 50% our previous guidance to install 100 charging points, after adding nearly 150 in the first 9 months of this year. Accelerated growth is supported by value-accretive CapEx program. We still aim to invest USD 250 million to USD 300 million per year. In addition, we are reallocating capital towards convenience and mobility and transforming our stations to destinations of choice. This strategic shift is designed to diversify our revenue streams, future-proof the business, and we are, therefore, expecting NFR segment to continue to outpace growth in fuel. For example, we are adding new quick service restaurants, upgrading our car wash fleet and lube services and continue to invest in technology and innovation, including EV infrastructure. We are also starting a new chapter in the UAE by investing in community hubs. With that, I will now hand over to Athmane, who will elaborate on how we are delivering on our strategy.

Thank you, Bader. Let me walk you through the progress we have made on our growth agenda. Our ability to efficiently expand our network and enhance customer engagement has enabled us to capture rising demand, not only in the fuel segment but also in the nonfuel retail. In the UAE and KSA fuel retail, volumes surged 9% year-on-year. This was supported by opening of 13 new stations, of which 12 are in our core UAE market and also by some DOCO stations in KSA. Beyond GCC, aviation, which is a business that is 100% denominated in dollars and represents 70% of Egypt EBITDA continues to perform exceptionally well with volumes up nearly 20% year-on-year, reflecting strong growth of tourism activity. Finally, these operating results demonstrate the resilience and scalability of our platform as demonstrated by record fuel volumes delivered to our customers. We have good news about Saudi Arabia. We are upgrading again the number of new stations under capital-light dealer-owned company-operated DOCO model to 80 to 90 DOCO stations from 50 to 60 this year. This comes after we contracted 72 sites in 9 months and 23 are operational. We expect all of the remaining stations will be operational next year under ADNOC Distribution brand. Bottom line, we expanded our network by 2.5x in the past 12 months. This DOCO business allows us to grow at a minimum CapEx, as station owners handle rebranding and upgrades under our control. Under the ADNOC Distribution brand, a service station benefits from a fuel margin increase from 9 halalas to 15 halalas per liter. Both parties then share the 6 halalas incremental margin as well as nonfuel retail revenues. Now let me talk about how we are succeeding in future-proofing our business. First, we make ourselves ready for growth of electric vehicles by offering our customers convenience and speed they enjoy today when fueling their ICE vehicles. Our network of fast and superfast chargers has increased by nearly 370 charging points, enabling easy access and consistent service at multiple high-traffic locations. We continue to smartly expand our service. We have identified 8 inter Emirates highways that we will electrify by building dedicated EV charging hubs. This will both mitigate one of the biggest concerns for EV drivers, range anxiety and bring more customers to our network. Secondly, EV charging is a high-margin, high potential business for 3 main reasons. First is a robust regulatory environment with clear tariffs and utility costs, which offers strong visibility of returns. Second, our charging network sits on our owned land or long-term leases, giving us long-term control. Third, hang around for longer times at our stations when they are charging their cars and benefit from our network proposition, which includes with a wide variety of our customers' offering like C-stores, seating areas, car wash and restaurants. All of this bring us confidence that as long as on-the-go chargers capture 20% of the EV customer demand, EV charging will match the profitability of our fuel business. Now I will share insights about our nonfuel retail business, which is, as you all know, the strategic element of our growth ambition. It includes convenience stores, car wash, lube change, property management and vehicle inspection centers. In the first 9 months of 2025, nonfuel transactions increased by 10% or 2x faster than fuel transactions. At the gross profit level, we saw NFR growing 15%, again, more than 2x faster than fuel. These results reflect strong execution focus and ability to capture more value from every customer visit across our network. We continue to enhance our retail offerings to attract more customers into our stores, bring higher customer footfall, strong conversion rate and improved margins. Let's take a closer look at our convenience store business, which is the second customer touch point after fuel. We operate under the refreshed ADNOC Oasis brand. ADNOC Oasis is a high-margin, high-growth platform. It is also #1 food FMCG player in the UAE convenience market. Among all fuel retail verticals, the performance of convenience stores, which accounts for around 40% of nonfuel retail gross profit is particularly strong with gross profit going up by almost 25% year-on-year. This has been driven by food and beverage, one of our highest margin categories. Growth was led by rising coffee demand across our network and successful launch of new products. For instance, barista-prepared drinks saw more than 20% increase in sales compared to the same period last year. At the end of September, we unveiled a refreshed Oasis by ADNOC, brand with a premium On-the-Gourmet concept, featuring elevated food and beverage offerings. Beyond convenience stores, we are unlocking new pools of growth across all of our nonfuel retail verticals, including car wash, lube change, property management and vehicle inspection centers. As announced during ADNOC Investor's Majlis, later this month, we will launch the first of many new flagship retail destinations, The Hub by ADNOC. This is part of our strategy to offer more to our communities and optimize our real estate. We are elevating the customer experience, setting a new benchmark in the UAE. We plan to launch 5 community hubs by the end of this year. The first one, which will be unveiled at the end of this month, and we will share additional details on this with new exciting business concept. Stay tuned. Let me now speak about how ADNOC Distribution is harnessing the power of artificial intelligence to accelerate growth, enhance operational efficiency and deliver exceptional customer experiences. At ADNOC Distribution, we have deployed AI to unlock new revenue streams and optimize existing ones. We have also introduced AI-powered personalization across our loyalty program. By analyzing customer data, we [indiscernible] that resonate with individual preferences. For example, high-value customers now receive convenience store offers, increasing both spend per visit and retention. Now let's talk about efficiency. AI is transforming our operations from reactive to predictive. Our predictive maintenance and planning systems aim to use machine learning and anticipate equipment failures before they happen, reduce downtime and saving costs while also forecasting customer demand. This shift from manual to intelligent operations is not only improving our bottom line, it is enabling our teams to focus on strategic initiatives. And finally, customer experience. We believe that exceptional service starts with intelligent engagement. We use sophisticated AI models to ensure the optimum staffing levels across our operations, offer high availability of services and inventory levels. We will deploy AI-powered agents that would handle customer routines, inquiries and order bookings with speed and accuracy, while at the same time, using AI-powered computer vision to fast track the checkout experience at our C-stores. These innovations are not just enhancing convenience. They are building trust and loyalty in every interaction as we expand our digital footprint. We are building an AI native future, reinventing every aspect of our operations and experience. I will now hand over to Ali to present the highlights of our financial performance. Thank you.

Thanks, Athmane. Good morning, and good afternoon, everyone. I'm delighted to demonstrate the strong link between the business growth narrative shared by Bader and Athmane and our robust financial performance. During the first 9 months of 2025, we set new records for EBITDA and underlying EBITDA, both of which increased at double-digit rates. Underlying EBITDA, excluding inventory effects and one-offs, increased by 15%. This is a true measure of our business performance, reflecting strong fundamentals across all verticals from retail and commercial fuels to nonfuels retail. Net profit also increased at a double-digit rate of 16%, further supported by a positive impact of lower interest rates on our finance costs. We want to assure our shareholders that their capital is in good hands, as all the investments are underpinned by a rigorous and competitive screening criteria. As a result, ADNOC Distribution's return on capital employed today exceeds 30%. This strong rate of return is a great testament to the success of our investments program. Let's now turn to the key highlights of our operating performance. During 9 months of 2025 and quarter 3 2025, we sold the highest on record fuels volume. This was primarily driven by robust performance of the GCC Retail fuel segment, which grew by 9% year-on-year. Commercial B2B volume also increased, driven by our strong customer relationships and supported by sustained economic momentum across the region. Most notably, our nonfuels retail business continued to deliver a standout performance with a double-digit growth in transactions. These operating results reaffirm the strength of our customer value proposition, the continued appeal of our products portfolio and the growing impact of the ADNOC Rewards loyalty program. Together, these elements are driving deeper customer engagement and delivering incremental value across our operations. Let's now look at the financial performance across the key operating segments. Retail fuels gross profit increased by 7%, driven by the strong volume growth and despite nearly $15 million drop in inventory gains. Excluding the effect of inventory gains, it was up by 10%. Commercial Fuels delivered 18% growth in gross profit attributable to higher volumes sold, proactive margin management and high grading of our customer portfolio. Nonfuel retail continued to outpace retail fuels growth. Nonfuel retail gross profit increased by 15%, supported by a higher number of transactions, stronger convenience store conversion rate, increased focus on our food and beverage offering, upgraded car wash services and new property management initiatives. Now turning to operating expenditure. During the first 9 months of 2025, the revenue accretive expansion of our fuels and nonfuels assets led to a 6% increase in our absolute cash OpEx. We remain strongly focused on optimizing structural costs and prioritizing spending towards areas that deliver profitable growth. As a result, our unit OpEx remained unchanged, reflecting the true revenue and profit accretive nature of the incremental costs. After delivering $18 million of like-for-like OpEx savings in 2024, we achieved additional savings of $5 million during the first 9 months of 2025, and we are firmly on track to deliver $50 million of savings by 2028. Let's now look at the segment-wise EBITDA performance. In 9 months 2025, EBITDA across both retail and commercial segments demonstrated a solid double-digit growth year-on-year, as network expansion and enhanced customer engagement enabled us to capture rising demand, particularly in the retail fuel segment. This strong performance is also a testament to our ability to accelerate nonfuel retail growth, increase contribution from international operations and implement disciplined cost management. Importantly, all key verticals contributed to this performance, showcasing the resilience and scalability of our platform. Now turning to cash generation. We converted strong EBITDA into cash during the first 9 months of 2025, but also experienced an increase in working capital due to timing of certain payments in quarter 1 2025. Some of those adverse working capital effects did normalize during Q2 and Q3. Excluding the working capital changes, we generated $586 million of cash. This was despite inaugural UAE corporate income tax payment of approximately $70 million in end Q3 2025. CapEx spending during the period was $235 million, which compares to the full year 2025 CapEx plan of $250 million to $300 million. Finally, net debt-to-EBITDA ratio of 0.58x underscores our strong financial standing and favorably positions the company for future growth and shareholder value creation. Let me hand it back over to Bader for closing remarks.

Thank you, Ali. Before we open the floor to Q&A, let me recap our outlook and strategic priorities. First, our strong 9 months 2025 results reinforce our track record of delivery, and we expect this growth momentum to continue in 2025 and beyond. We are growing faster and ahead of expectations. As a result, we are upgrading our guidance for the service station network and EV charging infrastructure. Second, as I highlighted earlier, we announced at the ADNOC Investor's Majlis a major upgrade to our operational guidance covering fuel retail network growth and nonfuel transactions. Later this month, we will launch a new flagship retail destination, The Hub, that will set a new benchmark in the UAE. We will be excited to share more details about this new business vertical and invite all of you to visit during your next trip to Abu Dhabi. Thirdly, our focus remains on delivering higher total shareholders' returns. During the majlis, we've announced the Board's recommendation to extend our attractive dividend policy till 2030 and paying dividends more frequently. This reflects our confidence in sustainable value creation and cash flow generation. It also provides long-term visibility of our shareholders' distribution and offers upside on future earnings growth. Let me finish with 2 key messages to our current shareholders and future shareholders. We are disciplined in our execution, bold in our ambition and future ready at every step. We are a growth platform, a brand leader and company of the future. We are now happy to take your questions. Thank you.

[Operator Instructions] We'll take our first question from -- Anna, please go ahead.

Hopefully, you can hear me now. I wanted to check regarding the operational DOCO station, what is the financial impact from those? You mentioned that 23 are operational already. So what is the contribution? And second, if possible, could you please comment what is the conversion rate that you expect in fourth quarter this year?

Okay. Let me take the question on KSA DOCO station. So as you have seen, we have made a very strong progress on the dealer-owned company-operated model where we have light CapEx actually in this model and -- where we can extract maximum value and get higher network presence in the Kingdom of Saudi Arabia. What we told already during our communication in the management discussion report is that as we speak, we have 23 DOCO stations that are operational. And we expect the remaining DOCO stations to be operational in 2026. And now regarding the impact on the financials, I guess, I'm talking under the -- here a view -- Ali, please, if you can just add something on the conversion.

Yes. Thank you, Athmane. So these stations have just been commissioned, as you know. The initial performance is in line with the business case and our expectations as we expect them. So the contribution will be embedded more and more into our financials as we go along in the journey and as these sites mature.

We'll take our next question...

No, I guess we have another question -- sorry, we have another question on the conversion rate, if I'm not mistaken. And the question is -- just a sec. So the question was what do we expect about the -- regarding -- sorry, the conversion rate in the C-store, which has been in Q3 26%. If you look at Q4 of last year, it was 27%. And what I wanted just to highlight is that there is some seasonality with Q4 being usually -- having usually a higher conversion rate. But we are very confident on anyway, the level of conversion rate, which has been above the 25% and therefore, demonstrating that we are executing properly our strategy from fuel to nonfuel retail.

Giuseppe, your line is open.

Giuseppe from Morgan Stanley here. First is on the Saudi market. You raised your guidance in terms of the network expansion. What is the number of stations in Saudi that you expect in the medium term now? You mentioned 300 before. So I was wondering if this target has been updated now. And then secondly, on potential M&A opportunities, are you looking at some inorganic opportunities at the moment? And do you think something could be announced in 2026?

Okay. So I'm going to take the first question, i.e., on the guidance on Saudi Arabia and Ali will take the question on M&A. So regarding the Saudi market, as you rightly said, we have communicated a target of 300 stations by 2029, and we have today 170 stations. As we speak, we keep the target of 300 by 2029, and we will update the market next year depending on the progress that we will make. Ali please?

Thank you, Athmane. On the M&A front, as a matter of regular process, we assess and explore M&A opportunities. And these have -- and from our perspective, these have to be EPS accretive. They have to fit in our financial framework and very stringent assessment criteria, which we have. And lastly, the pricing has to be -- has to make sense from an economic standpoint. So it's not a process where it stops, it's an ongoing process, and we will do it once we find a transaction, which fits into some of the characteristics I just mentioned. Thank you.

There are no additional phone questions at this time -- I'm sorry, we do have an additional question. We'll take our next question from...

This is Sashank Lanka from Bank of America. I just have one question on your retail hub that you spoke about first at the majlis. So can you give us some more color on this? How should we be modeling this in terms of contribution and returns? I know the near-term contribution is not much, but given your fuel stations are quite large in size, I'm just wondering how we should be looking at this going forward.

Thank you for the question. We are definitely excited with this new business activity that we are about to launch. I mean the idea there is consistent with what we told you before, right? We are no longer a service station. We are a destination and the destination this time is integrated into a value proposition that we've labeled The Hub by ADNOC. And again, this is a destination that encompasses a number of activities that are suited for family, for fun, for food, for fuel, for future proofing, EV and so on and so forth. We intend to develop such concept in the locations that makes sense, providing value proposition to the communities that we serve. We are talking about 3x the size of the conventional footprint that we have in the past. And at the moment, we are looking at 30 hubs by 2030, right? So this is an exciting area for us. And definitely, we intend to extract more value from the real estate that we have. So stay tuned.

There are no additional questions in queue at this time.

So most of the questions have been answered in the chat, but we will answer additional ones. First question about the retail fuel growth. Going forward, how can we see it, which continues to stay very impressive? And what are some of the drivers for the same?

So okay. So for the fuel retail growth, as you have seen, we have been recording a high single-digit growth in our fuel volumes that have been driven by the impact of the initiatives that we have put first of all, in the fuel business with the ADNOC Rewards program that has now 2.5 million customers, up 20% versus last year, and it was also up 20% last year, which is really for us an enabler to attract more sustainable footfall, and create loyalty. Now answering the question on the midterm, I guess that a single-digit growth is something that we would expect. And of course, what we intend to do is always to beat the GDP growth through these initiatives and through adding and upgrading our assets to, again, transform our stations into a destination of choice.

The second question is about the commercial margins, which appears to be quite strong despite the downturn in Brent prices during the quarter.

Yes. Thanks for the question. Commercial, this is predominantly -- this pertains to gas oil volume sold in the B2B segment. And unlike retail fuels, this margin is not regulated. And it is essentially a function of market dynamics, pricing, negotiation, contract-by-contract negotiation. And therefore, given under these circumstances, based on some of these features I mentioned, the margin performance was very, very strong in -- so far this year and particularly quarter 3.

We don't have further questions from the chat. Are there any other questions from the audience?

There are no additional questions in queue at this time.

Thank you. Thank you for participating with us on this call. We are excited about the future of ADNOC Distribution. Looking forward to November when we launch The Hub, and we'll continue to engage with you through our IR team with any updates. Thank you very much, everybody.

Thank you. That will conclude today's call. We appreciate your participation. You may now disconnect.