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

Good day, and welcome to the ADNOC Distribution Investor Call Q2 2026 Earnings. Today's conference is being recorded. At this time, I would like to turn the conference over to Athmane Benzerroug. Please go ahead.

Good afternoon, everyone, and thank you for joining us for ADNOC Distribution's Second Quarter and First Half 2026 Earnings Call. I'm Athmane Benzerroug, Chief Strategy, Transformation and Sustainability Officer, and it is a pleasure to have you with us today. I'm joined today by our Chief Executive Officer, Bader Al Lamki; and our Chief Financial Officer, Ali Siddiqi. Let me start by outlining today's agenda. Bader will open with a reflection on our strategic vision and then share the key highlights of our record results. He will also speak about how recently announced acquisition of Shell Downstream business in South Africa is reinforcing our growth strategy. I will then walk you through how we are executing our growth agenda on the ground. Ali will close with a detailed look at our first half operating and financial performance. We'll then open the floor for your questions. Before we begin, a brief note on forward-looking statements. Today's presentation contains forward-looking statements that are subject to risks and uncertainties, and actual results may differ. Please refer to the full disclaimer on this slide, which is also available on our website. With that, I will hand over to Bader to take you through strategic highlights, key achievements and the outlook.

Good afternoon, everyone, and thank you for joining us today. Before we walk you through our record H1 results, let me take a moment to reflect on the progress we have made and how we see the next phase of our journey. Over the past 5 years, we have built a strong foundation for growth. We have expanded our network, delivered sustained earnings growth, strengthened our customer proposition and improved operational efficiency. These achievements reflect a clear strategy and disciplined execution. Today, we are leveraging that foundation to scale towards leadership position in global mobility and convenience. We remain focused on strengthening the core through network expansion, future mobility solutions and enhanced customer experience. At the same time, we are extending the core through digital innovation, strategic partnerships and new growth platforms that deepen customer engagement and create additional value. The next chapter of our journey is about taking what we have built and scaling it further through new markets, new customers and engines of growth, creating a large, more diversified and fast-growing businesses to deliver additional value for our shareholders. H1 2026 was a major milestone for ADNOC Distribution. We delivered a record net profit of $568 million, up 59% and EBITDA of $786 million, up 39%. Excluding inventory effects, underlying EBITDA grew around 14%, reflecting the strength of our underlying business. Return on capital employed exceeded 40%, our highest level ever and more than double the peer average. These results are not coincidental. They reflect the strength of a business model that we have deliberately built over the years. Around 60% of our cash flows come from the regulated and protected UAE fuel retail business, supported by long-term supply agreement with ADNOC. We have complemented this resilient foundation with 4 growth engines: fuel retail, nonfuel retail, commercial and EV charging across the UAE, Saudi Arabia and Egypt. That diversification is precisely why we could absorb the first half of the year marked by disruptions without missing a beat on safety, supply or service. We operated 24/7 with 0 injuries and 0 fatalities. The strength of this model supports our ability to deliver attractive and predictable shareholders' return. Our dividend framework offers to shareholders visibility and upside for future earnings growth. It remains in place through 2030. We continue to deliver strong shareholders' return through our quarterly dividend framework with 5.14 fils per share paid for Q1 and a further 5.14 fils per share declared for second quarter of this year. And we are not standing still. While delivering strong returns today, we are also investing to create the next phase of growth. Our 2026 expansion plan remains on track with 60 to 70 new stations, 50 to 60 new charging points and CapEx of $250 million to $300 million committed. More significantly, last month, we agreed to acquire Shell's Downstream business in South Africa, marking our largest international expansion to date. We are consistently delivering returns, and we are investing for future growth. The best example of that approach is South Africa, an important milestone in our international growth strategy. On 7th of July, we signed an agreement to acquire 100% of Shell's Downstream South Africa for an implied enterprise value of approximately $1 billion. Three things makes this transaction attractive. First, it builds on our strength. South Africa's fuel retail market shares many similarities with the UAE with regulated margins and long-term demand fundamentals. The transaction expands our network by around 55% to 1,600 stations and increases fuel volume by approximately 20%. Second, it creates value from day 1. We expect the acquisition to be earnings cash flow accretive with the potential to generate an additional $30 million to $40 million of run rate EBITDA within 5 years. Third, we remain disciplined. We have a strong balance sheet and remain committed to attractive shareholder returns. We expect the transaction to complete in 2027, subject to regulatory approvals. This is not a new business model for us. It is an extension of what we already do well. The message from the first half of this year, we are delivering record results today while expanding the platform for sustainable long-term growth. With that, let me hand over to Athmane to explain how we are executing across the broader business.

Thank you, Bader. Let me turn to how we are executing on the ground. Starting with the core. Our fuel platform is exactly what it is built to do. It keeps growing. First half retail fuel volumes across the UAE and Saudi Arabia increased by 1.7%, a new half year record that was achieved against a dynamic market environment. Demand for our fuel holds through the cycle. Network expansion continues to support that growth. Over the past 12 months, the network size increased by more than 11%, reaching 1,045 stations, adding 2 UAE sites in the first half, 1 in Egypt and 32 DOCO stations in Saudi Arabia. And in Saudi Arabia, the capital-light model is scaling exactly as designed. The network is up 65% to 231 sites, 70% of them DOCO. 52 are already operational, giving us clear line of sight to further volume growth in the midterm. Finally, in the UAE commercial business, we stayed disciplined, trimming lower-margin corporate volumes and keeping margins in line with historical levels while leaning into aviation volumes. In conclusion, across retail, commercial and aviation in 3 geographies, the business kept growing. Electric mobility is where we future-proof the franchise and the first half numbers show demand is real. First, about the demand, number of electric vehicles is increasing at double-digit rate. To support this growth, we expanded fast and super fast charging points across the UAE by 35% year-on-year. Energy sold rose 2.1x. We have deliberately clustered our EV network where journeys happen, highway corridors and dense urban hubs. Why we like this business comes down to economics and experience. On economics, charging tariffs and utility costs are transparent, giving us a clear line of sight on returns. Profitability per kilometer is higher than in fuel. And equally important, our chargers sit on assets that we own or control under long-term leases. On Experience now, we are solving 2 things EV drivers care about most. Will there be a charger available and will it be fast. More so, longer dwell time pulls its huge customers into our stores, food and beverage and quick service restaurants. Disciplined capital, rising utilization and the leverage on ADNOC Rewards loyalty program will, over time, turn charging into a genuine profit contributor. Nonfuel retail is where we differentiate and it again outpaced fuel. We have more than doubled nonfuel retail gross profit over the past 5 years from $67 million in H1 2021 to $140 million in H1 2026. Over the period, it increased at a CAGR of 16% which is materially above the average growth rate across the peer group. We have consistently narrowed the gap with international peers, improving the nonfuel retail contribution by around 100 basis points per annum. Following the strong double-digit growth, we see further potential and expect the nonfuel retail segment to contribute more meaningfully to our total earnings in the future. In H1 2026, nonfuel retail gross profit again increased at double-digit rate and on an underlying basis, kept widening its lead over fuel retail. The engine here is twofold: our fast-growing property and franchise business, anchored by the hub concept and continued momentum in high-margin food and beverage. Coffee is a good proxy, cups sold rose 10% year-on-year in the first half. Every one of these visits is a chance to deepen the relationship beyond the par, and that is precisely the diversification we are building forward. Let me go deeper on convenience. As the second customer touch point after fueling and EV charging, our stores are central to the nonfuel retail strategy. And our high-margin platform and the refreshed Oasis by ADNOC brand now contributes to more than 40% of the nonfuel retail gross profit versus 20% 5 years back. We are expanding our fresh food and premium coffee offerings in 2 ways. First, AI-based clustering tailored assortment, pricing and promotion by location, demographics and shopping mission, drawing on more than 250 million transactions. Second, targeted campaigns, such as our healthier living, fresh food and own sandwich sales. In addition, rollout of Oasis private label, enhancing food and fast-moving consumer goods proposition is coming to our stores in the second half of this year. We expect momentum in convenience to keep building as these initiatives scale. Car Care, which includes car wash, lube change and vehicle inspection is another vertical that continues to gain momentum. On the ground, we have already upgraded half of the automatic car washes and launched 8 high-capacity tunnels across the network. The target is more ambitious, further enhance our customer proposition and make our sites a one-stop care destination, in line with our strategy to transform our stations into destinations of choice. Property management is another lever to turn our stations into destinations, a journey that we started 2 years ago, giving customers reasons to stop being fuel, convenience and car care. Leading international and local quick service brands anchor our sites, driving footfall while generating rental income and lifting fuel and convenience activity. We ended the first half with 1,181 occupied and awarded units, up 4% year-on-year, while the mixing battling towards higher-yielding food and beverage and car care formats. On the back of all of this, in the first half, property management was again our fastest-growing nonfuel retail vertical. And this growth will continue supported by, first of all, the Hub by ADNOC, which is the clearest expression of our focus on asset monetization, a community concept built around convenience, speed and lifestyle. Today, we operate 7 hubs and target 30 by 2030. Two, the growth will also be supported by our recent announced strategic partnership with Americana. It brings us to 200 quick service restaurants from a portfolio of 12 iconic global brands to ADNOC distribution network, expanding access to dining options and bringing trusted brands closer to customers as part of their everyday journey. As you know, fuel prices are regulated across the UAE. What sets us apart is the strength of our nonfuel offer and ADNOC Rewards program. Together, the real drivers of preference, frequency and loyalty. The program connects more than half of the UAE vehicle car park. ADNOC Rewards program now has 2.8 million loyalty members. This number has more than doubled over the past 5 years. Membership grew nearly 13% year-on-year with over 310,000 members added since this time last year. Scale, frequency, customer insights and engagement together reinforce our competitive position and contribute to sustainable long-term value creation. Driving all of this is AI, now live across more than 20 use cases and increasingly a structural driver of growth, efficiency and returns. AI-driven predictive intelligence powers workforce, demand and customer experience. Last week, we launched Engage by ADNOC, the UAE first full-funnel retail media network operated by mobility and convenience retailer. This is a tangible example of how we are using AI and data to create entirely new revenue opportunities. Every day, hundreds of thousands of customers interact with our stations, stores, app and loyalty program. That creates a unique opportunity for brands to connect with consumers through highly targeted and measurable campaigns. For us, this is more than a marketing platform. It is a new scalable source of nonfuel retail earnings that leverages assets and customer relationships we already have. I will now hand over to Ali for the financial highlights.

Thank you, Athmane, and good afternoon, everyone. Bader and Athmane have covered the strategic progress. I will now connect the progress to the numbers. The headline is simple. Both of our most important earnings measures set new half year highs. EBITDA came in at $786 million, 39% higher year-on-year and net profit reached $568 million, up by 59%. It's worth separating what is structural from what is cyclical. Underlying EBITDA, which excludes inventory movements and one-offs, rose close to 14% to $603 million. That is a clean read on the business, and it tells you the core is compounding at a healthy double-digit rate. The balance of the headline growth reflects a favorable swing in inventory gains of $207 million versus $40 million in the same period of last year. The one number I would ask you to hold on to is our return on capital employed, 40%, another record and more than twice the average of our global peers. That is the clearest evidence that our capital discipline and investment screening are working. Let me move beneath the P&L to the operating drivers. Total fuel volume reached 7.7 billion liters in the first half, up 1.6%. The quality is in the mix. Our core GCC retail business grew 1.7% on network expansion, higher mobility and economic growth. In the UAE, fuel transactions rose almost 5% to over $100 million as customer behavior shifted to reflect volatile pump prices and nonfuel transactions were up 1.5%. In commercial, we released lower-margin corporate volumes, down around 4% in the GCC, while aviation more than offset it, up close to 54% overall and more than doubled in the GCC. In other words, margin rate growth, not volume at any price. Turning to gross profit by segment, which together rose 29% in the first half of 2026 to $1.16 billion. Fuel retail was up 24%, carried by volume growth and the inventory tailwind I referenced earlier. Commercial was the standout with 51% growth, reflecting disciplined corporate margin management and dynamic pricing as well as supported by inventory gains. Within commercial, corporate gross profit alone climbed 60%, with aviation adding a further 16% on Egyptian tourism and firmer UAE demand. And nonfuel retail gross profit increased by 12%, once again outpacing fuel when adjusted for inventory movements on higher transactions, stronger margins, a richer food and beverage mix as well as upgraded car wash and new property initiatives. On costs, cash OpEx rose 4% to $348 million in the first half. That is cost that comes with growth, a direct function of a larger network and higher retail volume with the profit attached. And like-for-like savings of $18 million in 2024, $7 million in 2025, we captured further savings of $2 million in the first half and remain firmly on track for $50 million of cumulative like-for-like savings by 2028. Workforce optimization, smart energy, logistics routing and centralization are the principal levers. Breaking EBITDA down by segment tells the same story of diversification. Retail, roughly 2/3 of the total, grew 36% to $529 million on volumes and a richer nonfuel mix and higher inventory gains. Commercial rose 48% to $265 million, with corporate EBITDA up 62% and aviation up 11%, both reflecting our execution and margin discipline. The point I would leave you with is this. Every operating segment contributed to growth. This shows that our strategy of building multiple earnings streams is working. Finally, cash and balance sheet. The defining feature of our cash generation is its visibility because the bulk of it comes from regulated retail fuel economics and everyday retail activity, we can plan investments and distributions with a high degree of confidence. Capital spending remains comfortably within our $250 million to $300 million full year guidance, weighted towards growth projects in the second half. Free cash flow grew strongly, tracking the rise in underlying earnings. Leverage is broadly in line with the 0.7x net debt to EBITDA we closed in 2025, leaving ample headroom to fund growth and the dividend at the same time. On distributions, we have full visibility for 2026, $700 million or 75% of net income, whichever is higher, now paid quarterly. The first quarter paid in June, the second to follow in September. With that, let me hand back to Bader for closing remarks.

Thank you, Ali. Before we open the line for questions, let me leave you with 3 key takeaways. First, we are delivering first half of 2026 was our strongest half year performance to date with earnings, returns and cash generation all reinforcing the strength of the business model. Second, we are continuing to grow across every part of the business. Fuel remains resilient. Nonfuel return continues to gain momentum, and we are evolving our playbook into new growth platforms through property, EV charging, digital initiatives and now South Africa. Third, we are doing all of this while maintaining an attractive visible shareholders return proposition. Our dividend framework provides visibility on a $700 million annual floor through 2030, paid quarterly with a clear upside as profits grow. One thing you should leave with today is that the investment case is not growth versus return. It is growth and returns from a platform resilient enough to deliver through any environment. That was true last year. It was true again in the first half of this year, and our move to South Africa reinforces our conviction that this platform can continue creating value for years to come. Thank you for your time and your continued interest in ADNOC Distribution. We will now be happy to take your questions.

[Operator Instructions].

I have 3, if I may. [ Kishmariya ] from UBS. So the first question is around the developments in the third quarter to date in terms of the fuel sales volumes. What do you see on the market? Do you see any uptick in the year-on-year growth? And is there any improvements versus the second quarter? What can you comment on the current environment? My second question would be around the realized margin in the commercial segment. It was extraordinary second quarter in terms of the refining margins and the refined product prices. What do you see in terms of the margin normalization in this segment towards the year-end in third quarter. Do you expect the margins to remain elevated? How much of it is sustainable improvement because of your effort for dynamic pricing? And my final question will be around the impairments of receivables also on the B2B segment. We saw the 2 quarters of the receivables also happening this year. Is it related to the conflict? Do you expect those to keep happening in the second half of the year?

Good afternoon, everyone. So Athmane here. I will kick off with the first question and then Ali will -- our CFO will answer the 2 other questions. So on the development of sales volumes, so what we have seen in July is low single-digit growth in volumes, and we are talking about UAE plus GCC. So a quite encouraging trend so far. Ali, I guess there is one on the margin of commercial and on the impairment.

Yes. Thank you, Athmane. So on the commercial margin, of course, commercial business has 2 major components. The first one is the contractual business, and that's where the margin is pretty well known and contractually committed. So that business is pretty stable. The second component is obviously the spot business. Now spot business margin is fundamentally a function of the pricing movements, international commodity pricing. And usually in a rising price environment, that market opens up and you make a good margin. And in a declining, we choose not to operate because that's detrimental to the margin. So fundamentally, commercial margin will be a function of how the international prices move and within this whole volatility. So unfortunately, we won't be able to give you a very specific guidance, but can actually at least cover the fundamentals. The third one is impairment, yes, we continue to be very conservative actually, and I'm exercising extreme conservatism on essentially assessing our estimated credit losses and stuff. A lot of them, we are not -- hopefully will not come through, but we just took a very prudent measure given the overall situation and the volatility. It's just a way of embracing this volatility, quite honestly, of building -- of actually staying very prudent.

But would you expect them to continue in the second half if you make?

No. These are -- if your question is impairments, no, essentially, again, I would see how the international environment is. And if the international environment remains extremely volatile and if there is a room, then obviously, we will be warranted to do. But structurally, no.

We'll now go to your next question.

Congratulations on the excellent results. It's Scott Darling here from Cantor. I've got 3 questions. I mean, aviation revenues were excellent. So you talked about selling to strategic customers. Can you sort of give us a bit more detail around that? And how sustainable is it as we're in the sort of summer vacation period? That's my first question. And the second question is then on nonfuels. You've made some excellent progress in nonfuels projects this year. I mean it's been excellent. Plans around nonfuel projects for the rest of this year, can you detail us with that? And then my third question is, you sort of stopped talking about these EV Mega-Hubs. And you mentioned how penetration rates of EVs, et cetera, you're rolling out EV charge points. But what's happened to the Mega-Hubs?

Thank you for the questions. I think there are 3 questions there. Strategic customer the Army and normally we don't disclose details of this. So that's that done. Secondly, the outlook of the year, the projects that we have installed for the year. The guidance that we provided to the market remains intact. We think we are aiming for 40 to 60 new service stations, and that will be delivered. We are on track. We have -- yes, we have also the Hubs program. We have 5 hubs that we've committed. This will be on top of 6 hubs that we've delivered last year. So that's intact, and we don't see any change in the plan. So all our operational targets, we are very much confident to deliver in line with the guidance that we've provided the market. When it comes to the Mega-Hubs, the EV Mega-Hubs, we've -- I mean, this is part of the hubs, right? So it's one of the hubs. And earlier this year, we've indeed inaugurated the first mega hub with EV -- with 60 CPs, 60 charging points. That's on the key highway of Abu Dhabi, Dubai, E11 with an ecosystem that integrates quick service restaurants, rest areas, additional restaurants as well as a hot desk office for commuters also while charging, they can avail the Internet and do some work. We are inaugurating the second phase of it on the opposite side of the street later this year, probably around October time, will be another 40 CPs in one location, making this is a big hub in the Middle East, North Africa and Turkey. And we will definitely remain committed for this program. We see high energy sold 2x what we've seen in 2025. The model is well received by EV car owners. And we're also working with B2B EV car fleets that are also charging with us. So the regulation that is out there for fast and superfast chargers is attractive for us as an investor and developer and our ability to create hubs is also working for the fleet car owners and also customers, B2C. So very much excited and seeing that these hubs are well received by the customers. Thank you.

We will now move to your next question.

This is Jameel Bakhsh from Bank of America here. So I've got 2 questions which are actually more clarifications for my understanding, please. They're both on the topic of inventory gains. So the first question, and this is also following on from talking about commercial margins earlier. When you are coming up with your pricing strategy for your B2B clients, does the value of your inventory actually come into your thought process when you're looking at pricing on that one? And then secondly, on the dividends, particularly your calculation of 75% of net profit, does that include inventory gains in the measure?

Yes. Thanks for the question. So on the inventory gains and commercial decision making, now that's a bespoke enterprise-wide decision-making. So what we do is while considering commercial margin, which is a bespoke margin, it's inventory position, purchase trends, pricing trends, a lot gets added, a lot of items are added to that dish basically. So inventory gains and commercial margin generation are intertwined. We would not sort of do something which would impair either one of them. And essentially, we find a sweet spot between the 2. So yes, it's not totally independent. It's intertwined, especially on the diesel-related inventory gains and margins and decision-making is holistic, not just only looking at inventory gains or the margin only. Regarding the question on dividend, I will give the floor to our CEO.

Thank you for the question on this one. Rest assured, our dividend policy is very transparent and clear up to 2030. Inventory gains is part of our construct, part of the agreement, supply agreement that we have with ADNOC that allows us to really extract the value from this arrangement, and that's the benefit of being part of the ADNOC Group and then being an anchor shareholder in ADNOC distribution. But our policy is very clear. We are committed to distribute $700 million as a floor or 75% of the net income, whichever -- net profit, whichever is higher, and that extends all the way to 2030, and we are very much committed to this policy.

And it appears there are no additional questions in the queue on the audio side. There are no additional questions on the audio.

We will take questions from the webcast. The questions have been answered already. There's a question about fuel price -- once the fuel prices ease to prewar level, do you see any negative impact on this from the top line for the remainder of the year?

Okay. Thanks for the question. Ali Siddiqi, CFO here. When the prices come down, we have a protection mechanism called [ backstop ]. So when we talk top line, I think the top line should start from gross profit, I think for our nature of the business. Our margins are very well defined. And when the prices go down, the backstop mechanism, which protects us from inventory losses will essentially kick in, which means on majority of our inventory and majority of the business is very well protected from a drop or erosion in the international prices.