Release Date: February 11, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Abu Dhabi National Oil Co For Distribution PJSC (ADX:ADNOCDIST, Financial) achieved a record 29% return on capital employed in 2024, driven by efficient capital allocation.
- The company reported significant growth in non-fuel retail, with a 10% increase in non-fuel transactions, reinforcing strong momentum.
- Expansion efforts are on track, with nearly 900 stations in operation and a target of 1,000 stations by 2028.
- The company is scaling up its EV charging infrastructure, with plans to grow charging points by 10 to 15 times by 2028.
- Strong cash flow and balance sheet position the company well for future growth and shareholder value creation, with a commitment to distribute $3 billion or at least 75% of net profit over the next five years.
Negative Points
- The company faces challenges in maintaining high margins in the volatile fuel market, with inventory gains impacting retail fuel gross profit.
- There are concerns about the sustainability of recent margin increases in the commercial segment, which are subject to market dynamics.
- The effective tax rate was slightly higher in the fourth quarter due to a true-up entry, which may affect future profitability.
- Despite strong growth, the company faces ongoing operational expenditure pressures, partially offset by cost-saving initiatives.
- Expansion in Saudi Arabia involves complex negotiations and the need to adapt to local market conditions, which could impact growth pace.
Q & A Highlights
Q: Can you explain the difference in returns between company-owned and distributor-owned stations in Saudi Arabia, and do you foresee any potential for M&A to accelerate growth there?
A: The distributor-owned, company-operated (DOCO) model offers higher returns compared to the company-owned, company-operated (COCO) model because ADNOC Distribution does not incur lease costs. We are always exploring M&A opportunities that align with shareholder value creation. As for GCC volumes, we expect continued growth driven by strong mobility and strategic initiatives to increase footfall at our stations. - Unidentified_2 (CFO)
Q: How easy was it to reach agreements with operators for the new stations in Saudi Arabia, and what are your expectations for dividend policy given the company's growth?
A: The Saudi market is large, with 10,000 stations, and our negotiations have been fruitful, resulting in 30 agreements. We expect this momentum to continue. Regarding dividends, our policy is to distribute a minimum of $700 million or 75% of net income, whichever is higher, over the next five years. As net profit grows, we aim to increase dividends. - Unidentified_3 (CEO) and Unidentified_2 (CFO)
Q: Could you provide more details on the cost savings achieved despite higher operational expenses?
A: We achieved $18 million in like-for-like savings in 2024 by optimizing manpower, using AI for better staffing, and reducing utility costs. These savings partially offset the additional operational expenses from network expansion and non-fuel retail growth. Overall, unit costs were reduced by 5%. - Unidentified_4 (CFO)
Q: What is the outlook for commercial volumes and margins in 2025, and why have you decided to expand in Saudi Arabia now?
A: The commercial segment, particularly B2B gasoil, is not regulated, leading to volatile prices. However, margins have improved due to higher-margin contracts. In Saudi Arabia, we've built capacity and gained experience, making it an attractive market for expansion. We plan to increase our footprint by at least 50% in the coming year. - Unidentified_2 (CFO) and Unidentified_3 (CEO)
Q: Can you clarify the one-off items affecting your financials, and what percentage of your capital expenditure is allocated to growth?
A: The one-off items primarily include a voluntary severance scheme for staff, which is a cost that results in future benefits. Approximately 60% of our capital expenditure is directed towards growth and new asset development, consistent with past years. - Unidentified_4 (CFO) and Unidentified_2 (CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.