Good day, welcome to the ADNOC Distribution Q2 2023 earnings call and webcast. Today's 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, welcome to ADNOC Distribution H1 2023 earnings call. I'm Athmane Benzerroug, Chief Strategy, Transformation and Sustainability Officer. Joining me today, Bader Al Lamki, our CEO, and Wayne Beifus, our CFO. In today's call, I will start with a key highlight for the first half and also speak about company's outlook. Our CEO will then discuss in detail delivery of our strategy, then our CFO will take you through the H1 operating and financial results. After the presentation, we will turn to Q&A. Before we begin, I will quickly reiterate our cautionary statement regarding forward-looking statements. 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 on our website. I direct everyone to our website to read the full text of this disclaimer and other important information. At the beginning of this call, I would like to highlight ADNOC Distribution unique value proposition. It is supported by three main factors. First of all, our focus on delivering smart growth through allocating capital towards growth in a disciplined manner, future-proofing the business, and unlocking additional value from efficiency improvements. Focused on transforming into a destination of choice for its customers. The company is operating under a robust regulatory framework in the UAE and benefits from predictable industry-leading retail margins, with a limited exposure to oil price volatility. This visibility was reinforced at the start of 2023, when we renewed the refined product supply agreement with ADNOC for a new five-year term. ADNOC Distribution generates strong free cash flow, supporting the new dividend policy approved by our shareholders in March to pay minimum $700 million for 2023 and minimum 75% of distributable profit onwards. Since IPO, the company has distributed $3.3 billion in dividends and doubles the shareholder value. Our priority is to create incremental shareholder value, supported by tangible steps to future-proof the business and achieve leadership in sustainability. Let me start with the progress made towards our decarbonization agenda announced at the beginning of the year. Our commitment to reduce the carbon intensity of our operations by 25% by 2030 is driven by a set of four identified initiatives, including energy optimization initiatives at our site, installation of solar panels at our station, use of biofuels to power our fleet of vehicles, and vehicle fleet management. ADNOC Distribution has partnered with Emerge, a joint venture between Masdar and EDF, to install solar panels across our net service station network in Dubai as part of the company's phased approach to UAE-wide solar rollout. ADNOC Distribution continues to explore potential growth opportunities and new revenue streams offered through the energy transition. In the EV charging space, we entered an agreement with TAQA to create a new mobility joint venture, E2GO, with the intention to provide mobility and charging solutions to our customers in public and private sites across Abu Dhabi and the wider UAE. We are leveraging on our extensive network to promote EV charging and clean energy, CNG, to meet evolving customer needs. As a part of this strategy, we have installed around 40 super-fast charging points across our network. Moving to H1 key achievements and outlook for the remainder of this year. In H1, 2023, we completed the acquisition of 50% equity stake in TotalEnergies Marketing Egypt, fully consolidated it in our financial statements from February 1. All figures in this presentation include contribution from this entity, unless stated otherwise. Regarding our key achievements, we continue to record solid operating performance and underlying profitability, driven by an 8% growth in our UAE network, a 9% increase in the UAE and KSA fuel volumes, and a higher number of non-fuel transactions, which continued to grow at a double-digit rate. We continue our refurbishment program. Over 2020 H1 2023, we renovated almost 200 convenience stores. Also, worth highlighting is that we achieved the highest convenience stores conversion rate in the last 3 years of 25%, coupled with a larger basket size. This is a result of revitalization of our convenience stores, digitally enabled customer offering, improved category management with a focus on $15 million, demonstrating progress towards our saving target of $25 million in 2023. Regarding the outlook, we expect growth momentum to sustain for both fuel and non-fuel businesses in 2023 and beyond. After opening 16 new stations in the first half, we are on track to open 25-35 new stations across our network in Egypt. We expect growth in non-fuel business to continue, driven by initiatives mentioned earlier, supported by promotion campaigns and loyalty programs. We will continue to take steps to reinforce non-fuel retail offering, to transform ADNOC Distribution stations into a destination of choice for our customers, bringing a modern and engaging retail experience to our customers. We continue to pursue organic and inorganic growth opportunities. In our CapEx plan, we focus on growth, including network expansion and revitalization of convenience stores, and aim to invest $250 million-$300 million in 2023. Following the acquisition of 50% equity stake in TotalEnergies Egypt, we continue to explore opportunities in high growth potential markets. I will now hand over to our CEO, Bader Al Lamki, who will walk you through the delivery of our strategy. Over to you, Bader. Thank you, Athmane, and good afternoon, good morning, everyone. Thank you for joining us on this call. Before I walk you through the progress we have made in H1 towards achieving our strategy, I would like to reiterate our commitment to continuously improve customer experience, operational efficiencies, and deliver on our transformational initiatives. These initiatives will position our new distribution service stations as destination of choice through continuous focus on innovation and upgrading the customer experience, as well as capitalizing on the opportunities offered by the energy transition to future-proof our business. Some of these initiatives include enhancing our customer experience by improving product mix and bringing the Oasis store to the customers, as well as enhancing our payment experience. Transforming car wash and lube change into a one-stop shop for car service. We are deploying composite LPG cylinders to maintain the highest HSE standards, while delivering a more convenient product to the customers and introducing LPG vending machines. Further drive an efficiency program on maintaining leadership on cost metrics via technology, integration, and AI. Invest in new mobility by advancing the rollout of EV fast charging points across our stations, and develop capabilities in alternative fuels such as hydrogen. Last but not least, a range of sustainability initiatives to decarbonize our operations. We are committed to putting our customers at the heart of what we do to redefine the experience at service stations and help accelerate the mobility revolution. In order to cement our position as a destination of choice for customers, we offer convenience, digital experience, attractive offers, and loyalty benefits. Loyalty is at the heart of all that we do. Better customer experience is achieved through a better understanding of what services customers value the most, and tailoring offerings to meet their needs. Our loyalty program and ADNOC app are rewarding customers who choose ADNOC Distribution station as their destination of choice. Our ADNOC Rewards loyalty program has proven its popularity amongst customers. During the first half of this year, the number of enrolled customers into the program continued to increase, taking the total number of members to over 1.7 million. I will now walk you through the progress towards achieving our growth plans. Let me begin with the first key pillar of our growth, the fuel business. We recorded the highest ever half-year volume sold in the UAE and KSA. This comes after a 9% year-on-year increase, supported by an 8% growth in retail volume and 30% in commercial volumes. The growth was driven by the expansion in our retail network. Continued with the expansion of our network during the first half of 2023, opening 16 stations across our network. TotalEnergies' marketing agent acquisition contributed an additional 241 stations. As a result, ADNOC Distribution network now consists of 816 stations. Second pillar of our growth strategy is the non-fuel retail business, which has consistently demonstrated strong growth, momentum, and solid performance. This is the result of our consistent focus on delivering modern experience to our customers in convenience store, lube car wash, and in vehicle inspection centers. The first half of this year, the number of non-fuel transactions increased by 14% year-on-year, after growing at a double-digit rate in 2022. This is a result of our strategy to enhance customer experience and loyalty through innovation, personalized rewarding experience, and smart marketing. As part of our effort to offer modern, digitally enabled customer journey in stores experience between 2020 and first half of 2023, we renovated almost 200 stores. As a result of this renovation, our convenience store saw an increase in footfall measures in terms of conversion ratio, as well as higher basket size. That translated into a higher profitability of non-fuel retail, driven by the C-store business. In H1 of 2023, non-fuel retail gross profit increased by 12% year-on-year, including gross profit of our convenience stores that increased by 14%. I will now hand over to Wayne to present the highlights of our financial performance. Thanks, Bader. Good morning, and good afternoon, everyone. In the first half of this year, ADNOC Distribution demonstrated strong operating performance, driven by our network expansion and further underpinned by economic growth in the region. In the fuel business, our retail volumes in the UAE and KSA, which represent nearly 70% of the total fuel volumes, increased by 8% year-on-year. We continued to record strong growth in commercial fuel volumes, which increased in the first half by 10% year-on-year, driven by corporate volumes, which increased by more than 12%. In the non-fuel business, we recorded a solid 14% year-on-year increase in transactions, which materially outpaced the change in fuel transactions, leading to our highest C-store conversion rate. In particular, the convenience store conversion rate increased by almost 400 basis points, from 21% in H1 2022 to 25% in H1 2023. Overall, the average basket size in our stores increased by 3% compared to 2022. Looking at key financial highlights. Supported by the strength of our operations in H1 2023, we continue to demonstrate growth in the underlying profitability. Adjusted for the effect of inventory movements, our underlying EBITDA increased by 9% year-on-year to $427 million, while our net profit, excluding inventory movements, was 2% higher year-on-year at $280 million. It is important to note that in the first half of 2022, ADNOC Distribution benefited from material inventory gains of approximately $150 million in the rising oil price environment. In the first half of this year, the net inventory gains were $17 million, and as a result, our reported gross profit, EBITDA, and net profit have declined year-on-year. Our free cash flow of $333 million in the first half of the year remains robust, resulting in a net debt to EBITDA ratio of 1.13 times, which offers room to invest in growth while sustaining our attractive dividend policy. Moving on to gross profit by operating segment. We have already highlighted the impact of the significant inventory gains benefited in the first half of 2022 in our fuel business financial metrics. Adjusted for the effect of these inventory movements, our fuel retail gross profit increased by 3% year-on-year. In the first half of 2022, the retail segment inventory gains were AED 109 million, while in the first half of this year, those have reduced to AED 22 million. In our non-fuel business, our retail gross profit has increased by 12% year-on-year, driven by customer-centric initiatives. Specifically, in our C-store segment, our revenues have increased by 17% year-on-year, and our gross profit was 14% higher than last year. As we continue to focus on sales of fresh food and coffee and optimize our product mix, the conversion rate has reached 25%, and our average basket size has increased 3% year-on-year. In the commercial segment, gross profit, adjusted for the effect of inventory movements, has declined 14% year-on-year. In the prior year, our commercial segment inventory gains were $42 million at the half year, while we had losses in the first half of this year of $6 million. The performance of the commercial segment was further negatively impacted by the lower volumes in our aviation business and pressure on our commercial margins in the declining oil price environment. I'm now turning to our operating expenses. We remain committed to achieving further operational excellence and expect to realize like-for-like OpEx savings in excess of $25 million this year. We will achieve this through tight controls of our discretionary spend, operational efficiency across all our business units, including optimizing our logistics, renegotiating supply contracts with vendors, and centralizing some of our... Despite the increase in our network size in UAE and KSA of approximately 7%, as well as the combination of TotalEnergies illustrates our significant progress towards our OpEx savings targets for 2023. Moving on to EBITDA by segment. Our underlying EBITDA of $427 million has increased by 9% year-on-year, which was mainly a result of the volume growth, the higher non-fuel segment contribution, and the efficiency improvements measured that I have highlighted earlier. Our retail EBITDA, excluding inventory movements, has increased by 10% to $291 million. On the same basis, our commercial segment EBITDA was 6% higher year-on-year and has reached $134 million. Coming to our cash generation. In the first half of this year, the company has reported free cash flow of $333 million. This is supported by the positive underlying profitability of our business. In line with plans to continue our expansion strategy, during the period, we have invested $110 million in CapEx. Our financial position has remained strong, with a net debt to EBITDA ratio of 1.13 times compared to 0.78 times at the end of 2022. Given that in February, we made a cash payment for a 50% stake in TotalEnergies Marketing Egypt, we believe that this is a robust financial position. Our strong balance sheet and consistent cash generation provide us support to efficient capital allocation towards future growth and shareholder distributions. I will now hand back to Bader for his closing remarks. Thank you, Wayne. Before opening the floor to Q&A, I would like to reiterate our outlook for the rest of 2023 and highlight the key priorities. ADNOC Distribution demonstrated strong operating and underlying financial performance in the first half of the year and continues to offer a compelling investment story. In H1 2023, we saw growth in both retail and commercial fuel volumes in the UAE and KSA markets to a new half-year record and expect this positive trend to sustain during the remainder of 2023. Given that this performance was driven by both fuel and non-fuel businesses, we will continue to focus on the network expansion and delivering a steady growth in non-fuel retail. In the reporting period, we launched 16 new stations across our network and progressed well towards delivery of the 25-35 stations targeted for 2023. We also further advanced our international expansion by completing the acquisition of a 50% stake in Total Egypt in the first half of this year. We aim to further optimize our operations to become a leading cost-efficient fuel retailer. Our initiatives have already resulted in a like-for-like OpEx saving of AED 15 million. We are on track to deliver AED 25 million savings in the full year. We are also placing sustainability at the core of our day-to-day operations, reducing the carbon footprint and future-proofing our business. ADNOC Distribution will continue to prioritize incremental value creation for our shareholders by- ... delivering enhanced customer experience to transform ADNOC Distribution stations into a destination of choice for our customers, pursuing expansion plans and allocating capital towards growth in a disciplined manner. Finally, exploring growth opportunities and new revenue streams created through energy transition, including EV charging points. This concludes today's presentation. We are happy to take your questions. Thank you. If you would like to ask a question, you may signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one to ask a question. We'll go first to Ricardo Rezende with Morgan Stanley. Hi, all, and thanks for, for taking my questions. I guess the 1st one, when you look at the number of stations in Saudi Arabia, we've seen a sequential decline of about 3 stations, compared to the 1st quarter. If you could comment on what's the, the competitive landscape, on the country that you're seeing, and also how should we think about station deployment there, throughout the year? Then the 2nd question is more on the expense side. You've been doing a great job on the OpEx reduction, and your running rate in the 1st half has actually been higher than what is implied for, for the full year. How should we think about that for the full year? Is that to see some upside risk to the $25 million guidance or, you've been more focused on the low-hanging fruits on the first half, and we should see a deceleration on the, on the saving path on the second half? Thank you. Carefully pointed out, we have reduced slightly our total network in Saudi. Our focus on the last 12 months has very much been on refreshing and constructing the station network. As you pointed out, we've reduced slightly the size of the network. However, the focus that we've had over the last 12 months has significantly increased the quality of the network, and you can see that actually coming through the volumes that we are securing within the country. In terms of your second question, the OpEx, the entire organization is very focused on driving incremental OpEx reductions through a multitude of initiatives. We confidence in the guidance that we've given in terms of the target of $25 million of additional savings this year. I'll, I'll pause there. That's clear. Thank you. Thank you. We'll take our next question from Rafiq Nedjadi with National Securities. Hi, thanks for taking my questions. I have a few. Firstly, on your margins per liter on your fuel, on your retail fuel business, we've seen a sharp decline year-on-year and second quarter. Just wanted to understand if that is because of consolidation of Egypt, which has lower margins, or is there something else going on, and how should we be seeing this going forward? Secondly, distribution expenses, we've seen a Q1Q jump, sizable and in terms of percentage of sales as well. Just wanted to understand what is a good benchmark to keep for the rest of the year. A final question on the taxes and dividends. For 2024 onwards, we have the UAE corporate tax coming in. Is there clarity on the applicability on ADNOC Distribution? If it is applicable, then how do we see dividends panning out in terms of possibly lower year-on-year profits? Would that translate into possibly lower year-on-year dividends, or is the management determined to maintain a flow? Total Egypt into these numbers. The margins in Egypt are substantially different to the margins in the UAE, so that has had an impact on consolidation. The other factor, though, to bear in mind, is that the inventory gains that were crystallized in the business in the 1st half of 2022 have not repeated in the 1st half of this year. Just in terms of your 3rd question, which dealt with the Corporate Tax that's coming in, and the impact on the dividends paid by the company. The Corporate Tax does impact ADNOC Distribution. The impact will be on the tax year commencing the 1st of January 2024. The company remains committed to our dividend policy that we've communicated, and you'll note that our-... strong at the end of the half year. Your second question, if you don't mind, if you could repeat that, please? Sure. Just on your distribution expenses, we saw a Q1Q jump, in terms of absolute number as well as the% of sales. Just want to understand what's a good benchmark to keep going forward? Strategy. So the way to look at ADNOC Distribution is not on percentage of sales, given the revenues don't really matter. The business is mainly for 70% of the profits on the retail business, which is a margin per liter. The way to look at it is our ability to reduce these OpEx on the like-for-like basis, but also on absolute basis. I guess, what is important to look at is the OpEx versus the network growth actually, and the level of OpEx of the staff actually out of the OpEx. What we have realized as we speak, is 20% reduction when our network is growing by more than 7%. This is the way to look at it. Understood. Just, just a small follow-up, just for understanding purposes. I understand the Egyptian market brings volumes, and it's, it's a growing business, but if the margins are so low compared to the UAE and probably the Saudi business as well, and then, of course, there's the added risk of currency devaluation, you know, all of that. What is the motivation behind company's focus towards Egypt? As you've also mentioned, that there will be new pumps opening up, and you will be focusing on that area. Just want to understand from a strategic perspective. Thank you so much. Thank you. Just, just for the final question. In terms of the Egypt business. Aviations business. The aviations business is largely shielded from devaluation risk, as is the lubes business. And. Thank you. That's all from my side. Thank you. We'll go next to Faisal A-lAzmeh with Goldman Sachs. Good morning, and thank you for the presentation. This is [Wade Juma] from Goldman Sachs, asking a few questions on behalf of Faisal Al-Azmeh. And if you could provide some details around the devaluation impact over the quarter. Also in your presentation, you speak about the company's strategy to transform gas stations into a destination of choice for customers. If you don't mind, just adding some details around what that entails and some, or maybe some key initial... Lower margins per liter in Egypt post-acquisition. Is that a similar story of why the commercial margins declined on a year-on-year basis as well? If you don't mind. Thank you. Thank, thank you, thank you, Wade. So just, c-can you just repeat the, the, the last question on, on Egypt again? The last question on margins? Yeah, please. Yeah, sure. I was just wondering if you could add some color on why- TotalEnergies Egypt are much higher in the second half of the year versus the first half. The main reason being that the aviation business is more geared towards the tourism. This is where the ramp-up in Q3 and Q4 will be, will be material. This is, this is one. The second question is on the margins in commercial, if I, if I'm not, if I'm wrong. Wade, if you want to take it. Yeah, in terms of the, the commercial margins, as, as we've expected in a rising oil market like we had last year, you expect the commercial margins to be more attractive, as we've seen. This year, as the oil prices were falling, those margins tightened, and we've experienced that. Over and above that, the aviation segment volumes are lower this year than they were in previous years. The commercial volumes are significantly up over last year, and we're confident that as margins come back, we will see a return to, to the previous levels. Final bit to, to add to that is like within retail, last year there were significant inventory gains within the commercial segment that do not repeat this year. Our CEO, Bader Al Lamki. Sure. Thank you, Armando. Thank you for the question. The philosophy here is to have our stations as a destination of choice, to maintain the footfall to our station. We, we achieve that by growing. An objective by itself, but there's also other NFR, the car wash, the extended long-term loyalty to us over the years. Yeah. Hope this answers your question. Yes, it does. Just like, one part of my previous questions was around around devaluation, potential impact, in the Egyptian business. Could you just maybe add some more details on that front, please? Well, building on my earlier comments about Egypt and the differentiation of the profitability, the segments of each of the profits pools that come from Egypt. The one that is exposed to devaluation is essentially the network. What we have also seen, though, recently is an announcement of an increase in margin in Egypt that largely restores the impact of that devaluation. We, of course, there's an impact of devaluation, but given the natural hedging of many of the segments that we've invested in, together with that restoration of the margin, we see it as minimal. Thank you. Thank you. As a reminder, star one, if you would like to ask a question. We'll go next to Ildar Khaziev with HSBC. Yes. Hi, thank you. This is Ildar Khaziev from HSBC. I have a couple of questions, please. First, on the non-fuel business, I think you mentioned strong performance of the convenience stores, but it looks like the other parts of non-fuel business have also performed well. I've just noticed that the number of vehicle inspections is up 40% in the first half. I just wanted maybe to ask if you could comment on what's driving this. Secondly, on Saudi Arabia, I think, my question is basically is about whether the high interest costs are affecting, your lease costs in the existing contracts, in Saudi Arabia at the moment, and is this why the lease payments seem to be higher in here? Thank you. On the question on NFR. The non-fuel retail business is to build on what our CEO just mentioned earlier. You have the convenience stores, the car wash, the lube change, property management, which is all the space that we lease to quick service restaurants, for instance, and the vehicle inspection business. All these businesses actually have performed well in Q2 and overall in the first half. Wael, do you want me to answer the question on- Just, if I understood your question on Saudi, your question was, do we see an impact in Saudi as a result of the increased interest rate environment on the leases? My response on that is that the leases are negotiated upfront for a long term in terms of absolute currency. It's not subject to changes in interest rates, so we don't see an impact from that. Understood. Thank you. At this time, there are no additional questions in queue. I'd like to turn the call back over to our speakers for any additional or closing remarks. Okay. We have some questions from the web, just let us have a quick look. The first question is, there is an expectation that the KSA margin will go to SAR 0.23. What is the current timing and expectation for when this is going to happen? ADI as a, as a fuel retailer in the Kingdom of Saudi Arabia, we are preview to the discussion that is ongoing at the moment. All fuel retailers, and the relevant authorities have been discussing this aspect. We understand it is still in play with, with, with the, with the relevant approvals have been set out. We believe that this will be something beneficial for the sector. We cannot- The target for the year for the fuel stations. Out of the 25 to 35 new stations to be delivered, what is? I haven't given guidance on the split. That's, that guidance of 25-30 covers both. Where it makes sense to invest, where the hurdle rates are achieved, we make those investments. I can't split that between the two countries at this stage. The contribution from Egypt? In terms of the disclosures that we've made, it's clear that we, we've, our share of the 50% in the venture is roughly $2.5 million. We've guided that we expect 6% of our EBITDA to come from the cons- We have a last question. Can you tell us more about the EV market in the UAE? Okay. Please, please. Okay. Let me give you perhaps some, some thoughts on the EV market in the UAE. First of all, the number of vehicles is roughly 40,000 electrical vehicles, including EV and hybrid vehicles. This represented last year, 10% of the annual sales, and this represents roughly 1% of the total car market in the UAE, and the car market is roughly 3.6 million cars. What we have done is, as you know, we announced beginning of the year, a JV with TAQA, so it to go to be an infrastructure play in the EV space. And we have so far installed 40 charging points. Our strategy in the EV sector is for, for the stations to ensure that we have super-fast chargers and of course, for convenience, and also improving our non-fuel retail offering, especially the convenience store, to capture the incremental profits that will come from these EV drivers. There is one more question. I understand that the company sells UAE retail consumers at a price based on plus benchmark, plus regulated margins. Is this regulated margin fixed or variable? If oil prices go up, does this regulated margin also go up? Okay. Let me start, and first I will give the floor to, to Wayne, if you want to, to add anything. Let me just take a step back. Since August 2015, the UAE fuel retail market is regulated by the Ministry of Energy. We have also a contract with ADNOC Main, and the margins are regulated. If you look at historically, our margins have been between 40-50 fils per liter. The short answer is, there is no change in the regulated margins, and we still expect the same level of high margins, and there is no impact of oil prices being up or down in the margins, which makes the strength of this business model of ADNOC Distribution. The only impact of the oil prices actually are on the pump prices, and the pump prices are also regulated. They are, they change every month and based on the plus, plus. Finally, just worth mentioning that ADNOC Distribution has a backstop guarantee on the margins, which means that in the case of lower oil prices, ADNOC Distribution will not record a margin that is below the regulatory margin. If it's the case, ADNOC will compensate, and this has been the case historically. On the top of that, perhaps, what Wayne, if you want to add something on the inventory gains, perhaps. I was just going to add that we're in a rising oil market environment where there are inventory gains. Those gains belong to ADNOC Distribution. We are protected on the downside, we benefit on the upside, and hence some of the movement that we've seen in this quarter and this half year between, as a result of inventory gains we've talked about in prior year. Thank you. Okay. If we have no further questions, we'll end the call. Please feel free if you have any questions, to reach out the investor relation team. Have a nice evening. Thank you very much. Thank you. That will conclude today's call. We appreciate your participation.