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Abu Dhabi, UAEMonday 28 May 2018

Adnoc Distribution Q1 net profit rises 12% on revenue growth

First-quarter revenue increased 13 per cent to Dh5.16bn

The UAE’s largest fuel and convenience retailer posted higher first quarter profit on the back of a 13 percent rise in revenue. Courtesy Adnoc
The UAE’s largest fuel and convenience retailer posted higher first quarter profit on the back of a 13 percent rise in revenue. Courtesy Adnoc

Adnoc Distribution, the UAE’s biggest fuel and convenience retailer, reported a 12 per cent increase in first-quarter net profit, boosted by revenues and cost cutting initiatives.

The company said net profit for the first three months of the year rose to Dh542.2 million from the year earlier period, according to a regulatory filing with the Abu Dhabi stock exchange. Revenue rose about 13 per cent to Dh5.16 billion in the first quarter compared to the same period last year.

The results "illustrate a company that is financially strong and has laid a solid foundation for further growth, with its fuel, non-fuel and cost efficiency initiatives,” Saeed Mubarak Al Rashidi, the company’s acting chief executive officer said. “A strong and profitable Adnoc Distribution...allows the company to continue investing in critical infrastructure, technology and human capital that supports the company’s development.”

Adnoc Distribution embarked on an ambitious growth and expansion program last year when it sold a 10 per cent stake in the company in an initial public offering on the Abu Dhabi stock exchange in December, the first IPO on the exchange in six years. As part of that program, the company is reducing costs and expanding its service station footprint. In January, the firm said it will open its first service stations in Dubai and Saudi Arabia this year. Last month it was awarded a trade licence to operate in Saudi Arabia.

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The company is in the process of looking for local partners for its planned operation in the kingdom, the largest economy in the Arab world, John Carey, Adnoc Distribution’s deputy chief executive officer, told The National newspaper in a phone interview after the results were released.

“Our license win is a very positive move,” Mr Carey said. “We’re looking at a number of options and we are developing a Saudi strategy. We’re cognisant that we need to understand the market. We want to make sure that we have a positive impact on the Saudi market.”|

The company is also moving ahead with its plan to move into Dubai, the only emirate where it doesn’t have a physical presence. The move into both Dubai and Saudi Arabia is feasible because of the removal of fuel subsidies, making the business of service stations a more profitable proposition than it was when fuel prices were kept artificially low.

The company, which currently operates 362 service stations and 238 Oasis convenience stores in the UAE, saw total fuel volumes rise 0.9 per cent to 2.3bn litres in the first three months of the year. Adnoc Distribution has also been able to generate more profit from its non-fuel retail business where gross profit in the first quarter increased 37.1 per cent compared to the company’s overall gross profit growth of 14.3 per cent. The average amount spent by each customer in the company’s convenience stores rose by 12.5 per cent in the period.

Overall the results are "positive...particularly with margin widening and the ongoing effort to cut costs, improve the non-fuel retail segment performance, which we expect to continue to bear fruit throughout the rest of the year,” said Hatem Alaa, an analyst at the Egyptian investment bank EFG-Hermes.

As part of its focus on profitability, Adnoc Distribution has reduced capital expenditure on a per site basis with projected capex costs for some future service stations have been reduced by as much as 40 per cent, without cutting corners on health and safety considerations, it said.

The company also struck an agreement with Geant to re-brand and change product selection at 10 stores. It is also starting to give customers the option to pump fuel for themselves and is using technology to ease congestion at petrol stations by employing chips applied to fuel tanks that can automatically deduct payment for fuel.