Adnoc distribution Q1 profit slides on provisions and inventory revaluation but revenue edges up

Despite unprecedented market conditions and challenges posed by the pandemic, the company says it remains in a strong financial position

Adnoc Distribution's UAE network reached 389 retail fuel stations as of 31 March 2020, including ten fuel stations in Dubai. The company also operates in Saudi Arabia. Courtesy Adnoc Distribution

Adnoc Distribution, the UAE’s largest fuel and convenience retailer, reported a 31 per cent drop in first quarter net income on the back of provisions and revaluation of commercial business inventory but revenues edged up.

Net profit for the quarter ending March 31 declined to Dh400 million, the company said in a filing on Tuesday to the Abu Dhabi Securities Exchange, where its shares trade. Despite the unprecedented market conditions and the uncertainties ahead, the company said it remains in a strong financial position and is well-placed to navigate the challenges posed by the coronavirus pandemic.

“We have shown strength and agility as a business,” Ahmed Al Shamsi, acting chief executive of Adnoc Distribution, said.

“We also remain committed to our shareholders by protecting our business through the application of robust business continuity measures and the strengthening of our business resilience, in readiness to return in a position of strength and continue our growth trajectory when the effects of the pandemic subside.”

The company said it took “prudent provisioning” in the current environment, which negatively impacted its reported Ebitda (earnings before interest, taxes, depreciation and amortisation) and net income for the first quarter by Dh73m.

Most of the year-on-year decline comes from an “unfavorable base period”, which also benefited from one-off reversals and recoveries of Dh132m.

The underlying Ebidta - excluding inventory losses and one-offs – climbed 4.7 per cent year-on-year to Dh629m, it said.

Overall first quarter revenue increased 3.6 per cent from the year-earlier period to Dh4.9 billion, driven by an increase in fuel retail sales and higher corporate volumes.

Adnoc Distribution’s retail fuel business posted strong operational performance, with retail fuel gross profit growing 13.1 per cent year-on-year in the first quarter, on higher margins and volume growth in the first two months of the year.

Although retail fuel volumes declined 1.9 per cent in the quarter, due mainly to the business impact of Covid-19 in March, commercial fuel volumes remained stable year-on-year, the company said.

"Despite the challenging operating environment, the company remains resilient with a strong balance sheet, continuing to deliver on its smart growth strategy," the company said.

Adnoc Distribution opened seven new stations in the first three months of the year, an additional three stations in April and is building a number of additional stations that will be opened in the coming quarter.

As of the end of March the company has 389 retail fuel stations across the UAE. It also operates in Saudi Arabia.

The company said it expect to increase its capital expenditures as more new stations are delivered over the second quarter and rest of the year.

"This reiterates our strong commitment to secure future growth and deliver convenient fuel and retail offerings to our customers across the country," it said.