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The sale of between 10-20 percent of shares of the fuel distribution arm of Abu Dhabi's National Oil Company (ADNOC) could raise up to $2 billion for its ultimate owner, the Abu Dhabi government, Reuters reported on Sunday, in what is likely to be the biggest initial public offering in the United Arab Emirates in a decade. A prospectus for the initial public offering (IPO) of shares in Abu Dhabi National Oil Company for Distribution (ADNOC Distribution) was published last week. We spell out five of the most interesting facts about the business that have been gleaned from the document.
1. It owns two-thirds of the UAE's fuel retail market
ADNOC Distribution has a 67 percent share of the fuel retail market by number of stations in the UAE as of September 30, 2017, and is the biggest fuel retail brand in the country.
It is the only fuel retailer in Abu Dhabi and Sharjah and has a total of 360 stations, including a presence in Ajman, Fujairah, Ras Al Khaimah and Umm Al Quwain. In total, it made 153 million retail fuel transactions last year.
2. It has more standalone shops than anyone else, and is landlord to more than 600 concession stores
ADNOC Distribution is the country's biggest retailer by number of standalone stores, the company's IPO prospectus states, with 235 ADNOC Oasis convenience stores - most of which are attached to existing fuel stations – as of September 30, 2017. It has plans to grow this network further, by adding an extra 37-47 stores over the next five years (mostly at new service stations).
Its Allied Services division also leases space to more than 600 tenants, including some 200 fast food restaurant chains, as well as banks, auto insurers, car care providers and other tenants. In total, about 3.7 percent of its gross profit of 3.16 billion UAE dirhams ($860 million) for 2016 (from overall revenue of 13.1 billion UAE dirhams) was made from the leasing arm. The retail business was the biggest contributor, making up 64.7 percent of gross profit, while direct fuel sales to corporate customers generated 20.4 percent and the aviation arm was responsible for 10 percent.
3. It believes it can wring more sales from existing shoppers
Although its convenience store footprint is large, the amount of non-fuel sales it generates is fairly low both by regional and international standards. It said that by improving product categories, pricing strategy and through more promotional activity it can convince customers who use filling stations to spend more. A recent survey conducted by the firm found that, on average, it was 5-8 percent cheaper than competitors, and that the average spend of $4.10 per transaction is about 15 percent below competitors.
It is embarking on a redesign of store layouts and is incentivising employees in a bid to improve sales and profitability, and said it is in talks with branded convenience store operators about operating stores on a joint venture basis.
4. It has its eyes on both the Dubai and the Saudi Arabian markets
The prospectus states that ADNOC enjoys "widespread and favourable name recognition" outside of its existing areas of operations - most notably in Dubai and Saudi Arabia. ADNOC Distribution is set to open its first filling station in Dubai next year, and will "continue selectively to open additional stations in Dubai" afterwards.
The firm said that it has also identified a local partner in Saudi Arabia with whom it intends to launch a franchise in the kingdom, with the first ADNOC-branded station in Saudi expected to open next year.
"We believe that the large, growing and fragmented Saudi Arabian retail fuel market offers us an attractive expansion opportunity," it said.
The franchise model will allow it to enter the Saudi market and study its dynamics, which could facilitate a full-blown move into the market via direct investment at a later stage, while limiting capital risk in the short-term.
5. It may start to charge people who want attendants to fill cars
Although most stations still have pump attendants providing fuel to customers, almost 60 percent of its existing service stations are equipped with a proprietary SMART Technology, including RFID chips which could allow for pumps to be activated automatically for customers to fill cars themselves using automated payments.
This doesn't necessarily mean an end to somebody filling your car's tank. The prospectus states that ADNOC Distribution believes the high levels of disposable income in the country and the hot summer weather will allow it to charge some customers a service charge of between 5 to 10 UAE dirhams ($1.36-$2.72) for "premium full-service refuelling". It anticipates that between 40-50 percent of customers would use this service.
1. It owns two-thirds of the UAE's fuel retail market
ADNOC Distribution has a 67 percent share of the fuel retail market by number of stations in the UAE as of September 30, 2017, and is the biggest fuel retail brand in the country.
It is the only fuel retailer in Abu Dhabi and Sharjah and has a total of 360 stations, including a presence in Ajman, Fujairah, Ras Al Khaimah and Umm Al Quwain. In total, it made 153 million retail fuel transactions last year.
2. It has more standalone shops than anyone else, and is landlord to more than 600 concession stores
ADNOC Distribution is the country's biggest retailer by number of standalone stores, the company's IPO prospectus states, with 235 ADNOC Oasis convenience stores - most of which are attached to existing fuel stations – as of September 30, 2017. It has plans to grow this network further, by adding an extra 37-47 stores over the next five years (mostly at new service stations).
Its Allied Services division also leases space to more than 600 tenants, including some 200 fast food restaurant chains, as well as banks, auto insurers, car care providers and other tenants. In total, about 3.7 percent of its gross profit of 3.16 billion UAE dirhams ($860 million) for 2016 (from overall revenue of 13.1 billion UAE dirhams) was made from the leasing arm. The retail business was the biggest contributor, making up 64.7 percent of gross profit, while direct fuel sales to corporate customers generated 20.4 percent and the aviation arm was responsible for 10 percent.
3. It believes it can wring more sales from existing shoppers
Although its convenience store footprint is large, the amount of non-fuel sales it generates is fairly low both by regional and international standards. It said that by improving product categories, pricing strategy and through more promotional activity it can convince customers who use filling stations to spend more. A recent survey conducted by the firm found that, on average, it was 5-8 percent cheaper than competitors, and that the average spend of $4.10 per transaction is about 15 percent below competitors.
It is embarking on a redesign of store layouts and is incentivising employees in a bid to improve sales and profitability, and said it is in talks with branded convenience store operators about operating stores on a joint venture basis.
4. It has its eyes on both the Dubai and the Saudi Arabian markets
The prospectus states that ADNOC enjoys "widespread and favourable name recognition" outside of its existing areas of operations - most notably in Dubai and Saudi Arabia. ADNOC Distribution is set to open its first filling station in Dubai next year, and will "continue selectively to open additional stations in Dubai" afterwards.
The firm said that it has also identified a local partner in Saudi Arabia with whom it intends to launch a franchise in the kingdom, with the first ADNOC-branded station in Saudi expected to open next year.
"We believe that the large, growing and fragmented Saudi Arabian retail fuel market offers us an attractive expansion opportunity," it said.
The franchise model will allow it to enter the Saudi market and study its dynamics, which could facilitate a full-blown move into the market via direct investment at a later stage, while limiting capital risk in the short-term.
5. It may start to charge people who want attendants to fill cars
Although most stations still have pump attendants providing fuel to customers, almost 60 percent of its existing service stations are equipped with a proprietary SMART Technology, including RFID chips which could allow for pumps to be activated automatically for customers to fill cars themselves using automated payments.
This doesn't necessarily mean an end to somebody filling your car's tank. The prospectus states that ADNOC Distribution believes the high levels of disposable income in the country and the hot summer weather will allow it to charge some customers a service charge of between 5 to 10 UAE dirhams ($1.36-$2.72) for "premium full-service refuelling". It anticipates that between 40-50 percent of customers would use this service.
Further reading:
- ADNOC to offer up to 20 percent of distribution arm
- Indicative price range set for ADNOC Distribution's Abu Dhabi IPO
- UAE's ADNOC to launch fuel retail business stake sale in Dec-sources
- ADNOC Confirms Plans to List Minority Stake of ADNOC Distribution on ADX
- Filling stations not yet reached the end of the road, says ENOC director
© ZAWYA 2017
