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Edited Transcript of ADNOCDIST.AD earnings conference call or presentation 31-Oct-19 12:00pm GMT

Q3 2019 Abu Dhabi National Oil Company for Distribution PJSC Earnings Call

Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Abu Dhabi National Oil Company for Distribution PJSC earnings conference call or presentation Thursday, October 31, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Athmane Benzerroug

Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer

* Athmane Benzerroug

* Mohamed Al Hashemi

Abu Dhabi National Oil Company for Distribution PJSC - COO

* Petri Pentti

Abu Dhabi National Oil Company for Distribution PJSC - CFO

* Saeed Mubarak Al Rashdi

Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical

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Conference Call Participants

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* Divye Arora

Daman Investments PSC - Portfolio Manager

* Faisal Al Azmeh

Goldman Sachs Group Inc., Research Division - Research Analyst

* Ildar Khaziev

HSBC, Research Division - Analyst

* Taher Safieddine

Citigroup Inc, Research Division - VP

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Presentation

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Unidentified Company Representative, [1]

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Thank you. Good morning, and good afternoon, ladies and gentlemen, and thank you for joining us today. This is (inaudible), and on behalf of ARCOM Capital, I'm delighted to welcome you to ADNOC Distribution Third Quarter 2019 Conference Call. I have with me here today, Mr. Saeed Al Rashdi, acting Chief Executive Officer; Mr. Mohamed Al Hashemi, Chief Operating Officer; Mr. Petri Pentti, Chief Financial Officer; and Mr. Athmane Benzerroug, Chief Investor Relations Officer. With no further delay, I will now turn over the call to Mr. Athmane.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [2]

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Yes. Hi, everyone. This is Athmane Benzerroug, Chief Investor Relations Officer. Thank you for joining us today. The objective of the call is to take you through our third quarter and first months results for 2019. We also will be discussing our board decision to offer free assisted fueling to all our retail customers beginning this Sunday. Before handing over the call to Saeed, please allow me to reiterate our cautionary statements regarding forward-looking statements.

This presentation includes forward-looking statements relating to our business. Important factors that could cause actual results to differ materially from our expectations are detailed in 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 these other matters. I now hand it over to Saeed, who will start by presenting the key highlights of the 9 months.

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [3]

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Okay. Thank you, Athmane, and good afternoon, everyone. Thank you for joining us today. Before we go on to the Q3 2019 highlights, I would like to reiterate that safety remains a core value to our business, and we continue to enhance and invest in safety solutions. In terms of financial performance, we have delivered a strong underlying performance. Excluding the inventory gains, underlying EBITDA grew by 10% to USD 190 million in the third quarter of 2019 compared to third quarter of 2018. Fuel volumes grew 3.9% and the third quarter of 2019, including growth in the retail fuel volumes by 1.3% when compared to the same period in 2018. Positive results from our convenience stores also contributed to our higher EBITDA growth.

Our Board of Directors have approved free assisted fueling to all our customers, which will be implemented beginning this Sunday at 6 a.m. November 3. We are confident this will be very well received by our customers and our investors, facilitating and strengthening our ambitious network expansion and volume growth targets. Providing free assisted fueling also puts us on par with our competition, supports the acceleration of our Dubai network expansion and protects our market share. As a result of the anticipated increases in fuel volumes as well as cost reductions and other initiatives, we do not expect this announcement to have any impact on our profitability or dividend policy. Our continued focus on realizing cost efficiencies, including across the supply chain and logistics operations has contributed to a 9.3% reduction in like-for-like operating expenses for the first 9 months of 2019 compared to the 9 months of 2018. The improvements in the efficiency of our operations has also benefited our suppliers, which has enabled us to successfully renegotiate our fuel supply costs. In the renegotiated agreement with results and reduction of our retail fuel supply costs by 2 fils per liter, the benefits of which will begin to be seen during Q4 of 2019, leading to a higher fuel margin in the future.

Moving to the outlook of our business for the remainder of 2019 and 2020, we are focused on acceleration of our domestic network growth expansion, particularly in Dubai, and the growth of our non-fuel business to provide a superior experience to our customers. As part of the evolution of our customer offering, we will launch a new loyalty program, ADNOC Rewards, before the end of 2019, further enhancing our customer experience. Finally, we strive to continue to deliver a strong and sustainable growth while providing attractive returns to our shareholders. This is evidenced by the announcement and efforts of our progressive dividend policy, confirming our confidence in our growth strategy and future cash flow generation.

I will now let Mohamed give you an update and more color on our strategy.

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [4]

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Thank you, Saeed. So good afternoon, everyone, or good morning, depending on where you are. So I will start off by reiterating that we remain focused on delivering our ambitious growth strategy. And building long-term shareholder value through the next phase of our growth. So we delivered strong underlying results in the third quarter and the 9 months of 2019, and we expect more to come.

So let me begin by giving you an update on the retail fuel segment, which is, of course, our first strategic pillar. So our UAE network reached 382 retail fuel stations as of 30 September 2019. In the first 9 months of 2019, we opened 6 new stations in UAE, of which 3 are in Dubai as a result of which, we now have a total of 6 stations operating in Dubai. So we've previously had indicated a network expansion target of 20 to 30 new stations by the end of 2019, of which about half were expected in Dubai. So I'm pleased to say that we now have 45 sites in advanced stages of execution, which we expect to be completed during the first half of 2020. That's 45 sites in advanced stages of execution. As far as Saudi Arabia, we saw positive development last quarter with regulators approving increase in fuel margins. So under the new margin regime, ADNOC Distribution, it's going to be much more constructive towards the Saudi expansion. This is, of course, subject to Board approval. But our focus right now will remain on the home market. So during 2019, we launched 3 marketing campaigns: that was Good Morning UAE; Fuel Up & Fly Off; and Hello Summer. Now these were targeted to incentivize station traffic. These marketing campaigns were quite successful, and they generated an increase in retail fuel volumes in the third quarter of 2019 for the first time since our IPO.

Moving on to the corporate segment, we've achieved 6% year-on-year growth in volumes in the third quarter of 2019, and this was mostly driven by increased sales of diesel. Also during 2019, we entered the commercial 100-pound cylinder market in Dubai, and we've done so, we've entered the Dubai LPG market by partnering with established distributors. This, of course, gives us a quick route to market and a very, very effective entry. Now as mentioned earlier by Saeed, we are -- we will offer free assisted fueling to all our customers, starting 3rd of November 2019. Now let me reiterate, this is absolutely the right decision for the business over the long term. Let me add some color to that.

Since the launch of our Flex offering 16 months ago, the customer adoption rate has been slower than anticipated. So 15% to 20% of total fuel transactions. As of right now, it's stagnating around 15%. We've received negative customer feedback and most importantly, we've lost volume to competitors who do not charge for the premium fueling service. This, coupled with the success that we saw in our recent marketing campaigns, as well as feedback from extensive customer engagement, we are confident that this decision will be well received by our customers and will be very positive for the growth of our business, especially in those areas where we are targeting growth over 2019 and 2020, which is Dubai in Northern Emirates, where we have increased competition.

Now most importantly, this decision we do not expect this to have any impact on our profitability. And here's why, and I'm going to explain why, and some qualitative details. So we estimate that our ADNOC Flex offering had been contributing approximately USD 38 million of EBITDA on an annual basis. However, offering this service for free will result in increased fuel volume sales, which in turn will result in increased footfall at our nonfuel retail and other nonfuel services. The increased footfall will contribute approximately USD 12 million to USD 17 million of incremental EBITDA on an annual basis, one. In addition to that, we now have a renegotiated fuel supply agreement with our supplier. This will result in a reduction of our retail fuel supply costs by about 2 fils per liter. The benefits of this, we will begin to see during the fourth quarter of 2019. On an aggregate basis, this translates into approximately USD 35 million of incremental EBITDA. This is based on our last 12 months of volumes. Of course, 2 fils per liter translates into $35 million incremental EBITDA. Now as the volumes go up, which we expect them to, as a result of now offering free assisted fueling, the $35 million, driven by market share gains in the Northern Emirates and our Dubai expansion, we expect the EBITDA to increase even further. In aggregate, we expect USD 47 million to USD 52 million growth in EBITDA, which would increase further with growth in volumes. While we lose $38 million from the premium service fees, which is Flex, and we will incur an additional circa USD 10 million in stock costs.

Moving on to nonfuel retail. Nine months, the first 9 months of 2019, pleased to announce that we've opened 14 new convenience stores across the UAE, 2 of which were opened in the third quarter of 2019. At the end of 9 months in 2019, we have a total of 264 convenience stores. Now the company's convenience store revitalization program, which we alluded to during our last conference call, is advancing and contributing to positive convenience store performance. The improvements were seen in gross margins, an uplift in average basket size in the first 9 months of 2019 compared to the first 9 months of 2018. The sales revenue from convenience stores was up by 23% year-on-year, while gross profit has increased by 27.2% in the first 9 months of 2019. The average convenience store basket size has gone up by 5% year-on-year during the first 9 months of 2019.

Now how did we do this? We've achieved this through various factors. First and foremost, as we alluded to, the last time we spoke. We've improved the look and feel in our stores. We've improved the category management by adapting to our customers' demands. We have introduced fresh and grab-and-go concept. Of course, we had the rewards issued to customers under our Flex initiatives and we have an improved customer value proposition through the introduction of promotions supported by in-store marketing. Now we are going to continue to focus on these ongoing improvements. In 2020, we're going to accelerate our revitalization program for 100 of our convenience stores. And to [front this op], we're going to enhance and improve the overall customer experience at our network of stores significantly over the remainder of 2019 and definitely all of 2020. Finally, I'd like to give you an update on our cost efficiency initiatives. Now that, of course, is the third pillar of our strategic plan. We've made significant progress in rationalizing our cash OpEx. So we've achieved about $43 million in like-for-like OpEx savings in the 9 months of 2019. This was, continues to be mainly driven by cost optimization initiatives. I'm confident, we're very confident that we are completely on track to achieve around $15 million of OpEx savings in 2019 on a like-for-like basis.

In terms of capital expenditures, so far, we've spent about $66 million of CapEx in the first 9 months of 2019. Now we've been focusing on defining a network expansion allocation so far this year. As we mentioned earlier, our network roll out is scheduled for operational deployment towards early 2020, early next year. So we certainly expect to accelerate our CapEx in 2020.

Now for 2019, we expect this to be in the range of USD 100 million to USD 150 million compared to up to USD 300 million, which was our guidance earlier. However, we expect CapEx acceleration in 2020, given our ambitious delivery schedule, especially in Dubai.

Now in addition to the savings we've achieved so far, we definitely see more room to achieve further OpEx savings and capital expenditure efficiency when we build out our new sites. At this point, I will hand you over to Petri, who is going to present the highlights of our financial performance.

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Petri Pentti, Abu Dhabi National Oil Company for Distribution PJSC - CFO [5]

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Many thanks, Mohamed. Good afternoon, good morning, everyone. As Mohamed mentioned, the implementation of initiatives have resulted in the achievement of positive underlying results for the first 9 months of the year. Our revenues reaching USD 4.33 billion, which is down by 6% compared to prior year. The decline in revenue was mainly driven by lower average pump prices in UAE in the first 9 months of 2019. To illustrate this, the 95 octane gasoline prices are averaging 9.3% below the average of prior year. That said, our convenience store revenue increased by 23% in the first 9 months, driven by better category management, introduction of new products and as Mohamed stated, supported by Flex participation as well. We also witnessed positive growth in our corporate LPG as well as Luke's businesses. First 9 months, gross profit was $1 billion, down by 4.2% on last year. This decrease was mainly due to the lower inventory gains in our fuel retail business. In the first 9 months, we saw $33 million in inventory gains versus USD 80 million last year. Meanwhile, we continue to see strong growth in our nonfuel retail business, mainly convenience stores with the first 9 months gross profit growth of 12.2% and third quarter gross profit growth of 16.6% compared to the same period last year. Commercial business gross profit also grew at a healthy rate, benefiting from dynamic pricing, which led to volume growth in corporate segment. Our gross profit margin has also some continued momentum, raising 23.4% in the first 9 months, up from 23% prior year. This is driven by a stable fixed retail margin at a lower revenue base. Gross profit was down due to lower inventory gains in the first 9 months compared to the same period last year. The underlying EBITDA for the first 9 months grew 10.6%. Reported EBITDA, however, reached $594 million growing at a slower pace of 1.1%. And once again, mainly due to the lower inventory gains that we've reported this year. The strong underlying performance was driven by improved cost efficiencies, as mentioned, and positive results of our convenience store revitalization program as well as growth in fuel volumes during the last quarter. And finally, we've generated underlying strong free cash flow, measured as EBITDA minus capital expenditures. Free cash flow is up 18.8% year-on-year to USD 527 million, driven by higher EBITDA and the lower CapEx. So moving on, summarizing the financials and operating highlights. Fuel volumes sold in the first 9 months were stable compared to last year. However, we are very pleased to report that third quarter of 2019 witnessed increase in fuel volumes of 3.9%. Q3 volumes growth was driven by improvements in the core retail markets of Abu Dhabi and the Northern Emirates and of course, the contribution from our new stations in Dubai as well as the rise in commercial volumes. Our retail fuel sales volumes were down by 1.9% for the first 9 months. However, after the successful marketing campaigns that Mohamed was talking about, Q3 retail fuel volumes were up by 1.3% year-on-year. This is good for the first time since the IPO. On the corporate segment side, good increase of 5.7% on last year. This is heavily driven by sales of LPG, lubricants as well as base oil volumes. And finally, our Aviation segment volumes sold to strategic customers increased also very strong at 6.7% for the first 9 months.

Looking at the gross profit performance by segment. For nonfuel retail, mainly convenience stores, there's an increase of 12.12% (sic) [12.2%] year-on-year. For the first 9 months, this is reflecting the diversification strategy towards non-fuel retail as well as the implementation of the new initiatives to improve customer experience, including also a more focused revitalization program, and the positive contribution from our fuel rewards program. Fuel retail gross profit decreased, however, by 9.7% year-on-year. This is, once again, driven by the lower inventory gains, as mentioned. In the corporate segment, gross profit increased by 10.2%, and gross profit margin has increased from 17.3% to 18.6% on the back of the increase in volumes, better inventory management, as well as more dynamic product pricing. And finally, Aviation gross profit has decreased in the first 9 months by 1.2% year-on-year.

Moving on to EBITDA. Retail segment decreased by 3%, mainly due to the decrease in fuel retail EBITDA after the lower inventory gains, as mentioned. Corporate segment EBITDA, however, increased by 20.9%, driven by higher corporate volumes as well as cost efficiencies. Aviation EBITDA has increased also by 7.1% in the first 9 months, driven by the increase in volumes sold to strategic customers, and once again, the contribution from the cost efficiencies.

In summarizing my remarks with a few remarks on cash movements. Net cash generated from operating activities has increased mainly due to robust cash flow from operations. This is partially offset by movements in working capital. Strong cash flow generation resulted in a net debt-to-EBITDA rate of minus 0.11x at the end of September 2019. However, adjusting for interim dividend of USD 325 million for the first 6 months of 2019, approved by the Board of Directors on 29th of September, and paid early days of October, our net debt-to-EBITDA ratio would have been 0.32x at the end of September 2019. Now let me hand it back over to Saeed for the closing remarks.

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [6]

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Thank you, Petri. Thank you, Mohamed. We have delivered a strong underlying results in the first 9 months of 2019 and have demonstrated our ability to realize profitable growth, supported by an increase in fuel volumes sold and an enhanced convenience store experience and improved quality of service.

Our priority remain: earnings growth; and shareholder return. Looking ahead, we are focused on the acceleration of our domestic network expansion, particularly in the underserved buy market and the growth of our nonfuel business. We strive to deliver attractive shareholder returns, underpinned by our progressive dividend policy. This concludes today's presentation, and we are happy to take any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question over the phone from Faisal Al Azmeh from Goldman.

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Faisal Al Azmeh, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

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This is Faisal Al Azmeh from Goldman Sachs. Congratulations on the results. Three questions on my end. Maybe just to tap on the CapEx point again. So when thinking about CapEx next year, should we kind of assume that $300 million number that you've assumed for '19 to be kind of phased out between second half of this year and next year? Maybe some color on that would be quite helpful. On volumes, when we look at Aviation and corporate sales, we've seen a significant pickup this year. How sustainable is that? Particularly as well for aviation? And what should we think about for volumes next year for the wholesale business? And then finally, on OpEx, part of your previous guidance on Flex included the plans for adopting a lighter staff model. How should we think about cost efficiencies now given that you've canceled Flex versus what was communicated previously?

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Petri Pentti, Abu Dhabi National Oil Company for Distribution PJSC - CFO [3]

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On the -- okay, thank you. Yes. So as Mohamed mentioned our earlier guidance for the year was up to 300 million. We've taken some time to make sure that the redeployment model that we will have, including also lower CapEx, less capital-intensive models is considered, and we are now in an advanced phase of implementing 45 stations as we speak. And there will be more to come. In terms of the CapEx, of course, there will be an impact of rollover of 2019 CapEx into 2020. And there's an element of acceleration. As stated, we will be a bit more specific in due course. But I want to reiterate that the CapEx efficiency, reducing the average CapEx spend for a service station is one of the focal points of this acceleration plan -- deployment plan going forward.

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [4]

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Very good. So I'm going to address 2 of your follow-up questions. As far as volumes, Aviation and commercial. I believe, I expect strongly that continuing into next year, they will be sustainable. Because we're starting to see some green shoots in the macro so not only sustainable, but growth as well, both on the Aviation side as well as the commercial side. As far as Flex, as I pointed out when discussed it, not only is there loss in EBITDA, about circa $38 million. But as we pointed out, the additional manpower that we will incur to offer superior customer service to all our customers, that is about USD 10 million. So in aggregate, the cost of it is about USD 48 million, offering free assisted fueling and free premium service to all our customers. But again, as we pointed out, we are fully, fully confident that all of it will have 0 impact on our profitability. Given the volume uplift, which on a conservative side, we shared good numbers. About USD 12 million to USD 17 million as well as the renegotiated supply agreement, which will return approximately USD 35 million at current volumes. Of course, as volumes go up, this will equate into an amount higher than USD 35 million.

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [5]

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Based just on my side, just with now offering free assisted fueling and what is the impact on the OpEx, I guess that this does not change further cost optimization targeting additional cost savings up to $100 million by end of 2023, in line with the guidance that we gave at the Capital Market Day.

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Operator [6]

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The next question is from Taher Safieddine from Citi.

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Taher Safieddine, Citigroup Inc, Research Division - VP [7]

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A couple questions from my end, start with on this removal of flat. Do you expect any disruption into Q4 in terms of the financial performance, as you're transitioning between moving away and the cost of supply? So I just want to get some color there. And if you can just highlight the flow-through from promotional activity of the Flex and to C-stores. Should we expect some pressure, given that now, you're providing free fueling on the C-store offering? I just want to get your thoughts on that. That's my first question. The second question is on the Dubai landscape. You have 6 stations now. Can we just get some color how the performance of these 6 stations are? And primarily in terms of the throughput compared to your existing network in Abu Dhabi and Northern Emirates. That's my second question. And the third question is also on the C-stores. You mentioned 100 stores to be revitalized into next year. Based on the experience and the exercise that you've been doing since the IPO, how much of an uplift do you expect from this revitalization exercise on a per-store basis in terms of sales or basket growth or transactions? Just if you can give us some color there. That's it from my end.

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [8]

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Great. So let's start off with the disruption from Flex. So this is something we're fully prepared for. This [sense], obviously, on the 3rd of November, starting at 6 a.m., we're going to offer free assisted fueling to all our customers. The -- this is based on feedback from thousands of our customers who have asked for 2 things basically, when they've given feedback to us. And the charge, which will now -- ending that charge and offering the service for free, which will bring us at parity with our competition, but also the introduction of an ADNOC Rewards program. Outside of that, ending Flex, do we expect disruption? No. We have triggered the additional manpower that we need to deploy at the sites. The staff is well-trained to address any queries from customers, from our stakeholders in terms of communication, in terms of a very, very customer-centric approach that we're going to take as we end Flex. We are anticipating and have already seen massive amounts of goodwill from our customers within the local community. It's in the -- from our residents. So we do not expect any disruption. So from now until Sunday morning, 6 a.m., we are putting into action a plan that is well rehearsed. And all our employees, all our stakeholders will see a very, very seamless process.

Any pressure that we expect on the convenience store nonfuel retail revenue? In short, no. As our volumes come back, we expect increased footfall in our convenience stores as well. So on a conservative side, we've shared an estimate $12 million to $17 million of incremental EBITDA. Very, very confident, comfortable about delivering this. We will run promotions. We will roll out ADNOC Rewards. More details will be provided as this is disclosed to the market. But what's important to note is that infrastructure, the design will help us tremendously in delivering, at the very least, the $12 million to $17 million of incremental EBITDA that we expect from our nonfuel retail, from ending Flex. The ADNOC Rewards will play a huge role in that. Of course, we'll share more details later.

As far as the average debate throughput, what I can tell you is this is on the very, very high side. The average volume per site in our stations in Dubai is higher than the average volume per site, which is 20 million to 25 million liters per station per year in our other stations in Abu Dhabi and the Northern Emirates. So we're looking at a range of 18. Now obviously, for competitive reasons, we do not disclose the volume by regions. I'll tell you what that tells me, that tells me that the capacity to build out our sites in Dubai, the number of sites that we intend to drop in that market is spot on. The market is well placed to absorb many, many more of our sites. This tells me, the high-volume tells me that there's congestion, that each of these patients are serving higher number of people than they should. So the number of stations that were opening up, 45 by first half of 2020. Very, very comfortable about that in terms of what that's going to return in terms of volume uplift. Our strong balance sheet, thankfully, allows us to deploy this capital very, very seamlessly. So this is and will remain our focus, Dubai. I think you had 1 last question regarding revitalization?

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Faisal Al Azmeh, Goldman Sachs Group Inc., Research Division - Research Analyst [9]

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Yes. (inaudible)

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [10]

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Certainly. So let me address that. We refreshed 3 of our stores this year. This was to try out different concepts in terms of what resonates with our customers. The story -- the answer that's coming back is very, very consistent. Any refresh we hit, they're returning uplift of more than 40%. And so consistent with what we saw during the first half of 2019 where one of our stores, one of our sites was refreshed. Now we're going to add quite a bit of exciting news on the nonfuel retail side, not quite yet. But as far as the revitalization program, are we comfortable with 100 stores in 2020? 100%.

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Operator [11]

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The next question is from (inaudible) Al-Rasheed from Jadwa Investment.

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Unidentified Analyst, [12]

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This is (inaudible) from Jadwa Investment. Could you please give us a bit more granularity on the performance of underlying volumes in the retail segment? Specifically, if we could maybe get some color on what was the underlying like-for-like contribution and what was maybe added from the new stations that were opened over the past 12 months. And also if you could give us some color on what you think these underlying like-for-like volumes would look like for the remainder of the year and in 2020, please?

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [13]

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Okay. So let me take this question. So first of all, our fuel retail volumes were up 1.3% in Q3 versus Q3 of last year. This has been driven by a couple of elements. One is we have seen in Abu Dhabi, clearly, a growth year-on-year. Much less decline in Northern Emirates and Dubai has been growing. The like-for-like basis is a slight increase. Going forward, given the fact that we are adding new stations and we believe in better outlook within the economy. And we have bottomed out, we believe, we will have like-for-like single-digit growth in our view.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [14]

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Any further questions? We have a couple of questions on -- coming from the net. Any further questions?

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Operator [15]

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Yes. We have another question from Divye Arora from Daman Investments.

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Divye Arora, Daman Investments PSC - Portfolio Manager [16]

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This is Divye. A question on Saudi Arabia. So recently, we have seen that the margins on the retail have been increased for both gasoline and diesel. For gasoline, it has been increased from $9 to $15. Do you think that is a good enough price for you guys to expedite your entry into Saudi? Because you were saying you're opening 3 new [parlor] stations. So are you still in a testing mode? Or this is a good news for you? Because we have teams talk of all the (inaudible) in the last 1 year.

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [17]

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So as we pointed out, the margin increase is definitely good news for us. So what we know, being a major player in the industry are 2 things. One, the increase in margin is not across the board. So not only is it set to make investment in this sector more attractive, but it's only for the larger players of scale. So opportunities have opened up for players which bring economies of scale and size to the market. So it's not a kind of a free for all margin increase. But these are both good news for us. So given the new margin regime, as I've said, we're going to be much more constructive and aggressive towards our Saudi expansion. And as always, this is subject to Board approval. So the new regime, the IRR that we expect from the international expansion into Saudi should be in the range of 15% to 20%, which now, as you know, clears our minimum 15% hurdle rate. But to answer your question, absolutely. We are looking at Saudi, and we are looking to make a move.

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Divye Arora, Daman Investments PSC - Portfolio Manager [18]

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And another question on the CapEx side. So you have not given us a number for 2020. We understand that 45 new stations will be opening. But then what was the CapEx you were going to spend in 2020?

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [19]

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So Petri?

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Petri Pentti, Abu Dhabi National Oil Company for Distribution PJSC - CFO [20]

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Yes, quite right. Indeed, at this point of time, I have not given a guidance. We expect to revert to this in due course and definitely talk about it at the time of full year results 2019. However, in terms of locations and points of sale, so to speak, we are now implementing also lower or less capital-intensive concepts. It means that smaller sites, we will be going closer to residential areas, et cetera. Further details will be provided in due course. Average CapEx per our locations and new site is definitely going to come down. We will be, however, very disciplined in terms of our return metrics and capital allocation.

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Divye Arora, Daman Investments PSC - Portfolio Manager [21]

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So what could be that number, let's say, CapEx per site? $4 million to $5 million or...

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [22]

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So the CapEx per site for traditional stations is between $6 million to $8 million. I guess, what is the most important is just to refer to our CMD guidance, which was that within the next 5 years, we will spend $1.2 billion, $1.4 billion, which means that roughly $240 million, $280 million every year. I guess that next year, subject to further acceleration, you will be around this number, but we will provide more color towards Q4. But this is, I would say, the range that you can factor.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [23]

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I guess we have another question?

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Operator [24]

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Yes. We have another question from Ildar Khaziev from HSBC.

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Ildar Khaziev, HSBC, Research Division - Analyst [25]

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I have 2 questions, please. One is about the overall fuel demand in UAE. If you could give us an indication of your assessment basically of how the demand growth has been hit in the first half and third quarter. That would be very useful. Specifically, I was interested if demand was indeed lower in the first half or it wasn't the case overall? That's my first question. And secondly, I think previously, we're guiding for that 50% of the new stations, which were expected to be opened in the second half of this year were supposed to be in Dubai, should we apply the same ratio for the 45 new stations in the first half of the next year?

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Petri Pentti, Abu Dhabi National Oil Company for Distribution PJSC - CFO [26]

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Okay. So can you just repeat the first question, sorry. We didn't catch it.

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Ildar Khaziev, HSBC, Research Division - Analyst [27]

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Yes, I was just curious how you assess the overall demand trends in the country. Should I kind of assume that it was sort of weaker overall in the first half? Or it wasn't the case? And how do you think the trend has changed in the third quarter compared to the first half?

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [28]

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So as far as -- no, that's a good question. What I -- since I've joined the company, I've struggled a bit to understand the conflicting messages that we were getting from a commercial side, which was starting to show consistent conservative but consistent growth versus the retail side, which seemed constantly under pressure. So what was that saying about the macro? So what I've come to know, what we have come to find out collectively, not only as part of the customer feedback from speaking to more than 14,000 customers, but also from running our 3 successful marketing campaigns was that the macro is just fine. The green shoots are starting to pop up. What was happening is, because of our Flex offering where we were not at par with our competition, this is the conflicting messages that we were getting. So the minute we took it off during the campaigns, the volumes shot up. So now, very, very confident. If you look at Q3, when we ran sustainable marketing campaigns, volumes shot up by more than 1%, by about 1.3%. And overall, third quarter of 2019, 3.9%. So how do we feel about going forward? Especially with Flex removed, especially with our expansion, expansion in areas which are Dubai and Northern Emirates, where we get organic growth? We're confident that this will sustain and continue. So we're getting support from ourselves, we're helping ourselves by ending this program that was facing customer backlash, and we're also helped by the macro.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [29]

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Okay. I guess we're going to start with the questions that we have from the internet. So the first question is on the LPG. So let me just read it. Could you provide an update on the status of planned entry into the Dubai LPG market? Perhaps Saeed, if you want to answer?

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [30]

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Sure, sure. Dubai market is, especially on the LPG, it's no different than the retail business. So we had no presence in the Dubai market previously. So every volume that we get from LPG and LPG sold in Dubai is incremental to us. So yes, we started selling the old sizes of LPG cylinders, the 25, the 50 and the 100. And that is done through our distributor there, a well reputable distributor over there in Dubai. And we are seeing an increase on the demand as well. So our sales are growing. Now we know since the start, which is, I believe, was around second quarter of this year. Oh, yes, we're noticing that there is an increase on demand, and we're continuing with the same strategy.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [31]

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Thank you, Saeed. The next question is, can you provide more color on your strategy to recover the market share loss in relation to ADNOC Flex? Mohamed?

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [32]

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Sure. So this is a 3 pronged strategy. Word has gotten out. So far, the customer feedback has been great from our community, for customers across the UAE. What we intend to do going forward, strong, intense marketing campaigns to inform our customers, inform our stakeholders that this has ended, strong communication plans towards regaining the market share that we've lost. People will know now, they can expect a full assisted fueling, full premium service for free of charge just like our competitors offer, we will continue to offer. And then where we will land a major punch will be when we drop the ADNOC Rewards program. This will drive customer stickiness and customer loyalty. But obviously, we come to market, as we've said in our press release, that will be in the fourth quarter, so upcoming next few weeks. You will get a lot more color on the ADNOC Rewards. So what's our strategy? To recover our market share. It's as simple as that.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [33]

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The next question we have is, can you just tell us more about your dividend policy going forward?

I will answer very quickly. So we are still committed to the growing dividend policy that we announced, that the Board of Directors approved last March, which is a 63% increase in our dividend for this year, for 2019, $650 million, $700 million next year. And we believe that the cash that will be generated going forward with incremental EBITDA plus the sound balance sheet that we have, we have a net debt-to-EBITDA today, which is close to 0. We have the ability to grow and to distribute the ambitious dividends going forward.

I guess we have another question on -- from Ildar.

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Operator [34]

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Yes. We have another question from Ildar from HSBC.

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Ildar Khaziev, HSBC, Research Division - Analyst [35]

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Yes. Thanks very much for your comments about the market demand. I just wanted to make sure I understand this correctly. So you're saying the macro has been kind of okay. It was ADNOC Flex and even in Abu Dhabi, the demand was kind of in a positive territory in the first half. That's something I wanted to better understand. And I think there was also a second question for me on the share of new stations to be opened in Dubai in the first half of next year. Sorry, if I didn't -- if I missed that.

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [36]

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Apologies, yes. Sorry, I missed that. Yes, indeed, your question was, can we expect the majority of them to be in Dubai? And the answer is yes. 45 by first half of 2020. And which are, at present, advanced stages of execution, ground has broken, these stations are going up, at least 50% will be in Dubai.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [37]

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The next question is regarding -- so UAE ENOC launched fuel delivery service to -- like CAFU. What are the long-term impact of these new initiatives? So perhaps, Saeed, if you want to take this question.

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [38]

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Yes. I think the point that, as I see it, ENOC came up with this initiative to combat the CAFU, like the CAFU initiative now. I think it's worth mentioning that CAFU is currently getting all their product supplies exclusively from ADNOC Distribution. So that is the type of product supply. And as far as the effect of this disturbance, if you would, the fuel delivery, we believe that due to the fact and the logistics capabilities of this type of solution, these are mainly are small type of trucks and believe that the overall and the greater scheme of things, volumes from the overall market share to date, as it best will not exceed the 1% of the overall volumes that are out there in the market, the UAE market.

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Petri Pentti, Abu Dhabi National Oil Company for Distribution PJSC - CFO [39]

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Maybe just to add to this. That as ADNOC Distribution, we do provide such similar service to other corporate clients, fleet operators, et cetera, whereby efficiencies of such model are much higher than in the B2C consumer space.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [40]

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Do we have any further questions?

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Operator [41]

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We have another question from Divye Arora from Daman Investments.

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Divye Arora, Daman Investments PSC - Portfolio Manager [42]

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Just one more question. There is nowadays, trend towards the on-demand car fueling. So CAFU has entered the market recently. And ENOC is doing the same. So are you also looking to do something in the similar direction? And do you see it as a threat, in general?

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [43]

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We could not hear you, sorry. Can you repeat your question?

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Divye Arora, Daman Investments PSC - Portfolio Manager [44]

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Yes. So -- sorry, to repeat again, there is a trend towards on-demand car refueling. CAFU has entered the UAE market. And ENOC is also doing the same, talking about on-demand car refueling. Can you hear me now?

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [45]

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Good question. So...

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Divye Arora, Daman Investments PSC - Portfolio Manager [46]

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Is it seen as a threat by you guys?

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [47]

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Simple answer, no. We're already in this sector. We already provide this service to our commercial customers. That we see any indication that the market, our customers demand this service to retail customers, it's -- we're fully set up to be able to provide good service. So simple answer, no, we do not see this as a threat as far CAFU and...

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Divye Arora, Daman Investments PSC - Portfolio Manager [48]

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You can set up or are you providing it? For the retail or not?

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Mohamed Al Hashemi, Abu Dhabi National Oil Company for Distribution PJSC - COO [49]

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We're providing it -- commercial customers -- yes, we provide this service. Are we set up to quickly roll this out, deploy to retail customers if there's indeed significant demand? Absolutely. Do we see this as a threat, ENOC entering the market, CAFU already playing in the market? Absolutely not. Their volumes come from us. As far as our margin on volume, we've already captured that.

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Divye Arora, Daman Investments PSC - Portfolio Manager [50]

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Okay. And just another thing on Dubai, what's the strategy in terms of opening up new stations? Are you -- so you said you were trying to go more towards the newer community, where the station density is lower. Or you're also targeting some of the core areas on the sale side road and other (inaudible) road...

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [51]

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So the strategy in Dubai is very clear. It's unpenetrated market, 20, 25 million liters per station per year. We want to saturate the market within the next, I would say, 2 to 3 years. The strategy is, and we have already selected a lot of plots to make sure that we can serve the market where the IRRs are very high and where the margin is very high.

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Divye Arora, Daman Investments PSC - Portfolio Manager [52]

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Okay. But no specific locations being targeted in a sense? Close to the newer communities or let's say, resources in (inaudible)?

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [53]

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Of course. It's unpenetrated market. So we will have both. We have targeted where the demand is, obviously.

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [54]

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We will have a lot of cadence across the board. In the old areas as well as new areas of Dubai.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [55]

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Any further questions?

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Operator [56]

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We have no more question.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [57]

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Okay. I guess this will end the call. Perhaps, Saeed, if you want to just make a quick conclusion.

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Saeed Mubarak Al Rashdi, Abu Dhabi National Oil Company for Distribution PJSC - Acting CEO & Senior VP of Technical [58]

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Yes, I just wanted to say that ADNOC Distribution, it's very important that we are customer-focused, and we listen to our customers. And hence, this decision that are -- and our belief, are good for the business were made, such as putting an end to Flex with all the right reason and our perspective. Going forward, we know and we're confident with our growth plan and expanding our network of stations as well as the anticipated recovery of the market share. We're confident that we will have the targets, and we will have the maximum value returns to our shareholders. Thank you very much.

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Athmane Benzerroug, Abu Dhabi National Oil Company for Distribution PJSC - Chief IR Officer [59]

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Thank you very much. This would end the call. Thank you.

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Operator [60]

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Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.