ADNOC Logistics & Services plc (ADNOCLS) Earnings Call Transcript

Welcome, and thank you for standing by for today's ADNOC Logistics & Services First Half 2026 Earnings Presentation. [Operator Instructions] I'd now like to turn the call over to Ali Afifi from Arqaam to begin. Please go ahead.

Thank you. Good morning and good afternoon, everyone. This is Ali Afifi from Arqaam Capital, and I would like to welcome you all to ADNOC Logistics & Services H1 2026 Earnings Call. We have today with us from the management, Captain Abdulkareem Almessabi, CEO; Mr. Hugh Baker, CFO; and Mr. Peter Budd, acting VP of IR. I will now hand over the conference to management. Please go ahead.

Thank you, Ali. Hello, and good afternoon to everyone, and welcome to the ADNOC L&S First Half 2026 Financial Results Earnings Call. My name is Peter Budd. I'm Acting Vice President of Investor Relations at ADNOC L&S. On behalf of the entire team, I'd like to warmly welcome everyone, and thank you for your ongoing interest in ADNOC L&S. By now, you should have received the earnings presentation pack. If you haven't, you can download it from the ADNOC L&S website in the Investor Relations section. Please turn to Slide 2. I would like to direct your attention to our disclaimer on Slide #2 before we begin. It contains important information, and we advise caution on the interpretation and limitations of historical data and forward-looking statements. Please turn to Slide 3. Our presenters today include Captain Abdulkareem Almessabi, ADNOC L&S CEO; and Mr. Hugh Baker, ADNOC L&S CFO. I will now hand over to our CEO for his opening remarks. Thank you.

Thank you, Peter, and very good afternoon to you all. Thank you for joining us today. Q2 2026 was a landmark quarter for ADNOC Logistics & Services and the strongest financial performance in our history. We delivered record revenue of $2.6 billion and record EBITDA of $1.1 billion and a record net profit of $951 million, taking first half 2026 net profit to $1.2 billion. This was driven primarily by our support provided to ADNOC and the significant uplift in shipping [ TCE ] rates. This exceptional performance and continued support from strong shipping markets has enabled us to raise our full year guidance for the third time in 2026 with significant upgrades across revenue, EBITDA and net profit, which Hugh will explain as we progress with the presentation. We can turn to Slide #5. The company reported a record lost time injury frequency of 0 for the second consecutive quarter and a total recordable injury rate of 0.15. And while we are proud of our safety achievements since the beginning of the conflict, our vessels continue to be targeted while transiting the Strait of Hormuz, tragically, these attacks have resulted in one fatality and 20 injuries to crew members. In close coordination with the relevant authorities, ADNOC is taking all necessary measures to protect our people, assets and operations and meet our customers' requirements as much as possible. Freedom of navigation and the safe uninterrupted passage of commercial shipping to international waterways must be respected and protected without threat, harassment or attack. And we extend our heartfelt condolences to the family and loved ones of our colleague and remain focused on supporting those affected. If we turn to Slide 6. And before I pass over to Hugh, I would like to highlight why we believe ADNOC Logistics and Services remains well positioned for long-term growth. Our performance today is not just a record quarter. It reflects the strength of the platform we have built and the scale of the opportunity ahead. ADNOC's long-term growth ambitions continue to provide a clear foundation for our own expansion. And following the UAE's announcements in April that it will withdraw from OPEC, we expect ADNOC's increased production capacity to create further long-term opportunities for ADNOC Logistics and Services as we support the group's growing logistics and maritime requirements across multiple commodities. This is underpinned by ADNOC's planned $150 billion investments through 2030 to expand production capacity alongside ADNOC L&S $21 billion of forward contracted revenue with ADNOC from 2027. And we expect to continue to be a key beneficiary of ADNOC's growth, and we are investing in providing for the growing logistical requirements. Our strong cash generation and lower cost financing has allowed us to deploy an incremental $2.3 billion in fleet expansion since July 2026. Adding an additional 18 vessels, 12 of these vessels will be deployed within Q3 to support ADNOC, providing immediate earnings growth while strengthening our capability to support ADNOC's expanding production and export volumes. This lets total committed CapEx to $5.7 billion. At the same time, our balance sheet remains exceptionally strong with limited debt, giving us significant flexibility to pursue further value accretive growth. I will now hand over to Hugh to provide a detailed update on our results.

Thank you very much, Captain Abdulkareem, and thank you to all the analysts and investors joining us today. Slide 7. Q2 was a record quarter for ADNOC L&S, delivering net profit of $951 million alongside record revenue and EBITDA. Shipping was the clear driver of this performance as we continue to benefit from the services we provide to support ADNOC's energy delivery. As Captain Abdulkareem mentioned, we have deployed a material amount of CapEx from July. A large proportion of the capital being deployed will drive significant near-term growth with VLCC and [ VLGC ] vessels committed to support ADNOC business continuity in the second half of 2026 at highly compelling rates. Our early investments in [ newbuild ] LNG carriers are also contributing to growth. During the quarter, we delivered 5 LNG vessels to ADNOC Gas under which start under contracts of up to 15 years, supported by strong time charter equivalent rates. Integrated Logistics remains resilient despite an exceptionally challenging environment. Material handling volumes are improving sequentially as operations normalize, adding further momentum across the business. As mentioned by Captain Abdulkareem, the UAE's withdrawal from OPEC is expected to create additional long-term demand for ADNOC L&S as we support the group's expanding logistics and marine requirements. We continue to remain focused on deploying capital with discipline, accelerating earnings growth and strengthening our ability to capture these demand-backed opportunities over time. Slide 13. Slide 13 represents the highlights the significant CapEx deployed since July with most of the newly purchased vessels entering service immediately and contributing directly to earnings growth. Rather than prioritizing a higher net -- higher near-term cash return, we have allocated capital to opportunities with clear ADNOC back demand, immediate earnings contribution and compelling returns. We believe this is the most value-accretive use of capital today and will strengthen our ability to deliver sustainable shareholder returns over time. The six VLCCs and three [ VLGCs ] will enter service with ADNOC immediately upon delivery with the remaining resale VLCCs entering service with ADNOC in the fourth quarter, while our additional four LNG carriers on order are expected to support future LNG growth as additional capacity comes online by 2029. We've also taken delivery of two dry bulk vessels with the third expected shortly, providing additional dry bulk support. These are disciplined demand-backed investments rather than speculative additions. We are allocating capital to assets that support ADNOC Group's long-term logistics requirements, contribute to business continuity and are expected to generate attractive returns over time. Please turn to Slide 14. Total CapEx commitments through 2029 is now $5.7 billion, expanding our fleet and capabilities and reinforcing one of the sector's most ambitious growth pipelines. Of the 50 planned vessel additions, 19 have been delivered and 31 are scheduled for delivery over the coming years, providing strong visibility on future growth. Importantly, these are not speculative investments. We expect the majority to deliver on to long-term contracts with ADNOC, supporting their growing logistics requirements. As these vessels enter service, they will enhance cash flow generation and support ADNOC L&S' next phase of sustainable growth. In addition, our TA'ZIZ port project, the UAE's first dedicated chemicals port in [ Ala Waste ] is nearing completion. We expect this project to contribute to our 2027 earnings as this project is delivered in the first half of 2027. Please turn to Slide 15. A key strength of our investment case is the direct alignment between ADNOC L&S' growth strategy and ADNOC Group's long-term ambitions. ADNOC is advancing one of the world's largest energy growth programs, supported by a $150 billion capital investment plan through 2030. This includes increasing oil production capacity to 5 million barrels per day by 2027, expanding gas production capacity by nearly 30% and more than doubling LNG capacity by 2029 and growing the chemicals platform. XRG is extending ADNOC's global reach across gas, chemicals and energy solutions, creating opportunities beyond the UAE. As ADNOC Logistics and Marine services partner -- as ADNOC's logistics and marine services partner, we are central to this growth. Every additional barrel produced, LNG cargo exported, offshore project developed and global energy opportunity pursued requires logistics, shipping and marine support and integrated supply chain services, which we expect to provide for. This clear demand visibility gives us confidence to continue investing ahead of future requirements. Please turn to Slide 17. With that context, let me turn to the outcome of this performance, our third guidance upgrade this year. As we have outlined throughout the presentation, this upgrade is driven by the strength of our Shipping segment and the resilience of our integrated logistics business as operations normalize. Comparing to 2025 actuals, we are guiding you for our revenue up to mid-20% year-on-year growth, EBITDA to mid-60% year-on-year growth and net profit up to high 110% year-on-year growth. That is a significant step-up in profitability. We continue to model our guidance using similar assumptions. For shipping, our updated guidance is based on actual performance through July with prudent rate assumptions applied from August through the year-end. This gives us a high degree of confidence in the outlook. The recently acquired VLCCs and [ VLGCs ] are expected to enter ADNOC employment on short-term contracts, and this is also included in our guidance. For Integrated Logistics, the main change in assumptions comes from the normalization of material handling volumes, whereby we guide to pre-conflict levels for the second half. Our assumptions for jack-up barge utilization are unchanged from the previous guidance. Given the strength of the 2026 performance and our latest expansion announcements, we are reviewing our midterm guidance parameters. We expect these investments to provide meaningful long-term benefits, and we will update the market when that review is complete. Thank you very much, and I'll pass you back to Captain Abdulkareem. I think we can actually move straight to Q&A.

[Operator Instructions] Our first question comes from Scott Darling.

I have a few questions. It's great news on fleet expansion. Are you looking to add any more vessels this year or next year? And should we assume capital allocation is more focused on vessel purchase and you'll just maintain your current dividend policy? That's the first question. The second question is, can you give any more insight into some of your day rates for the vessels, which will take delivery in the second half of this year? And then my third question is, are we at a stage now in the year where it's better for the market to actually assume that the Strait of Hormuz actually remains broadly shut as we go into next year. What's your thoughts on that? I ask that because we're at a stage in the year where we're going to see elevated day rates in shipping probably for the rest of this year and now even going into 2027. Your thoughts on the market would be appreciated as well.

Scott, I'll start and Captain Abdulkareem might step in. CapEx on more vessels is taken on a case-by-case basis. We are clearly evaluating our capital allocation and our CapEx based on ADNOC business continuity needs and our long-term strategy. So I'm going to answer that question by saying we're obviously evaluating lots of opportunities and continue to do so, but there's nothing that we can talk to you about at this time. In terms of [ TCE ] rate guidance, clearly, we've had -- we've obviously benefited from very, very strong time charter equivalent rates for our internationally trading tanker fleet. Those rates are expected to continue for the rest of the year. We are very -- we have a very positive outlook on rates and mainly also related to the fact that we definitely believe that the dislocation in the marketplace at the moment means that rates will not subside from current levels very quickly when they do subside. And in terms of the Strait of Hormuz, I wouldn't want to speculate on what happens there.

Next question comes from Ildar Khaziev.

Can I ask you about the new VLCCs, which are supposed to join the fleet later this year. Are you saying that those VLCCs will probably generate day rates, which are linked to the prevailing market rates at the moment in the Gulf region? Should that be our working assumption in our models? Or they will actually be sort of on a long-term charter with some stable day rates, which we should model going forward?

I think like two stages, basically, the short term, we should look at the [ TG3 or TG34 ] as a reference from within the Gulf and from outside the Gulf. For long [ TC ], that's not the plan at the moment, but we will evaluate it later in the year depending on how the market turns. But definitely, you can use the [ TG3 and TG34 ] as a guiding reference for those vessels for now.

And my second question is about the -- if you can say that, of course, it is about the terms of your insurance coverage. So I think you have mentioned in the past that your assets are fully covered. I just wanted to double check whether those asset incidents which you have had, whether the insurance would cover both the asset damage and the opportunity lost once you get and if you get the in proceeds?

They are fully covered as we have highlighted before. So definitely, this will be with us and our insurance and our underwriters. It's already in process, but they are definitely well [indiscernible] I would say.

Our next question comes from Anna Antonova.

We have a question on the Integrated Logistics division. So two questions. The first one, you mentioned earlier during the presentation that you expect volumes normalization in the second half. How should -- within this context, how should we think about the margin evolution of this division in general or maybe by subsegment evolving in Q3 and Q4 this year? That's the first question. And the second question, the press release mentioned a one-off provision in offshore services reported in Q2 this year. Could you please comment on the magnitude of that provision because it's not visible in the P&L. It's not the [ ECL ] provision in the contracting. It's something that you mentioned in the offshore services.

Easy one. The provision was $21 million. And our expectation for the rest of the year is that we are not expecting further provisions at this time. And indeed, we potentially may get a write-back on one of our earlier provisions later in the year. So that's the scenario with the provisions. In terms of our Offshore Logistics division, I mean, you're going to see margins get better throughout the course of the year. I mean we're seeing a normalization of our integrated logistics volumes in the second half of the year. The material handling volumes were around 282,000 in the first quarter. And we're seeing -- and they went up to 287,000 in the second quarter. But that doesn't really reflect the situation because, obviously, in the first quarter, in March, we saw a substantial reduction in volumes. And so we're seeing a lot of recovery in the second quarter. And I think that you're going to see the material handling volumes go over 300,000 again, which is the sort of normal state in the second half of the year. And again, we're seeing less [ EPC ] activity. Again, that segment is really not going to be a major contributor to our Integrated Logistics segment profits. But again, our offshore business, both in jack-up barges and in terms of the [ ILSP ] contract, we're expecting a stronger second half than the first half. And we're really seeing a normalization of both.

That's very clear. And maybe a quick follow-up question on that, if I may. On the offshore projects, you previously talked about the ADNOC expansion all across the board. Is it reasonable to assume that sometime down the line in the future, we may see more offshore project -- [ EPC ] projects coming for L&S?

I think I can answer that by saying I think we're not necessarily going to see major [ EPC ] projects on the scale of our [indiscernible] or [ Alanera ] projects that we were participating in last year. But what you are going to see is we are seeing an increase in volume on offshore production from ADNOC Offshore. As you know, there is -- ADNOC is increasing its oil production. And a lot of that production has been focused on offshore production, which amounts generally to about 45% of Abu Dhabi's -- of the UAE's production. And so -- and we're seeing real -- that's where we expect to see real growth. And with that growth, we are highly aligned to ADNOC Offshore's growth in production. So what you can see is certainly improved results from our offshore integrated logistics and our jack-up barge segments over time aligned with that production.

Our next question comes from Ahmed [indiscernible].

It's Ahmed from SICO Bank Bahrain. So my first question comes targeting the expansions in the shipping segment, we've seen some additional LNG fleets announced and now the [ VLGCs ] and the VLCCs. So in terms of the gas vessels that have been added, are these expected to be contracted to ADNOC gas similar to the previous announced expansions coming in '28 and '29.

I think I'll answer that by saying we are a subsidiary of one of the major gas producers in the world. So us having LNG ships on order is a very natural thing for us to do. It's a business we're really, really comfortable with. Do we have specific ADNOC gas business to allocate to those vessels. We don't. But I think there's a very strong chance that they could end up under ADNOC employment or with XRG and supporting general ADNOC's ambitions in the gas sector. So we have a high level of comfort that good employment will be found for those vessels.

Perfect. And maybe one more question about the integrated logistics. So in terms of fundamentals, you've mentioned that material handling volumes have been increasing month-on-month and you've added five new offshore support vessels. So just heading towards let's say, an outlook for the second half of the year and 2027 as things ramp up, do you expect more of the capital allocation to be towards the Integrated Logistics segment? You focused on that a lot previously expanding the integrated logistics. So what are your plans in terms of capital allocation?

I think the offshore logistics for now, I mean, looking at the geopolitical situation, it is challenging, I would say. But definitely, as we have always said that we're always looking at balancing between our shipping portfolio and the integrated logistics portfolio. The aim is always to give them [ bar ] and around 50-50 contribution. However, as you would know, I mean, today, the shipping is by far the biggest contributor in our results given the market situation and the geopolitical situation. Offshore logistics will remain one of our biggest focus, I think, once the, I would say, situation normalized, I would say. And then there, I think we have same option as we did before. We have the organic growth, I would say, adding more assets, whether it be in the offshore logistics or in the jack-up barges business or Marine services. But at the same time, we are eyeing definitely expansion by another maybe M&A or JV. All these opportunities are evaluated at the moment -- we're just waiting for the right time to start executing on those big opportunities that we have in place.

Our next question comes from [ Audrey Zhong ].

This is [ Audrey Zhong ] from [ China ] Securities. Please allow me to ask one by one. My first question is about the margin of gas carriers. We noticed that the gas carrier EBITDA margin declined from 87% in the first half 2025 to like 50% in the first half 2026, like 37% decrease. Could you please help us understand the reason for this decline? And how should we think about the margin going forward?

It's principally related to the chartering in of vessels, which was done at that time and also some provisioning on the LNG.

Okay. Great. And may I ask -- so going forward, how should we expect the margins?

I think you're going to see a stabilization of our gas margins because of the -- obviously, the vessels have now settled into long-term contracts with ADNOC Gas. And therefore, you're going to see a lot of stable earnings position. The third quarter margins will not -- well, let me say that the fourth quarter margins are not going to differ now from the third quarter margins because of the new sort of stability that we now have in our gas segment earnings.

That's very helpful. And my second question is also about the [ TCE ] rate in the shipping sector, especially for tankers. And actually, you previously mentioned that the [ MR ] market goes softer. So I can understand why in Q3, the [ MR ] contracted rate going down. And actually, I want to know why the LR2 rate goes down and the VLCC [ TCE ] rate goes down, but the LR1 [ TCE ] rate going up from like $80,000 per day to $90,000 per day in Q3. So could you please help us understand this?

General point, if you look at in the appendix on Page 26 of our presentation, you can see the time charter equivalent rates. And A lot of them are in nearly all categories are related to a blending of the rates that we are receiving from the external market and the rates we are -- we've received and we booked from chartering our vessels out. And so you're seeing a lot of changes in rates. The overwhelming trend is obviously very strong rates. But essentially, I can say on the [ MRs ], for instance, that the [ MRs ] are principally trading or in fact, universally trading outside the Strait of Hormuz and the Middle East area. So the rates are much more constant. With the other vessel types, you're seeing a lot more difference in rates between where the vessels are trading geographically. And as Captain Abdulkareem talked about earlier, if you want to understand how the VLCCs are doing, you've got to look at [ TD34, TD3 ]. And again, but it's again, it's related to the blending of time charter out rates and the remaining vessels that are actually working on the spot market.

Please allow me to ask one more question. And my final question actually is, could you please quantify how much of your shipping earnings growth came from ADNOC Group-related business versus the third-party and market-driven business? Could you please give us a brief introduction about the service provided to ADNOC Group because you said it's the main driver of your Q2 results. And so actually, I want to know what are the contract arrangements about? Would it be the long-term contract or the voyage-based business or the market-linked charters?

Given this geopolitical situation and the constraint that we have and the challenges that we have within this region, you can assume that ADNOC Logistics & Service is the main actually shipper and transporter for most, if not all ADNOC molecules and cargoes that are going out the street. And hence, why the increased activities with ADNOC Logistics & Service with ADNOC. So we are the major transporter, if not the only one today, I mean, by far because of the situation as it is. Contracting, we have short-term contracts with ADNOC and its group companies, its the only ones that signed on a long-term contract are the gas carrier contracts that we did earlier before the crisis. But as of today, we take it as the market comes and definitely, I mean, as a logistic company or the shipping company, as you call it, we are basically doing our best to support our group companies. But at the same time, benefiting from the market and the elevated rates as well. And hence, why you will see our big investments in the secondhand vessels to support A Group companies, but at the same time, benefiting from these high charter rates that you are seeing in the market.

Our next question comes from [ Farez Ausis ].

My question is on potential further upside on the Integrated Logistics. If I take this quarter's number of $132 million and then I add back the $27 million [ ECL ] and the $21 million onetime provision, that gets us kind of to a clean number of $180 million. And then just considering the guide, it seems to me that it would imply another 2 quarters of -- just at the midpoint of 25%, would imply another 2 quarters at the 170 million level, which is a bit of a step down, whereas you anticipate the volumes would actually come up. So maybe we anticipate stronger even profitability at the Integrated Logistics on a clean level. Could you just maybe help me understand this and kind of what your guide embeds versus the first quarter -- or sorry, the second quarter rate of 180 excluding these provisions?

I think I'd have to really understand the assumptions you're making, but the guidance, we are -- we've been very thoughtful about our guidance on the Integrated Logistics segment. And I would -- we're very comfortable that, that is in line with what we expect to happen. In terms of your assumptions in terms of utilization, our guidance is generally pretty conservative on jack-up barge utilization. I mean, we're assuming 85%, for instance, which is obviously much lower than it is right now. But that's because we have a duty to be relatively conservative in respect of those kind of assumptions. But we are, again, very confident that the Integrated Logistics and Offshore Services revenue are going to increase quarter-on-quarter for the remainder of the year.

Clear. And can we think about the second quarter rate? Is it correct to think about it as the clean number, excluding these provisions would be the 180 with these being more like onetime?